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Operator: Welcome to the Q1 2026 ICF International, Inc. earnings conference call. My name is Lauren Cannon, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I will now turn the call over to Lynn Morgen of Advisory Partners. Lynn, you may begin. Lynn Morgen: Thank you, Lauren. Good afternoon, everyone, and thank you for joining us to review ICF International, Inc.'s first quarter 2026 performance. With us today from ICF International, Inc. are John Wasson, Chair and CEO; Anne Cho, President; and Barry M. Broadus, Chief Operating and Financial Officer. During this conference call, we will make forward-looking statements to assist you in understanding ICF International, Inc. management's expectations about our future. These statements are subject to a number of risks that could cause actual events and results to differ materially, and I refer you to our 05/07/2026 press release and our SEC filings for discussions of those risks. In addition, our statements during this call are based on our views as of today. We anticipate that future developments will cause our views to change. Please consider the information presented in that way. We may, at some point, elect to update the forward-looking statements made today but specifically disclaim any obligation to do so. I will now turn the call over to ICF International, Inc. CEO, John Wasson, to discuss first quarter 2026 performance. John? John Wasson: Thank you, Lynn, and thank you all for joining us this afternoon to review our first quarter results and discuss our business outlook. The first quarter represented a solid start to the year. We executed well across our client set, reflecting successful strategic initiatives to diversify our business model and our track record of delivering positive outcomes for our clients. This track record is a function of ICF International, Inc.'s deep domain expertise paired with cross-cutting capabilities in technology, digital transformation, complex program management, and engagement. By going to market with this unique combination of capabilities and experience, we continue to maintain healthy win rates, record industry-leading book-to-bill ratios, and build our business development pipeline — all metrics that underpin ICF International, Inc.'s future growth potential. Key takeaways from 2026 include: First, an 8.6% sequential increase in our revenues from federal government clients, representing a strong indication that this part of the business has stabilized and is on the upswing. As we noted last quarter, we expect to see sequential improvement in our revenues from federal government clients through the third quarter of this year, with year-on-year growth in this client category anticipated for the 2026 fourth quarter. Second, a 17% year-on-year increase in revenues from international government clients, which was a strong showing tied directly to recent contract wins, many of which are single-award contracts. Third, of the total of $12 million in revenues that shifted out of the first quarter through the timing of project work for commercial and international government clients, we expect one-half to be recognized in the second quarter and the remainder to come through the second half. And lastly, we continue to win north of 90% of our recompetes. New business, including modifications, represented 65% of this quarter's awards, a strong indication of how well our qualifications are aligned with client demand. ICF International, Inc. was awarded $450 million in contracts in the first quarter, maintaining our 12-month book-to-bill ratio at a healthy 1.21. After this quarter's awards, our business development pipeline stood at $8.5 billion. Also, we were pleased with our strong margin performance in the first quarter, which we achieved while continuing to invest organically in areas we have identified as drivers of long-term growth for ICF International, Inc., namely commercial energy, disaster recovery, and federal technology modernization. There are several important secular trends supporting our growth expectations for these areas, including rapidly growing demand for electricity in North America highlighting the importance of energy efficiency and grid modernization programs; increased frequency and severity of natural disasters, including hurricanes, wildfires, and other extreme weather events, which often result in major damage to homes, businesses, and critical infrastructure; and the tremendous need for digital and AI-driven technology modernization to improve mission delivery across federal civilian agencies. ICF International, Inc. is well positioned to capture more than our fair share of growth in these markets, which supports our confidence that ICF International, Inc. will return to mid- to high-single-digit organic growth in 2027, and continued growth beyond. When you layer on the potential for accretive acquisitions, you see a clear path to return to double-digit growth. Given our expectations for continued favorable business mix and our ongoing internal efficiencies, many of which are coming from AI and other tools, we expect our earnings growth to continue to outpace revenue growth as we look forward. I know that investors are concerned about the impact of AI tools on the technology modernization work that is being done at federal government agencies. While we understand the concerns, we are doing work in this market every day, and over the last two years we have adjusted our offerings to strengthen our resilience to just that concern. For example, we focus on longer-term demand drivers including AI-augmented application development, foundational modernization, and AI governance and orchestration. Here are several insights that are relevant to ICF International, Inc. First, 80% of our technology modernization work for federal clients is fixed-price or outcome-based, and our civilian agency clients require a lot of support in this area. As AI-augmented methods enable us to complete projects in less time and at a lower cost, we will simply move on to the next project more quickly than in the past. Technology is moving quickly, and there is a substantial backlog of modernization work to be done to address the existing technical debt in the federal civilian arena. Second, as our clients move to advance AI at enterprise scale, we anticipate even greater demand for foundational data, cybersecurity, and cloud services. This is the foundation that determines whether AI deployments produce reliable, secure, and scalable outcomes or fail in production. We are prepared to help our clients continue on their journeys to improve and modernize their data and cloud architectures in order to capitalize on the promise of AI. Third, these AI capabilities also open up a larger technology market. We will see new opportunities for smarter workflow automation as agencies reimagine what is possible. Also, people will address legacy technical debt that was heretofore too expensive to address through traditional modernization. Finally, we will help our clients in addressing new challenges with AI governance, orchestration, and platform optimization that are all emerging as we speak. These areas we talk about require technology and domain expertise combined with human judgment and oversight to get it right. The upside is that the government technology market is expanding in scope, shifting in shape, and asking more of its partners than it did before AI. ICF International, Inc. is positioned to lead and grow through this evolution. Before turning the call over to Anne Cho, our President, who will provide a more detailed business review, I want to comment on M&A. Last year, we were fully concentrated on building our capabilities across our non-federal client base and on tightly managing our federal government business in light of the volatility that we experienced in 2025. This year, we are taking a more aggressive stance with respect to M&A given the substantial opportunities we see in our key growth markets, and in particular, commercial energy. We remain disciplined, but if we find an acquisition that meets our criteria for driving revenue synergies in growth areas and for being accretive soon after completion, we will move forward. Acquisitions have been an important part of ICF International, Inc.'s growth chassis over the last 25 years. We have a great track record of using free cash flow to pay down debt quickly. I will now turn the call over to Anne to discuss first quarter business performance across our client set. Anne? Anne Cho: Good afternoon, everyone. I am pleased to be presenting our business review on my first official call as President of ICF International, Inc. During my 30-year tenure, I have had the opportunity to work in many areas of the company, which makes it very exciting for me to be able to speak to you about the totality of the business. First quarter revenues were led by commercial, state and local, and international government clients, accounting for over 58% of total first quarter revenues, and are on track to exceed 60% of our full-year 2026 revenue. Taking a closer look at our client categories, I will start with commercial energy. There continues to be strong underlying demand for our utility programs, which include energy efficiency, flexible load management, and electrification. These programs represent approximately 80% of the trailing 12-month commercial energy revenue. The addressable market for these services is large, and ICF International, Inc. is a market leader. We continue to gain share, receiving plus-ups on existing contracts reflecting the results we are delivering, introducing new services, and then winning contracts from competitors. Our commercial energy advisory work delivered mid-teens growth in the first quarter. This growth reflected considerable demand for our market assessment and due diligence work, which supports client M&A; the expansion of the grid reliability and protection work; and increasing demand from data center developers. In addition, our engineering support to utilities working to accommodate data center loads continues to accelerate, as those clients expedite the development of new substations. Many of these engagements draw on our proprietary tools like Energy Insights, SightLine DER, and ClimateSite Energy Risk. We pair these model outputs with actionable decision support within the confines of the regulatory and stakeholder environment. From a Q1 perspective, as John noted, there was a timing shift affecting our work on several fixed-price energy efficiency programs that must be completed in 2026. Without this shift to the right, commercial energy revenues would have increased 8.3% in the first quarter instead of the reported 2%. Next, I am going to talk about our state and local portfolio. Q1 state and local government revenues were stable. For the full year, we expect revenues in this client category to increase at a mid-single-digit rate. ICF International, Inc. is a recognized market leader in disaster management and recovery services, which continue to account for about 45% of this client category's revenue. In February, we announced the award of a comprehensive management services contract by the State of Florida, which positions us to compete for a broad portfolio of projects that extend beyond disaster management to include habitat conservation planning and agricultural land conservation. We are also encouraged that, following the confirmation of the new Secretary of the Department of Homeland Security in late March, DHS went on to approve the obligation of $730 million Hazard Mitigation Grant Program funding, signaling the continued intent to fund rebuilding efforts that mitigate future disaster loss. DHS also recently indicated its intent to restart the FEMA Building Resilient Infrastructure and Communities, or BRIC, program that we have historically supported. The combination of these events supports our confidence that disaster management and recovery services will continue to be a driver for ICF International, Inc. over the mid and long term, and will expand our efforts well beyond the current 75 disaster recovery programs in 22 states and territories that we support today. Technology has always played an important role in our work for state and local government clients, and we have expanded our offerings there to include advanced technology solutions and services as well. As we discussed in our last call, our international portfolio is growing nicely. International government revenues increased 17.5% in the first quarter, reflecting the significant contracts that ICF International, Inc. has been awarded over the last 18 months by the European Union and UK clients. The additional $4 million that shifted into the second quarter and second half of this year represented the timing of pass-through revenues that are associated with outreach and marketing events that are under fixed-price contracts requiring the work to be completed in this year. Sales continue to be strong across our international portfolio, winning key recompetes and securing new contracts with international government clients to support growth for the next several years. Finally, I will talk about our work for U.S. federal clients. Our federal business has stabilized, and we continue to expect consecutive revenue growth in Q2 and Q3 and then year-over-year growth in Q4, as we execute on the nearly $1 billion in federal government contracts that we have won over the last 12 months. We are pleased to see procurement activity pick up in the first quarter. Some opportunities that were paused or canceled last year have re-entered the market. We have seen a restart of some of the work we were awarded in the past, such as support of a grant program for the Department of Energy. The procurement environment has changed in the last year, and we have pivoted, focusing more on rapid prototyping and demonstration of capabilities than ever before. Several sweet spots exist at the intersection of the administration's priorities, the agencies' gaps in manpower, and our expertise. These include applying AI and advanced analytics for fraud prevention and supporting child and family services, transportation safety, grid reliability, and technology modernization. A good example of how we combine deep domain expertise and advanced technology with human judgment is our work modernizing the Center for Medicare and Medicaid Quality Improvement and Evaluation System. The program involves the transition of more than 278 million clinical assessments into a national repository, enabling real-time monitoring of care standards across skilled nursing facilities, home health agencies, and hospitals. This work advances the administration's priorities around quality of care, fiscal responsibility, and system resilience. In summary, the trends underlying our business are aligned with our expectations. Our leaders are leaning in across the full portfolio with a winning mindset and eagerness to emerge as a partner of choice as our clients navigate what is a really fast-moving and exciting time. Now I will turn the call over to our Chief Operating Officer and Financial Officer, Barry M. Broadus. Barry M. Broadus: Thank you, Anne. Good afternoon, everyone. I am pleased to provide additional details on our first quarter 2026 financial performance and the factors shaping our results, as well as our outlook for the remainder of the year. At a high level, first quarter results reflect solid execution across our diversified client base. Margins remain strong, contract awards resulted in a book-to-bill above one, we continue to have a healthy pipeline of opportunities which we are pursuing, and, as Anne mentioned, procurement activity in the federal space is showing signs of improvement. In fact, in the federal space, we submitted nearly $400 billion of bids in the first quarter, the majority of which were for new opportunities. While first quarter total revenue came in below our expectation, this was entirely due to timing of certain commercial energy and international government contract work. We fully expect to recover these revenues throughout the balance of the year, with half expected in the second quarter. I would also note that our first quarter tax rate came in above our expectations, which I will address in more detail shortly, but our full-year outlook for a tax rate of 20.5% remains unchanged. Before discussing the first quarter financial metrics, I want to highlight some of the strategies that are supporting margin improvement and helping to drive shareholder value. First, cost optimization has been a key theme as we work to manage our infrastructure costs while funding growth initiatives. We continue to invest in modernizing our ERP systems and our back-office operations while implementing AI tools. These ongoing investments have and will continue to make us more efficient, providing us the ability to scale over time by offering both operational and financial benefits. From a strategic financial standpoint, we continue to focus closely on capital allocation. To that end, organic projects, share repurchases, and acquisitions are top of mind. In the first quarter, we repurchased slightly more than 217,500 shares, and we will continue to opportunistically repurchase additional shares. Further, as outlined by John, we are actively pursuing acquisitions given our strong cash flow and borrowing availability, which was expanded as part of the refinancing we completed last month. In summary, we are executing on our strategic plan and remain on track to return to growth in 2026, and deliver on our full-year top and bottom line guidance. With that context, I will now review our first quarter financial results. Total revenue in the first quarter was $437.5 million, a decline of 10.3% compared to 2025. As we discussed on our fourth quarter call, both first quarter and full-year 2026 revenue comparisons will reflect the impact of federal contract cancellations that occurred between February and May 2025. First quarter revenues were approximately $12 million below our expectations, reflecting a push to the right of roughly $8 million in project work for commercial energy clients on fixed-price contracts and $4 million in international government. The timing of the work simply shifted later in the year. We will recover all of these revenues over the balance of the year, approximately half expected in the second quarter. As a result, we are reiterating our expectation that revenues from commercial, state and local, and international clients will grow at a double-digit rate and represent over 60% of total revenues for the full year, supported by strong underlying demand from utility clients, continued ramp-up of international contract wins, and growing state and local revenues. In our federal government business, we were encouraged to see revenues grow 8.6% sequentially to $182.3 million, which was aligned with our expectations. The sequential improvement was supported by our technology modernization work, which we are well positioned to win and deliver in the current procurement environment. Subcontractor and other direct costs were $102.7 million, representing 23.5% of total revenues, up from 22.7% in the prior-year quarter due to higher pass-throughs on certain non-federal contracts. Despite the year-over-year decline in revenues, gross margin rose 10 basis points to 38.1%, highlighting our favorable business mix and a contract mix that remains largely comprised of fixed-price and time-and-materials contracts. Fixed-price and T&M contracts represented approximately 93% of first quarter revenues, with cost-reimbursable contracts accounting for only 7%. Indirect and selling expenses were $118.8 million, a decline of nearly 10% year over year and representing 27.2% of total revenues. As I mentioned previously, as we optimize our indirect spend, we will continue to invest in high-growth areas, including energy and technology modernization, while preserving our core capabilities in the programmatic side of the federal business, ensuring ICF International, Inc. is well positioned when the market recovers. First quarter EBITDA was $47.3 million compared to $52.1 million last year. Adjusted EBITDA totaled $48.9 million with an adjusted EBITDA margin of 11.2%, stable compared to the 11.3% reported in last year's first quarter, demonstrating the effectiveness of cost management initiatives and the structural improvement in our business mix. We continue to expect adjusted EBITDA margin expansion of 10 to 20 basis points for the full year. Net interest expense in the first quarter was $6.7 million, down 8.5% year over year, reflecting a meaningful reduction in our average debt balance compared to the prior-year period. Our first quarter tax rate was 25.1%, above our expectations due to less-than-expected deductible equity-based compensation expense. This compares to 10.5% in the prior-year quarter, which, as a reminder, included a one-time tax benefit. We continue to expect a full-year tax rate of approximately 20.5%, with each of the next three quarters expected to see a lower tax rate than the first quarter, the largest offsetting benefit expected to be in the third quarter. To close out on taxes, I should note that the higher-than-expected first quarter tax rate had an unfavorable impact of $0.07 on GAAP EPS and $0.09 on non-GAAP EPS in the first quarter. But given that we still expect a full-year tax rate of approximately 20.5%, the Q1 tax rate does not change our outlook as to how taxes will impact our full-year EPS guidance. Net income in the first quarter was $20.5 million, or $1.12 per diluted share, compared to $26.9 million, or $1.44 per diluted share, in the prior-year period. Non-GAAP EPS was $1.50 compared to $1.94 per diluted share in 2025. As noted, both GAAP and non-GAAP EPS for the first quarter of this year reflected the unfavorable tax item that I previously described. We remain confident in our full-year outlook, which calls for 3% revenue growth at the midpoint of our guidance range, supported by recent contract activity and the strength of our backlog and pipeline. Our backlog stood at $3.4 billion at quarter end, approximately 51% of which is funded, and our business development pipeline remains healthy at $8.5 billion. Taken together, these metrics provide good visibility for the year. Now turning to our balance sheet and cash flows. We used $3.1 million in operating cash flow during the first quarter, a meaningful improvement compared to the $33 million used in last year's first quarter, reflecting improved receivables collections and working capital management. Days sales outstanding were 74 compared to 81 days in last year's first quarter. Capital expenditures totaled $2.8 million compared to $3.5 million in the first quarter of last year. We ended the quarter with net debt of $436 million, down considerably from the $499 million at the end of last year's first quarter, and approximately 40% of our current debt is at a fixed rate. Our adjusted leverage ratio was 2.23 turns versus 2.25 turns at the end of last year's first quarter. Subsequent to the end of the first quarter, we refinanced our credit facility and remain well positioned to invest in organic growth, repurchase shares, and pursue strategic acquisitions in our key markets while maintaining our dividend. Today, we announced a quarterly cash dividend of $0.14 per share, payable on 07/10/2026 to shareholders of record as of 06/05/2026. To wrap up, we are pleased to reaffirm our guidance for a return to revenue and EPS growth in 2026, with our revenues expected to range from $1.89 billion to $1.96 billion, representing 3% growth at the midpoint; GAAP EPS from $5.95 to $6.25; and non-GAAP EPS from $6.95 to $7.25, or 5% growth at the midpoint. To further help you with your financial models, please note the following for the full year 2026: both depreciation and amortization, and amortization of intangibles are expected to continue to be $22 million and $24 million, respectively. Likewise, we continue to expect full-year interest expense to be between $27 million and $29 million. As I mentioned earlier, our full-year tax rate expectation remains unchanged at approximately 20.5%. In the second quarter, the rate is estimated to be around 23%, with a significant reduction in the third quarter. We anticipate capital expenditures to total $24 million to $26 million. Given share repurchases in the first quarter, we now expect our year-end fully diluted share count to be 18.3 million shares compared to our prior expectation of 18.5 million shares. And we continue to expect operating cash flow of $135.15 billion for the full year. With that, I will turn the call over to John for his closing remarks. John Wasson: Thank you, Barry. We are pleased that 2026 is shaping up as we expected — to be a year in which ICF International, Inc. returns to growth. In many ways, the trials of 2025 have made us a stronger company. We are more diversified, more efficient, and more agile. As we look to the future, we see a clear path to return to mid- to high-single-digit growth in 2027 and continued growth beyond. The dedication of our professional staff has been critical in helping us navigate dynamic business conditions, pivot to take advantage of new opportunities, and set the stage for ICF International, Inc.'s future growth. We appreciate their support. 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, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your questions, please press 11 again. Our first question comes from the line of Jason Tilgin with Canaccord Genuity. Your line is now open. Jason Tilgin: Good afternoon, and thanks for taking my question. I believe in the prepared remarks you talked about the advisory business for commercial energy growing mid-teens year over year in the quarter. I am wondering if you could help give us some additional color on where you are seeing the most activity today as it relates to the data center opportunity, how those conversations are evolving, and what exactly, as it relates to your skills and capabilities, is giving you an edge to continue to win business in that area. Thanks. And then one additional follow-up. High level, in terms of some of the investments that you are making today in the ERP system and other technology, I am wondering if you could help frame how much of those investments today are offsetting some of the benefits from recent cost optimization efforts, and how we should be thinking about the cadence of maybe more substantial gross or operating margin expansion over the coming quarters and years? Thanks. Anne Cho: Sure. When I mentioned the advisory side and that growth, it is important to point out the work we are doing expanding our client portfolio. A couple of years ago, we acquired a firm called CMY, which added engineering capabilities. We have been able to expand our client set in that area, providing those engineering skills to utilities, for instance, that are trying to build out capacity to support data centers in their area. Our power modeling team has been benefiting from a resurgence of work from renewable developers across a suite of technologies — not just wind, but solar, storage, etc. — and then increased demand from data center developers as well. Barry M. Broadus: Yes. This is Barry M. Broadus. From an overall perspective, we have had a program for the last few years where we are modernizing our ERP systems, and that is driving efficiencies. We do this in a balanced way whereby we are receiving benefits — becoming more efficient and able to process and work faster internally. In addition to ERP systems, we are also implementing AI in many of our back-office processes, which is continuing to drive additional efficiencies. We have the ability to deliver more margin, but we are using dollars we save to invest in long-term growth initiatives in the areas that John Wasson and Anne Cho mentioned as part of their opening comments. We do this in a balanced way, and I do not see it detracting from our ability to continue to improve margins as we move forward. Operator: Thank you. Our next question comes from the line of Samuel Kusswurm with William Blair. Your line is now open. Samuel Kusswurm: Hey, everyone. Thanks for taking our questions here. To start on the commercial energy business, it grew 2%, but I think you shared it would have grown 8% if we were to add back the $8 million in project work that got pushed out. At the start of the year, you shared you were expecting at least 10% organic growth for the year in this business. Do you still expect that, and what are you seeing in your backlog that is really supporting it? And then also, can you comment on how the residential and utility energy piece of the business performed versus more of the commercial and industrial energy piece? John Wasson: I will start off. We remain confident in 10% growth for our commercial energy business. We have a strong backlog and a strong pipeline. Those markets are growing high single digits, and we have been benefiting from plus-ups and takeaways that increased our growth rate above the market average. We remain confident that we will continue to do that. In terms of residential versus industrial and commercial, we are the market leader in residential energy efficiency programs. We have about 35% market share and think we can continue to expand that. We are also placing significantly on the commercial building side, where we have about 15% to 20% market share. Anne Cho: I do not have an update beyond what we discussed on the last call in terms of the share of residential versus commercial. One more thing to underline what John Wasson mentioned about the long-term growth trajectory: upstream of these programs we run, we also provide regulatory and consulting support to utilities, which gives us a good sense of the programs coming down the pike. That is another indicator supporting strong sales for both recompetes and wins on the program side. Barry M. Broadus: Historically, in our commercial energy business, we typically recognize roughly 47% of our annual revenues in the first half. The back half is when we typically hit certain milestones with regard to energy incentives, which creates a natural uptick in the back half versus the front half. Samuel Kusswurm: Got it. I appreciate the color. I think I will ask about the federal business next. There was something that caught my ear in the prepared remarks — capturing more of the federal opportunities aligned with the administration's priorities. Could you expand upon that more? From an operating standpoint, what does it mean to pivot in that direction? Are there any recent successes you could point to, or is it still early? Anne Cho: There is definitely a different way of selling in this environment in the federal space — more focus on showing what we can do. We come in with prototypes and good ideas that we can demonstrate, and where we can demonstrate the ability to take a client to a relatively quick win. That is an example of pivoting in capture and business development. In terms of new opportunities, we have been successful winning in new areas and offices at agencies where we have worked before — for instance, the Department of State, Department of Labor, and Department of Defense. We recently won a large BPA with the Defense Counterintelligence and Security Agency, and that is one where we incorporate AI-driven components to modernize very complex operational processes, with human oversight and deep expertise. Those are the kinds of places where our skills resonate. John Wasson: I would also add the administration wants work to be outcome-based or fixed-price, and the vast majority of our work is in that category. We are in the single digits now on cost-plus, and that has been declining. There is a real focus on AI-first. We have our ICF fathom AI platform, which allows us to do rapid prototyping and other work for federal agencies. We also have a real capability around waste, fraud, and abuse at CMS that came to us with the Semantic Bits acquisition. It is a material part of our technology business and our HHS work, and that is an area where there is a lot of focus and we are seeing a lot of opportunity. Operator: Thank you. Our next question comes from the line of Tobey Sommer with Truist. Your line is now open. Tobey Sommer: Thank you. I was hoping you could give us a sketch of what your M&A could look like given the pressures in the federal space. The valuation in your own stock and the group largely has declined. How do you think about multiples and leverage in this context? How engaged and active do you expect to be? Also, from a commercial energy perspective, I understand some work was pushed to the right. What kind of growth cadence do you expect this year, and how quickly will the year-over-year or sequential growth resume? And you talked about a resurgence of renewables — could you give us more context around that in a little more detail? John Wasson: As you know, M&A has been a key part of our strategy over the last 20 years as a public company. There have been three or four times where we have levered up and then, within a year or 18 months, paid down the debt. It has been quite successful for us in terms of both organic and inorganic growth. It remains a priority for us. Generally, we are focused on opportunities in our key growth areas. Right now, energy is first among equals, and the primary focus on the M&A front is on the commercial energy side. We would look for opportunities aligned with our core energy business — bringing us additional geographies, scale, capabilities, and clients. We will also look at adjacencies with more of an engineering focus. Anne Cho mentioned CMY, which brought grid engineering and large-load capabilities; that is an adjacency where there could be real synergies for us. At a high level, we want any acquisition to be accretive in the first year, with strategic and cultural fit, and we would need to see material revenue synergies to achieve those goals. On multiples, the energy arena for our current business retains premium multiples, so we need the right fit with the right synergies to meet our criteria. On leverage, historically when we have levered up, we have gone to about 3.0x to 3.5x — maybe 3.75x at the peak with Semantic Bits and ITG before that. I do not see us going higher than that. We want something we could pay down quickly with our strong cash flow — within a year or 18 months. Barry M. Broadus: On the commercial energy cadence, you could expect mid- to upper-single digits as we move into the next quarter or so, and then it will go beyond that and continue to ramp up as we move throughout the second half. The fourth quarter continues to be the strongest growth period as many energy incentives are realized during that time. Anne Cho: On the resurgence of renewables, there is renewed interest, and “all of the above” is really more of a thing. Hyperscalers have made commitments to provide renewable energy to support their data centers, creating opportunities for us to support the analysis. That can include stakeholder engagement and crisis communication, as well as siting and interconnection analysis. With developers, we are doing siting analysis, expanding renewable facilities, looking at brownfields repurposing with an eye on potential renewables, and gas procurement strategies are still in there. Understanding interconnection applications and speed to power is really important. Battery storage is much more in the forefront now, and that has always been part of our work, but it is now of much greater interest to our clients. Operator: Thank you. Our next question comes from the line of Kevin Steinke with Barrington Research Associates. Your line is now open. Kevin Steinke: Great, thank you. From a housekeeping perspective, can you expand on what resulted in the later timing of some revenue in both the commercial energy and international markets? And in the federal space, you mentioned you submitted $400,000,000 worth of bids in the first quarter. Can you give us more flavor around the type of work you are predominantly bidding on? John Wasson: In terms of the shift of revenue to the right, it was a confluence of events on a handful of projects where we did not ramp up the work quite as quickly as expected, both for ICF International, Inc. and our subcontractors. These are all fixed-price contracts; it is all in backlog, and it all has to be recognized in 2026, but we have to meet certain milestones to book the revenue and that was pushed out a bit. Our fees are performance-related when we meet specific energy production goals, and those were pushed out. It was just a confluence of events that pushed to the right for a handful of projects. There are no underlying challenges or problems with the projects. On federal bids, within HHS, CMS remains an area where we are seeing opportunity, and that was a key part of those figures. We are bidding more opportunities on the technology front at the Department of Defense. We have won several IDIQ contracts in the last year or 18 months, and we are seeing more opportunity for the types of skills we have. The Department of Homeland Security is also an area of opportunity that we are pursuing. We work at FEMA and other DHS agencies. Other civilian clients include NASA and EPA. Barry M. Broadus: On that most recent Department of Defense vehicle John Wasson mentioned, we recently won our first task order on that too, which was good to see. Kevin Steinke: Thanks. One more — you mentioned the target of returning to mid- to high-single-digit revenue growth in 2027. Does that contemplate a return to year-over-year growth in the federal government space? John Wasson: Yes. That would assume a return to growth in the federal space. We have 60% of our business — commercial, state and local, and international — growing 10% or more collectively, and we believe that is a long-term trend. We have indicated that our IT modernization business will return to low-single-digit growth this year. That gets 80% of our business to grow. Our guidance this year for the remaining 20% of our federal business is down mid- to high-teens given difficult comps from last year’s impacts. We think we have bottomed out and are stabilizing there. If that stabilizes and the other 80% is growing, that gets us to mid-single-digit or better organic growth. The upside would be doing better than stabilization in that remainder or higher growth in IT modernization and the other 60%. And, of course, acquisitions could move us to double-digit growth. Operator: As a reminder, to ask a question, press 11 on your telephone and wait for your name to be announced. Our next question comes from the line of Marc Riddick with Sidoti. Your line is now open. Marc Riddick: Hey, good afternoon, everyone. I wanted to touch on what you are seeing on the state and local government activity levels as far as RFPs and demand, as well as the disaster side of things. And could you also touch on what you are seeing internationally as far as the opportunity set? Anne Cho: On the state and local front, beyond disaster, our environmental services to state and local governments have been buoyed by a focus on new broadband fiber installations and opportunities in the mining sector where gold and critical minerals are in high demand. We have won some recent engagements in broadband and see more coming. For state transportation and metropolitan planning organizations, we won a suite of separate but related projects that address the resilience of transportation infrastructure to extreme weather and also focus on safety and mobility. That work is interesting, utilizes proprietary ICF International, Inc. models and deep expertise, and focuses on providing actionable, investable recommendations. We are also seeing opportunities to support states with advanced technology solutions akin to what we do for federal modernization. For a major state client, we are working on a legacy modernization project where we have the opportunity to pilot the use of generative modernization code to speed the process. That pilot is showing promise and is a new place for us to engage on the state side. On disaster, much of the work has shifted to states over the past several years, and we support state and local governments in proactive resilience. Leaning in to increase resilience before a storm is less expensive than responding after a storm. That is a priority of this administration. Programs like BRIC, and others in that proactive resilience front, are important. Internationally, we are very focused on delivery — we have won a lot in Europe and the UK in the last couple of years and are ramping up large contracts. Procurement activity there has been exciting. We continue to see strong recognition of ICF International, Inc.’s brand with UK and EU government clients. With 17.5% growth in the first quarter, there is momentum, and we continue to expect strong growth over the course of the year. John Wasson: Two points to add: our expectation is our state and local business will grow mid-single digits this year, and international will be strong double-digit growth. Marc Riddick: Thank you for the details. One follow-up: on the prioritization of federal areas like fraud prevention, do you anticipate or are you beginning to see any of that type of work at the state and local level as well, or other examples where states are moving in the same direction as federal? Anne Cho: Some states are more focused in areas that are priorities for the federal administration, and others are focused in areas that are not priorities for the administration. In both directions, we have skills that can support state agencies. Some states are trying to fill gaps they see left by the administration shifting away from certain priorities, while other states are aligning directly with administration priorities. We are following those cues accordingly. Operator: I am showing no further questions at this time. I would now like to turn it back to John Wasson for closing remarks. John Wasson: Thank you for participating in today's call. We look forward to seeing you all at upcoming conferences and meetings. Thanks again for attending. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Mark, and I will be your conference operator for today. [Operator Instructions] Thank you. And I would now like to turn the call over to Monica Prokocki. Please go ahead. Monica Prokocki: Thank you, operator. Good morning, everyone, and welcome to LifeStance Health's First Quarter 2026 Earnings Conference Call. I'm Monica Prokocki, Vice President of Finance and Investor Relations. Joining me today are Dave Bourdon, Chief Executive Officer; and Ryan McGroarty, Chief Financial Officer. We issued the earnings release and presentation before the market opened this morning. Both are available on the Investor Relations section of our website, investor.lifestance.com. In addition, a replay will be available following the call. Before turning over to management for their prepared remarks, please direct your attention to the disclaimers about forward-looking statements included in the earnings press release and SEC filings. Today's remarks contain forward-looking statements, including statements about our financial performance outlook, business model and strategy. Those statements involve risks, uncertainties and other factors as noted in our periodic filings with the SEC that could cause actual results to differ materially. Please note that we report results using non-GAAP financial measures, which we believe provide additional information for investors to help facilitate comparison of current and past performance. A reconciliation to the most directly comparable GAAP measures is included in the earnings press release tables and presentation appendix. Unless otherwise noted, all results are compared to the comparable period in the prior year. At this time, I'll turn the call over to Dave Bourdon, CEO of LifeStance. Dave? David Bourdon: Thanks, Monica, and thank you all for joining us today. We had an exceptional start to the year at LifeStance. We exceeded each of our guided metrics with strong revenue growth of over 21% and more than $50 million in adjusted EBITDA, a 48% increase over last year. We grew our clinician base by more than 300 in the quarter to over 8,300 clinicians. We also delivered meaningful year-over-year improvements in clinician productivity, reflecting the continued impact of the initiatives we implemented last year. Given the outperformance in the quarter, we are raising our full year guidance across all metrics. And later, Ryan will provide the details on our improved view of 2026. From a macro environment perspective, we continue to see a growing demand for high-quality mental healthcare, as well as patients seeking more affordable solutions, driving a shift from cash pay to insurance coverage. LifeStance is uniquely positioned to meet these needs. We're seeing this through our success in growing our clinician base, attracting new patients and driving clinical and operational excellence. Regarding operational execution, the momentum we established in 2025 with strong visit growth and clinician productivity carried into the first quarter. These efforts centered around enhancements to new patient conversion and engagement. Importantly, these initiatives are embedded in our operating model and supported by clinician level visibility, education and incentives, giving us confidence in their durability as we continue to scale our clinician base. Turning to technology. We continue to apply digital and AI tools in focused, practical ways to improve patient access, clinician experience and operational efficiency. Across the organization, digital and AI tools, including digital patient check-in, AI-driven workflows and robotic process automation support operational excellence, particularly in areas with heavy manual processes such as revenue cycle management. In addition, AI-enabled scheduling tools support our new patient telephone booking process, resulting in converting more calls to appointments. We are also rolling out AI-assisted clinical documentation to reduce administrative burden and cognitive load for clinicians, enabling them to spend more time with patients, which should improve patient and clinician satisfaction. As per our new EHR, last quarter, we announced the selection of a best-in-class vendor with implementation expected to begin this year and the transition occurring during 2027. Our focus has now shifted to organizational readiness and early clinician engagement. The transition to the new EHR will support our ability to scale efficiently, integrate AI more seamlessly and improve the consistency of both the clinician and patient experience, while delivering clinical excellence. There remains a tremendous opportunity for technology to further enable the business. We will remain focused on prioritizing use cases with clear clinical and operational impact as we deploy these tools more broadly across the organization. This approach to technology strengthens LifeStance's leadership position, while reinforcing clinician trust and the quality of care we deliver to patients. Turning to geographic expansion. We see a significant opportunity ahead to increase both density within our existing markets and to expand our geographic footprint. As we've discussed, tuck-in acquisitions are our preferred way of entering new MSAs. And after 3 years, we're back to executing on M&A, with a disciplined and targeted approach. We have established a strong pipeline of potential acquisitions and expect tuck-ins going forward to be a meaningful part of our geographic expansion strategy. We're pleased that during the first quarter, we opened 2 new markets through acquisitions, adding high-quality practices that align well with our model and our culture. While these deals will contribute a nonmaterial amount of revenue this year, they establish new market entry points to support future growth in 2027 and beyond. Where attractive tuck-in opportunities are not available to us, we'll continue to enter new geographies with a de novo approach. Finally, I'd like to highlight our progress on clinical excellence. Our clinicians and the positive impact we're having on patients is the foundation of everything we do at LifeStance. Measuring how we're improving patient outcomes at scale is critical to ensuring our care is effective, and we also use these findings to identify opportunities to improve that care. In April, we published new clinical outcomes data from nearly 180,000 LifeStance patients that showed roughly 3/4 benefited from clinically significant improvements in their anxiety and depression, further validating our commitment to clinical excellence. These clinical outcomes, combined with strong patient satisfaction as reflected in our over 4.7 out of 5 Google Stars rating for our over 575 centers, reinforce that our model is working. And importantly, these strong patient outcomes and high satisfaction scores are the direct result of the dedication of our clinicians and our ongoing commitment to enable our clinicians to deliver high-quality care to patients. With that, I'll turn it over to Ryan to provide additional commentary on our financial performance and outlook. Ryan? Ryan McGroarty: Thanks, Dave. I am pleased with the team's operational and financial performance in the first quarter, which exceeded our expectations. For the quarter, revenue grew 21% to $403 million. Revenue surpassed our expectations from both better-than-expected total revenue per visit and visit volumes. Visit volumes of 2.5 million increased 18%. The outperformance was driven by a combination of better-than-expected clinician productivity and net clinician adds. Total revenue per visit of $163 increased 3% and was modestly ahead of our expectations. Our visits per average clinician were strong once again, increasing 7% year-over-year for the second consecutive quarter. This was achieved while at the same time adding 309 clinicians in the first quarter, bringing our total clinician base to 8,349, representing growth of 11%. Turning to profitability. Center Margin of $136 million in the quarter increased 24% and was 33.7% as a percentage of revenue. This came in ahead of our expectations, primarily due to the revenue beat as well as lower spending in center costs. Adjusted EBITDA increased 48% to $51 million in the quarter, which was very strong and exceeded our expectations. This resulted in a margin as a percentage of revenue of 12.7%. The outperformance in the quarter was attributable to favorable Center Margin. We also finished with positive net income of $14 million in the quarter as compared to $1 million last year. Turning to liquidity. We generated robust free cash flow of $22 million in the first quarter, which was an improvement of $32 million from the first quarter of last year. We exited the quarter with a strong balance sheet, including a cash position of $195 million and net long-term debt of $263 million. Importantly, that cash balance reflects $49 million deployed towards share repurchases during the quarter following the Board's $100 million authorization in February. With net leverage of 0.5x and gross leverage of 1.6x, we believe we are well positioned with significant financial flexibility to support the business and execute on our strategic priorities. In terms of our outlook for the full year, we are raising our revenue range by $25 million at the midpoint to $1.64 billion to $1.68 billion. The midpoint of the revenue guidance implies a growth rate of 17%. We are also raising our Center Margin range by $21 million at the midpoint to $547 million to $571 million and raising our adjusted EBITDA range by $15 million at the midpoint to $200 million to $220 million. The midpoint of the adjusted EBITDA guidance implies a margin as a percentage of revenue of 12.7%, which is over 150 basis points of margin expansion year-over-year. As we previously communicated, our annual guidance assumes year-over-year revenue growth driven primarily by higher visit volume, combined with low to mid-single-digit increases to our total revenue per visit. Additionally, we continue to expect stock-based compensation of approximately $60 million to $70 million this year. For the second quarter, we expect revenue of $405 million to $425 million; Center Margin of $135 million to $147 million; and adjusted EBITDA of $50 million to $60 million. As we look beyond 2026, we continue to expect annual revenue growth in the mid-teens and to achieve mid-teens adjusted EBITDA margins by full year 2028. The macro trends we're seeing across mental healthcare, along with the momentum in our performance, reinforce our confidence in that outlook. With that, I'll turn it back to Dave for his closing comments. David Bourdon: Thanks, Ryan. This is an exciting time for LifeStance. Demand for mental healthcare is growing while affordability is increasingly important for patients. Our model is differentiated and delivers high-quality outcomes. This combination gives us confidence to meet the needs of patients and provide a compelling place to practice for clinicians. Operator, we will now take questions. Operator: [Operator Instructions] So your first question comes from the line of Craig Hettenbach from Morgan Stanley. Craig Hettenbach: Clinician growth was a bit above expectations in the quarter. So any tailwinds you would call out in the quarter? And then more broadly, just some of the things you're doing to kind of attract and retain clinicians to the platform. David Bourdon: Craig, this is Dave. I'll take that one. So we did have strong, we had very strong results around clinicians in the first quarter, as you noted, not just in the clinician adds, which were over 300, but also saw the third quarter in a row of strong productivity improvements. We grew that about 7% year-over-year. In regards to the clinician growth that we saw, nothing new to point to there, primarily driven by the strength of our recruiting along with stable retention. Craig Hettenbach: Got it. And then when I think through on the margin front, so delivering some good operating leverage here, the 15% to 20% longer-term EBITDA margins, how are you thinking about all the things you're doing from a technology perspective? I know you touched on the EHR investment. But just how do you envision kind of some of the efficiencies in AI kind of layering into kind of that path to the longer-term margins? Ryan McGroarty: Yes, Craig, this is Ryan. So overall, so technology is a key lever, right, in terms of being able to deliver the long-term margins. But you framed it exactly right. So when we've stand out, we've talked about long-term margins in the 15% to 20% range. Overall, we further time to mention that to hitting adjusted EBITDA margins of mid-teens by 2028. And so we look at the leveraging. So to get to those margins, you get continued expansion around your Center Margin. And then you also get continued leveraging through your G&A line, which does come from items such as AI enablement, technological initiatives that kind of make us more efficient in being able to get the scale growth overall. So it is a key component just as we think about the long-term margin profile of the business. Operator: Your next question comes from the line of Ryan Daniels from William Blair. Matthew Mardula: This is Matthew Mardula on for Ryan. Congrats on a great quarter. It's great to hear about all the productivity initiatives continuing to work well. But when we look ahead, are there still new productivity initiatives planned by the company to be released in the upcoming quarters that are in the company's pipeline? Or is the strategy more focused to work on the current productivity initiatives that are already established and going well instead of maybe adding new ones? David Bourdon: Matthew, it's David. I'll take that one, and thanks for the congrats on the quarter. We're really pleased with the strong start to the year. In regards to the clinician productivity, we have numerous initiatives that are underway. We've talked about that a lot in the back half of last year. The thing I always start with is remember, this is about visit growth. And what we're doing is an intentional balancing of using the available capacity of our existing clinicians versus hiring new clinicians. And the higher productivity benefits, both the clinician as well as the LifeStance. So we're going to continue to look for new opportunities to improve productivity, while we're also continuing to execute on the initiatives that we've talked about for the past half year, of which all of those are durable and are continuing. You're seeing that in our results. But I always come back to it that intentional balancing. And when we think about the long-term growth algorithm, we still point to that that's going to be primarily driven by net clinician adds versus productivity and with productivity just being complementary. Matthew Mardula: Great. And then regarding visits, with that coming in strong at, I think, roughly 18% growth in Q1. And then given the last 2 quarters before Q1, we've seen visit growth around that 16% to 18% growth. And when we think about your guidance of that low double-digit visit growth going forward, should we maybe be expecting visits not to accelerate as seen in the past quarters in the back half? And that might just be because of the productivity initiatives that were established and gaining maturity in the second half of last year. But if you could just kind of help me understand, what you're thinking about visit growth for the rest of the year? And any color into that given what we've seen in the past couple of quarters would be great. Ryan McGroarty: Yes. So perfect. This is Ryan. I'll jump in there for that one. So first and foremost, just as you talk about the guide, overall, we're very pleased with the guide. So just you take it from a top line from a revenue perspective, growing at the midpoint at 17%. And then if you go down the P&L to adjusted EBITDA of 33%. When you think about revenue, so I'll start there is, obviously, we've raised our guidance by $25 million. When you think about the 17% year-over-year growth, it takes on a more normal shape to some of our consistent patterns that we've had in terms of revenue being approximately 50/50 first half versus second half, with second half being modestly higher. And so that plays into the whole visit volume. So we do have -- and you referenced this in your question, as you get into the second half of the year, you do lap your productivity initiatives. And as Dave mentioned, our growth will always be primarily from net clinician adds complemented by productivity, and you see more of that dynamic kind of happening in the second half versus the big gains in productivity that we saw in the second half of last year and the first half that we're expecting this year. Operator: Your next question comes from the line of Richard Close from Canaccord. John Granville Pinney: Yes, John Pinney on for Richard Close. Congrats on the quarter. First, on the clinician adds, do you have any sense of, like where a majority of the strong quarter, 309 adds sequentially, where a majority of them are coming from? And how many are attributable to the tuck-in acquisitions? Are they mostly like new adds? Are they moving from private practice? Or just any other sense of the source? David Bourdon: John, this is Dave. I'll take that one. So first of all -- I'll take the last part of your question first. M&A did contribute in the quarter to net clinician adds, but very modest. So as mentioned in our prepared remarks, M&A is immaterial to 2 tuck-ins from a contribution perspective. So the net clinician growth is primarily driven by organic hiring, again, with stable retention. Now your first part of the question, where are those clinicians coming from? No real change in that dynamic. We continue to see clinicians coming from 3 buckets. The first is and the largest being clinicians that are $10.99, small practice, and they're looking for more support and a stronger connection to our practice. And so they're joining us. The second bucket I'd highlight is the clinicians that are salaried, this is a smaller bucket. These are ones that are at hospital systems or practices like that, and they're looking for more flexibility, but while still retaining some of those W-2 benefits in regards to health, health care, matching 401(k), those kinds of things. And then the third bucket is new graduates. So individuals that are just graduating from school, then getting their licensure and coming to work at LifeStance. We continue to have a strong pipeline across all 3 of those categories. And again, I wouldn't point to anything new in the first quarter. John Granville Pinney: All right. And then on the EBITDA guidance, it looks like margin at the midpoint steps up with the 2Q guidance. And for the full year, it stays pretty consistent with what was achieved in first quarter. Is there anything to like keep in mind when modeling in the second half of the year? Ryan McGroarty: Yes. So this is Ryan. So I'll jump in on that question. So you got it right, like overall. One thing kind of as you're thinking about your models is that G&A does step up $6 million from our previous guidance. We're very thoughtful about, like the investments that support our growth. As it relates to G&A, there's really nothing significant to point to as it relates to -- we talked about this a little in Craig's question just around continued investment around AI and technology and then also in patient acquisition on a BD perspective. But when you're looking at just the sequencing the phasing second half versus first half, that is something that's notable just in terms of kind of key difference between first half and second half. Operator: Your next question comes from the line of David Larsen from BTIG. David Larsen: Congrats on another great quarter. Can you talk a little bit about the technology infrastructure and basically the conversion from inbound inquiries from prospective patients to first visit? And maybe just talk about how that process is evolving or improving or how it's changed over the years and what your expectations are for it going forward? David Bourdon: Dave, this is Dave. I'll take that one. So in regards to the conversion of patients seeking care to a booked appointment, one of our big focus areas for online booking is we've rolled out what we're calling Care Matching 2.0. And we had piloted the new solution. It's a new algorithm, with a little bit of new technology in the back half of last year and the beginning of this year, and that went really well. What we're seeing is an improvement in conversion of patients seeking care to a book appointment by about 5%. And so as a result, we're now rolling out that new Care Matching algorithm and online tool across the country and have that rolled out completed in the next couple of months. So we're really pleased with that. We won't stop there. It's really a journey. We'll also be looking at the patient experience online as they're going through that process and are there opportunities to reduce friction. And we'll be doing some of that exploration in the back half of this year. David Larsen: Great. And then can you talk a little bit about how you measure results like the functionality of the patient themselves? And I guess, I don't know, perhaps like performance with activities of daily living. Are they tracking health improvement metrics? And do you have an app where the members can sort of correspond with the docs on a real-time basis and track and measure habits so that you can sort of see and track how all the patients are doing and if they're improving? And if so, like by how much? David Bourdon: Yes. This is Dave. I'll take that one as well. There are a couple of things there. So first of all, from a measurement perspective, and I talked about in my prepared remarks, the study that we published based on data we had across 180,000 patients, and that data was from last year. What we're doing now is on a regular basis, monthly, we're checking in with our patients, and they're completing surveys primarily around anxiety and depression, and that allows us to track their progress. And if it's going great, then we stay the course. But obviously, if their health is not improving, then what we're doing is we're exploring from a care pathway perspective, what are other options that our clinicians could provide to those patients to improve their health. And that survey is taken by the patients in our digital patient check-in tool. So that's where the patient interacts and fills out that information. In regards to an app, we do not have that, so we do not have that capability you described. That is something that we're exploring. And we think about it as almost a continuum of care and what are ways that we can interact with and support the patient in between the visits that they're having with their clinicians. So more to come on that. And we do believe that that will eventually improve the outcomes for patients and potentially get them healthier faster. But that's more of an in the exploration phase at this stage. Operator: Your next question comes from the line of Sean Dodge from BMO Capital Markets. Sean Dodge: Maybe just staying on that outcome study, Dave, you just mentioned, how do you leverage those findings now? Is this more of a tool that helps with negotiations, and coverage and rates from managed care? Or is this something that maybe more helps with like competitive positioning, competitive differentiation and driving more referral volumes from primary care? Or is it kind of all of the above? Just how do you kind of like operationalize this now? David Bourdon: Yes. It's Dave. I'll take that one, Sean. You nailed it. It's really all of the above, right? So first of all, as I was just talking about, it's going to become a more increasingly important part of how we provide care to patients because it's rich data that our clinicians can use in the treatment of their patients and understanding how their health is improving or not improving. So that starts there. And then sure, it becomes a proof point for us as we're working with referral partners or prospective referral partners about them sending their patients to us. It's part of establishing that trust. And then in regards to the payer dynamic, today, most payers are still focused on access. They need access for their members and they're hearing it from their corporate clients around that access to outpatient mental healthcare. But we believe that, it will become increasingly important to be able to demonstrate quality outcomes. And that's why we have such a big focus on clinical excellence. And we're going to continue to put a lot more emphasis on that this year and in the coming years. We believe there's a lot of opportunity for us to be able to differentiate ourselves versus other practices. Sean Dodge: Okay. Great. And then maybe going back to the clinician productivity enhancements. You talked about one of the other maybe less direct benefits of that being improved clinician satisfaction and that leading to less turnover since they're getting the hours they want as they're seeing more patients. I guess, with having a couple of quarters of kind of that behind you now, these improved productivity tools, have you seen any change in clinician retention or clinician churn, or is it maybe still a little too early to tell? David Bourdon: I think it's too early to tell. What we're seeing is continued stable retention. We are anecdotally getting very positive feedback from clinicians around us better filling their calendars, the new cash incentive program that's tied to both productivity and quality. So again, we're continuing to get anecdotally positive feedback from the clinicians, but we have not seen anything meaningfully move in regards to retention. Sean Dodge: Congratulations on the quarter. Operator: Your next question comes from the line of Jack Slevin from Jefferies. Jack Slevin: Congrats on the really strong quarter. Maybe I'll just tack 2 into one here. I guess looking at the stack of the guidance, a lot of commentary on the productivity efforts and other things. But maybe just more granularly thinking about care margin, I think, it assumes sort of a higher year-over-year step-up based on how that trended last year when you look at the last 3 quarters. Can you maybe just talk a little bit about what drives that or what in the baseline from last year may not necessarily be the right thing to comp against as you think about the care margin performance that's implied in the new guidance? And then the second one, we noticed over the last, call it, 5 or 6 months that payers have been broadening access for TMS or some of the higher acuity services that you provide. Can you maybe just talk a little bit about how that's trending for you or if you see potential for that to accelerate? Optum quite recently made it possible for NPs to bill for that service, which they previously had not allowed in a number of states. I'd just love to think about that broadly and if those good trends can continue or if there's potential to accelerate. Ryan McGroarty: Jack, this is Ryan. I'll start off on the first question. I think Dave will jump in on the second part of your question. So as it relates to Center Margin, just as it relates to the step-up that we're seeing there. So when you look on a year-over-year basis, Center Margin approximately has improved about 130 bps. So went from last year, 32.4% to implied in our guide is 33.7% this year. When you think about some of the components just in terms of the favorability, it really is from rate, operating leverage from volume, which includes some of the productivity initiatives that we've talked at length about, and then also just some favorable spending kind of within that bucket. When you think about the spending, I wouldn't point to anything specific on that. But to go back to like we're really pleased with the progression just as it relates to being able to expand our Center Margin, and it's tied back to just Center Margin expansion in addition to G&A leveraging gets us to our long-term growth algorithm. And I'll turn it over to Dave to answer the specialty question. David Bourdon: Yes. So in regards to specialty, just from a grounding, last year, we did about $50 million in revenue from specialty services, and we expect that to grow to roughly $70 million this year or about 40% year-over-year increase. The majority of the $50 million is neuropsych testing, where we're the national leader in that particular service. But then when you step into 2026, the higher growth rate versus regular book of business is driven by the TMS and Spravato services, which we're in the early stage on from a rollout perspective. We're adding new TMS chairs and Spravato sites every quarter, and we'll continue to do that for some time to come. The other thing I would point to, Jack, is we're really set up well for these specialty services, whether it's TMS Spravato or if there is new things that are approved in the future, like psychedelics because we have over 575 centers. And so this ends up being a very low capital intensity for us because we're able to leverage those centers, and it works well for our model and providing holistic treatment for our patients, especially for the patients that need these services. Jack Slevin: Congrats again on the strong results. Operator: Your next question comes from the line of Peter Warndorff from Barclays. Peter Warendorf: You guys opened 6 centers this year -- this quarter and you had 2 tuck-in acquisitions. So I was just curious what the cadence might look like for the rest of the year. And then when it comes to that M&A, I know you've talked about recently how some of the larger businesses in that kind of $200 million to $250 million range maybe had higher valuations than private markets. I mean, are you seeing anything differently there? David Bourdon: Peter, this is Dave. I'll take that. So in regards to the first quarter, firstly, you had your facts right. So we opened 6 centers, and we had the 2 tuck-in acquisitions. In regards to the rest of the year, what we've talked about is opening up 20 to 30 centers for the full year. We're still on pace for that. And then from an M&A perspective, we have a strong pipeline of tuck-in opportunities that we're evaluating. Obviously, there's a lot of moving pieces there. So I don't want to make any commitments in regards to the timing on those. But we do expect the tuck-in acquisitions to be a meaningful part of our geographic expansion strategy going forward and we do intend to do those on a regular basis. In regards to the overall M&A environment, no change to what we said last quarter, and that is we see meaningful opportunity in the tuck-in type acquisitions, or down market. We do not see meaningful opportunity for us -- as you get into that next or the biggest tier of our competitors that are in that $200 million, $250 million of annual revenue. And the reason we don't see an opportunity there is because there's a lot of geographic overlap between us and them. And so there's just not meaningful synergy or value creation in the combining of those practices with us. It's just much more financially effective for us to grow organically rather than trying to do an acquisition of one of those larger practices. Peter Warendorf: Got it. Okay. And then on the visit rate side, you had a nice bump in 1Q, up about 3% year-over-year. Just curious, I think that last year, you had the last customer pricing impact that came through in March. So maybe there was a bit of a headwind still in 1Q. How should we think about the cadence of that over the remainder of the year? Ryan McGroarty: Yes. So Peter, again, your facts set is right. So we're actually really pleased with the TRPV. You referenced the 3% year-over-year. So we did $163 from a TRPV perspective. So sequentially, that grew $3.80. This is key as we think about just rate in general. This is one of the reasons why we raised our revenue $25 million and also EBITDA by the $15 million for the full year was on the strength of rate increases. As we think about the balance of the year, we're still guiding to low to mid-single digit as it relates to rate. We still have some work to do as it relates to kind of executing on the rate and payer negotiations. I would kind of frame the overall environment consistent to like our prior calls just around it's very constructive, and we're getting really good response from the payers. So again, when you think about this year, guiding to low to mid-single digits. And again, it's also a critical component to our long-term growth algorithm kind of in that same range, low to mid-single digits. So we really like the momentum that we're seeing there. Operator: Your next question comes from the line of Scott Schoenhaus from KeyBanc Capital Markets. Scott Schoenhaus: Almost got it there. Congrats on the strong start of the year, really firing on all cylinders here, team. My question is a follow-up on the 6 de novo adds. Are those -- historically, you talked about trying to build density in metropolitan areas. Is that the way we should be thinking about those adds? And then when you're starting a de novo clinic, can you talk about the productivity ramp up? It seems like these technology investments have caused your productivity ramp to be quite quick. Maybe just walk us through your de novo strategy and the productivity on these de novo adds. David Bourdon: Scott, it's Dave. I'll take that one. So in regards to the de novos or the building of new centers, they come in a lot of different flavors. So you could have a center going in, in an adjacent town where we already have an existing center, already have existing referral partnerships, things like that. And so that kind of center is going to ramp very quickly. Those are the majority -- when we talk about the 20 to 30 centers that will build this year, that's the majority of the centers that are being added. We also are placing some de novos in brand-new geographies, because again, our preferred entry is through M&A rather than going pure de novo. That's a minority of the centers that we're adding in that 20 to 30. And those are going to have a slower ramp than the first category that I mentioned. That you're looking at more of 12 to 24 months to getting to breakeven. But again those are important beachheads that are going to be the foundation for growth in the years to come. Scott Schoenhaus: That's helpful. And then this is sort of an industry broad general question. You've seen a lot of industry changes and shifts, whether it be a large D2C behavioral health company trying to get into the payer market. And then a company in the behavioral health space that was acquired by a large provider network. May be talk about is that -- are you seeing impacts on either recruitment or patient perspective or rate perspective from the payers? Maybe talk about what's changing in the competitive landscape and if it's impacting you guys at all? David Bourdon: This is Dave. I'll take that one. In regards to the overall industry, you always have to start from the framing of it is still a highly, highly fragmented industry. And so you should expect that there will be consolidation in the years to come. And I think we're in the early days of consolidation. And I really like where LifeStance is positioned to be able to take advantage of those trends going forward. And because the industry is so fragmented, because there's such unmet demand from patients, we're not seeing any changes in regards to new patient volumes, clinician hiring, things like that. And you're seeing that in our results in the first quarter with really being strong across pretty much every aspect of the business. Operator: That will conclude our question-and-answer session. And I will now turn the call back over to Dave Bourdon, Chief Executive Officer, for closing remarks. Please go ahead. David Bourdon: Thank you, operator. I want to take a moment to recognize our nearly 11,000 mission-driven teammates. Every day, you show up for our patients, often at some of the hardest moments in their lives, and you do it with extraordinary compassion, professionalism and resilience. And I'm deeply grateful for what you do. Mental healthcare has never been more essential. We're proud of the difference LifeStance is making today, and we're even more committed to expanding our reach so we can help millions more people get the high-quality care they deserve. Thank you for joining us today. Operator, that will conclude our call. Thank you. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to 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: Welcome to GSI Technology, Inc.’s Fourth Quarter and Fiscal Year 2026 Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. At that time, we will provide instructions for those interested in joining the Q&A queue. Before we begin today’s call, the company has requested that I read the following safe harbor statement. The matters discussed in this conference call may include forward-looking statements regarding future events and future performance of GSI Technology, Inc. that involve risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties are described in the company’s Form 10-K filed with the Securities and Exchange Commission. Additionally, I have also been asked to advise you that this conference call is being recorded today, 05/07/2026, at the request of GSI Technology, Inc. Lee-Lean Shu, the company’s chairman, president, and chief executive officer will be hosting the call today. With him are Douglas M. Schirle, chief financial officer, and Didier Lasserre, vice president of sales. I would now like to turn the conference over to Lee-Lean Shu. Please go ahead, sir. Lee-Lean Shu: Good afternoon, and thank you for joining us. To review our fourth quarter and fiscal year 2026 financial results. Fiscal 2026 was a year of meaningful progress for GSI Technology, Inc., marked by strong performance in our SRAM business, continued advancement of Gemini II to commercialization, and the initiation of the PLATO design. While I am pleased with the progress we have made on several fronts, significant work remains. Our team is executing our key milestones and advancing business development for the APU, and I have had several encouraging conversations on numerous fronts in these amounts. We end fiscal 2027 with continuous momentum, promoting the APU and building our customer traction. With that, I will now hand the call over to Didier. Didier Lasserre: Thank you, Didier. Let me start by stepping back and framing where we are today. Because I think the context is important. Our SRAM business performed well in fiscal 2026 and remains the revenue foundation of the company, providing cash for APU development. For the full year, the SRAM business grew 22% year-over-year and gross margins rose to 55% from 49%. The SRAM business has benefited from increased demand from our customers that support high-performance AI chip development and manufacturing. We recently announced that we concluded our strategic review and determined that continuing to execute our standalone strategy is the best path forward for delivering long-term shareholder value. The stronger SRAM business and a strengthened balance sheet, along with non-dilutive R&D funding, are providing the resources to support our go-forward plan. With this financial foundation in place, we are now seeing real progress with Gemini II and PLATO. Over the past several months, we have reached a point where we are seeing both technical validation and early program-level engagement of Gemini II, including the Sentinel drone surveillance POC, the U.S. Army SBIR award, and a new Phase One smart city project I will discuss in a minute. On the technical side, in a bake-off for the Sentinel POC, Gemini II’s performance contributed to winning the contract award by achieving a time to first token of roughly three seconds at 30 watts of system power on Gemma 312B multimodal workloads at the edge. In this use case, time to first token is a critical metric for drone surveillance systems because it reflects how quickly the system can respond in real-world applications where response time directly affects critical decision making. We are working closely with the G2 Tech team on the Sentinel program. We have completed the software deliverables and continue to target a June demonstration of the Gemini II powered drone. This demonstration is planned for the Department of Defense and an international defense agency. In mid-April, we were notified that we had been awarded Phase One of a smart city project. The project leverages our work done for the drone-based surveillance POC and marks an important step forward towards commercial deployment. In this application, Gemini II will process inputs from distributed camera systems to provide near real-time detection of events such as fires and other public safety risks. This project demonstrates how our platform can scale across real-world infrastructure. We expect to share additional details on the smart city program around the time of a planned media event in late May hosted by the municipality. Currently, we are working on several projects in tandem. What matters most for GSI Technology, Inc. at this time is not just the number of early-stage trials and demonstrations we have, but also how these early-stage engagements are helping us identify where our APU architecture provides a clear advantage, particularly in delivering low-latency performance within a constrained power envelope. We are also leveraging our deployment work in two ways. First, we are applying what we have developed for the drone security application to a smart city application. While the end markets are different, the underlying development carries over, giving us a meaningful head start in a new use case rather than starting from scratch. Secondly, as we complete the Sentinel POC and Phase One of the smart city program, we can build on those results to pursue additional opportunities with new customers in those markets. We view this as a repeatable model where each engagement helps accelerate the next. What is exciting for us is that we see the end markets for low-latency, low-power AI at the edge expanding as AI workloads continue to move closer to where the data is generated. These applications favor the APU architecture that can deliver higher compute per watt. Gemini II is ideal for these power- and latency-constrained edge deployments, where real-time response and energy efficiency are critical. Where we are winning is where Gemini II is tested against conventional architectures requiring significantly higher system power for similar or slower responsiveness. We believe Gemini II best addresses this gap and positions us well to win as more AI loads shift towards distributed, power-constrained environments. Consistent with this, we are encouraged by our progress within defense agency programs, as evidenced by our recent U.S. Army SBIR progressing from Phase One into Phase Two. This project is about enabling real-time in-field AI deployment on small, low-power systems typically operating in challenging conditions. As part of this program, we will build and test a ruggedized node containing the Gemini II for real-world mission-critical environments. This SBIR positions us within a broader shift in defense spending, with approximately $13 billion proposed in fiscal 2026 budgeted for AI and autonomous systems, and creates a potential pathway to follow-on programs and future opportunities to supply Gemini II-based systems. So how do we move from where we are today to design wins and ultimately revenue? From a commercial standpoint, we are still in the early stages. Our focus is on advancing our current engagements and working closely with partners to integrate Gemini II into their systems, with the goal of moving into design-level discussions. Given the complexity of these deployments, we are focusing our resources on a small number of high-value opportunities where we believe we have a clear advantage. Although the number of engagements remains limited, we are seeing a meaningful increase in the depth of these engagements and our ability to leverage our prior Gemini II deployment work for new related applications. Looking ahead, our priorities are to advance current POCs and awarded programs and to leverage what we have learned from each of these engagements to drive additional design opportunities. At the edge, performance matters most when it can be delivered within real-world power and latency constraints. That is where we believe Gemini II’s advantage lies. With that, I would like to hand the call over to Doug. Go ahead, Doug. In the earnings release issued today after the close of the market, you will find a detailed summary of our financial results for the fourth quarter and full fiscal year 2026. Douglas M. Schirle: Rather than walking through the numbers again, I will focus my comments on the key drivers behind the results and provide more context and explanation to help you better understand the business. Let me start with the results for fiscal year 2026, ended 03/31/2026. As Didier mentioned, fiscal 2026 revenue increased 22.4% to $25.1 million, reflecting continued strength in our SRAM business, particularly with customers supporting chip design and simulation for AI applications. We experienced solid growth in this customer segment throughout fiscal year 2026. We do see variability in customer orders, and sales can fluctuate from quarter to quarter. However, barring any significant change in underlying AI chip demand that would affect SRAM orders from these customers, we expect this business to remain relatively stable in fiscal year 2027. The higher level of revenue and product mix helped to lift fiscal year 2026 gross margin to 54.5%, a notable gain from the prior year gross margin of 49.4%. Operating expenses in fiscal 2026 rose to $31.2 million compared to $21 million in fiscal 2025. Operating expenses increased year-over-year primarily driven by higher R&D spending on the PLATO chip design. It is also important to note that the prior year included a $5.8 million gain from the sale of assets, which makes year-over-year comparisons appear more pronounced. We also continue to offset a portion of our R&D expenses through non-dilutive funding, SBIR contract funds, and POC-related funding. The majority of our R&D is dedicated to APU. The R&D offset in fiscal 2026 and fiscal 2025 was $1 million and $1.2 million, respectively. Higher operating expenses increased the total operating loss for fiscal 2026 to $17.5 million compared to an operating loss of $10.8 million in the prior year. The fiscal 2026 net loss included interest and other income of $4.1 million, primarily from interest payments on the increased cash balance from the capital raise completed in October 2025, and $3.4 million of other income consisting of a $6.2 million non-cash gain from the change in the fair value of prefunded warrants, partially offset by $2.8 million in issuance costs associated with the registered direct offering in October 2025. Switching now to the fourth quarter. Revenue was $6.3 million with a gross margin of 52.4%. As we have seen in prior periods, quarterly gross margin can fluctuate with the product mix and revenue levels. The fourth quarter gross margin reflects slightly lower semiconductor sales sequentially compared with the prior-year quarter. From a customer perspective, we did see some variability across accounts during the quarter, including lower shipments to certain customers and higher shipments to others. At the same time, defense-related sales increased to approximately 46% of total shipments, reflecting continued demand in that segment. Again, you will find a full breakdown of sales in today’s earnings release. Operating expenses increased from the prior year primarily due to continued investment in our Gemini II and PLATO development programs. These investments align with our strategy to advance our APU roadmap while maintaining discipline in cost management. Last quarter, we expanded quarterly earnings disclosures to help investors better understand the company’s cash consumption and cash generation. This information will complement the condensed consolidated statement of cash flows included in our Forms 10-K and 10-Q. Cash flows for the quarter ended 03/31/2026 were as follows: cash and cash equivalents as of December 31 were $70.7 million; net cash used in operating activities in the quarter was $5.5 million; net cash used in investing activities was approximately $100,000; and net cash provided by financing activities was $2.1 million. Cash and cash equivalents as of 03/31/2026 were $6.2672 billion. From a cash flow standpoint, spending in the quarter continued to reflect our investment in Gemini II and PLATO development. We expect cash usage to remain elevated as we progress through this development phase. As a general reference point, we expect the cash usage to be approximately $4 million per quarter, or about $16 million annually, although this may vary depending on development timing and program activity. We ended the quarter with $67.2 million in cash and no debt. This is a notable improvement from the prior-year cash balance of $13.4 million and is associated with $46.9 million, net of fees, registered direct offering proceeds that closed in October 2025. The absence of debt and the improved cash balance provide us with the flexibility to continue investing in APU while maintaining a disciplined approach to capital allocation. We believe our current cash position provides sufficient runway to support the initial commercialization of Gemini II and the completion of the PLATO tape-out, both expected late fiscal 2027. Before I hand the call over to the operator for Q&A, I would like to provide the first quarter fiscal 2027 outlook. For the upcoming quarter, we expect net revenues in the range of $5.9 million to $6.7 million with gross margin of approximately 54% to 56%. Overall, our strong cash position and continued support from non-dilutive funding give us a runway to advance Gemini II into early commercialization and the PLATO chip design. Operator, at this point, we will open the call for questions. Operator: Thank you. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Once again, it is star 1 to ask a question. The first question is from Tony Brainard, retail investor. Analyst: Hello, gentlemen. How are you? Lee-Lean Shu: Good. Thank you. Analyst: Yes. Can you share some color on the size—like, if you do get the design wins—the size of the market we are looking at? Lee-Lean Shu: On which market? Analyst: On the Gemini II. Didier Lasserre: Okay. That is a pretty broad question. So the markets we are going after initially, you know, some of them are government, military-based, specifically these drone programs. And as we talked about, we are limited in detail now. We will give you more detail on the smart city at the end of May. But both of those markets are multibillion-dollar markets. Lee-Lean Shu: Okay. Analyst: Yep. Analyst: That is fair enough. And that is my only question for today. Thank you very much. Douglas M. Schirle: Alright. Thanks, Tony. Analyst: Thank you. Operator: The next question comes from Robert Christian, Private Investor. Robert Christian: Yes. I would like to know why the PLATO project has moved up from 2027 to late fiscal 2027. Didier Lasserre: Actually, it has not been pushed out. It might have been a mixture of calendars and fiscal quarters. When we had first talked about it, we were targeting the beginning of calendar 2027 to have the part taped out, and we are still on schedule for that. Tape-out means that the design will be done in the first quarter, and that would give us silicon because we have to make the mask sets that are used for the wafer fabs at TSMC. So we will see our first wafers in hand in summertime of calendar 2027, and I believe that has always been our schedule. Lee-Lean Shu: Yeah. I think we mentioned fiscal year 2027. That is the beginning of the 2027 calendar year. Didier Lasserre: That is a good point. So the end of fiscal 2027 is March of calendar 2027. Okay. That would be great. And the second question I have is, Gemini II taped out over two and a half years ago. Is it going to take that long to see expected sales, say, of PLATO? Didier Lasserre: So that is a great question. You have two components to sales. You have the hardware component, which is the chip and any kind of board, and you have the software side. The software side actually lagged the hardware on Gemini II. With PLATO, we are trying to align the two more closely. The good news is some of the software work that is being done for Gemini II can be used for PLATO, while with Gemini I it was a completely new effort. In that respect, we can leverage some of the work from Gemini II for PLATO, and then we are also lining up the resources to be able to bring in the software with PLATO. Robert Christian: Well, the chip is genius, and I wish you guys godspeed. Lee-Lean Shu: Thank you. Didier Lasserre: Thank you. Operator: At this time, we show no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Lee-Lean Shu for closing statements. Lee-Lean Shu: Thank you again for joining today’s call. As a reminder, Didier will be at the LD Micro Conference on May 19. Contact LD Micro if you would like to attend this presentation or take a one-on-one meeting. We are encouraged by the progress we are making with Gemini II, and we remain focused on successfully executing against the opportunities in front of us. We look forward to speaking with you again on our fiscal 2027 first quarter earnings call. Thank you. Operator: This concludes today’s conference. Thank you for attending. You may now disconnect.
Operator: 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: Welcome to Oportun Financial Corporation's first quarter 2026 earnings conference call. All lines have been placed on mute to prevent background noise. After the speakers' remarks, there will be a question and answer session. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Dorian Hare, Senior Vice President of Investor Relations. Dorian, you may begin. Dorian Hare: Thanks, and hello, everyone. With me to discuss Oportun Financial Corporation's first quarter 2026 results are Doug Bland, our Chief Executive Officer, and Paul Appleton, our Interim Chief Financial Officer, Treasurer, and Head of Capital Markets. Kate Layton, Oportun Financial Corporation's Chief Legal Officer, and Gaurav Rana, our Senior Vice President and General Manager of Lending, will also join for the question and answer session. I will remind everyone on the call or webcast that some of the remarks made today will include forward-looking statements related to our business, future results of operations, and financial position, including projected adjusted ROE attainment and expected originations growth, planned products and services, business strategy, expense savings measures, and plans and objectives of management for future operations. Actual results may differ materially from those contemplated or implied by these forward-looking statements, and we caution you not to place undue reliance on these forward-looking statements. A more detailed discussion of the risk factors that could cause these results to differ materially is set forth in our earnings press release and in our filings with the Securities and Exchange Commission under the caption Risk Factors, including our upcoming Form 10-Q filing for the quarter ended 03/31/2026. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events other than as required by law. Also on today's call, we will present both GAAP and non-GAAP financial measures, which we believe can be useful measures for period-to-period comparisons of our core business and which will provide useful information to investors regarding our financial condition and results of operations. A full list of definitions can be found in our earnings materials available at the Investor Relations section of our website. Non-GAAP financial measures are presented in addition to, and not as a substitute for, financial measures calculated in accordance with GAAP. A reconciliation of non-GAAP to GAAP financial measures is included in our earnings press release, our first quarter 2026 supplement, and the appendix section of the first quarter 2026 earnings presentation, all of which will be available at the Investor Relations section of our website at oportun.com. In addition, this call is being webcast, and an archived version will be available after the call along with a copy of our prepared remarks. With that, I will now turn the call over to Doug. Doug Bland: Thanks, Dorian, and good afternoon, everyone. Thank you for joining us. I am honored to be speaking with you for the first time as CEO of Oportun Financial Corporation. I was drawn to Oportun Financial Corporation because it stands out: a technology-driven platform with a critical mission and proven ability to responsibly improve the financial lives of people who are too often overlooked by traditional lenders. I also saw a business known for high-quality customer service, uniquely positioned to seamlessly engage with both English- and Spanish-speaking members across its retail, contact center, and mobile app. My initial meetings with team members across the company and with key stakeholders have only reinforced this view. I look forward to working with our team and board to strengthen the business, build deeper relationships with our members, and deliver long-term value for shareholders. I am optimistic about what we can achieve together. I joined Oportun Financial Corporation on April 20, so I have been in the role for less than three weeks. I am not going to use my first earnings call to declare a new strategy before I have completed a deeper review. What I can say from my early assessment is that the team has made real progress strengthening the foundation of the business, particularly profitability, liquidity, and funding costs. While important work remains to improve through-cycle credit performance and rebuild a durable growth engine, the 2026 plan was already in motion before I arrived. Based on my review so far, I support reiterating the full-year guidance. I will now hand it over to Paul for a review of how we are executing against our current strategy and our first quarter financial results. He will also provide our Q2 guidance while updating you on our full-year outlook. Paul Appleton: Thank you, Doug, and good afternoon, everyone. I would like to start by updating you on our strategic priorities, which include improving credit outcomes, strengthening business economics, and identifying high-quality originations. Starting with improving credit outcomes, we have remained in a tight credit posture, maintaining an emphasis on returning members amid an uncertain macroeconomic outlook for low- and moderate-income households. Our annualized net charge-off rate was 12.65% in Q1, at the midpoint of our guidance range. In Q1, the proportion of originations to returning members was 79%, 16 percentage points higher than the 63% recorded in the prior-year quarter. Importantly, our Q1 30+ delinquency rate of 4.5% met the expectations we set on our February earnings call, down 38 basis points sequentially and 18 basis points year over year. We expect the second quarter's 30+ delinquency rate to improve further to a range between 4.1% and 4.2%, which is 22 to 32 basis points lower than Q2 2025 and 30 to 40 basis points lower sequentially than the first quarter. These proof points support our continued confidence that Q1's 12.65% annualized net charge-off rate should be the highest of 2026. As also mentioned on our February earnings call, a key focus this year is continuing to invest in our credit decisioning capabilities to accelerate model training, deployment, and effectiveness. In Q2, we are introducing the latest iteration of our primary underwriting model, B13, which features an enhanced model architecture designed to better capture both long-term and more recent emerging trends. The model also incorporates new alternative data sources to improve predictive power and reduce adverse selection risk. Turning to business economics, we remain committed to improving on full-year 2025 17.5% adjusted ROE and 6.8% GAAP ROE, making progress toward our objective of 20% to 28% GAAP ROEs on an annual basis. A key component of this is continuing our expense discipline. During Q1, total operating expenses declined 1% year over year to $91 million, in line with the substantially flat expectation we set for the full year. Another important part of our efforts to attain our ROE goal is exploring the launch of risk-based pricing. As discussed on our last earnings call, this effort would reintroduce pricing above 36% for shorter-term loans and higher-risk segments, including some customers we are not able to approve today. We have made good progress with this initiative, including signing a letter of intent with a new bank partner. As a result, we continue to expect to roll this initiative out in the second half of the year. Last month, we launched another initiative, a payment protection offering, that we expect will provide more certainty for our members and a positive financial contribution to Oportun Financial Corporation in future years. Payment protection is an opt-in offering that members can elect during the loan application process, which provides protection against unforeseen events like involuntary unemployment, death, or disability by completely or partially paying off the loan. The offering is currently available to loan applicants in several states, and in coordination with our bank partner, we expect to introduce the offering across most of our footprint in the coming months. Due to the phased rollout, we are currently assuming only a modest financial benefit from the payment protection initiative in our 2026 guidance. However, at scale, we see potential for profit enhancement in future years due to lower credit losses on enrolled loans and fees earned. Lastly, regarding identifying high-quality originations, in Q1, originations declined by 11%. This was in line with our expectations, reflecting typical seasonality and the higher mix of returning borrowers I referenced a moment ago. We continue to expect to grow originations in the mid-single-digit percentage range this year. Expanding our secured personal loan portfolio secured by members' autos remains a key pillar of our responsible growth strategy. Partially offsetting the unsecured personal loan originations decline, in Q1 secured personal loan originations grew 12% year over year, and the secured portfolio grew 30% year over year to $233 million. As a result, secured personal loans now represent 9% of our owned portfolio, up from 7% last year. Importantly, average losses on secured personal loans continued to run substantially lower than unsecured personal loans in the first quarter. Turning now to Q1 highlights on Slide 6, we recorded our sixth consecutive quarter of GAAP profitability with net income of $2.3 million and diluted EPS of $0.05 per share. We also generated adjusted net income of $10 million and adjusted EPS of $0.21 per share. Total revenue of $229 million declined by $7.1 million, or 3% year over year, which again was in line with our expectations and driven by the 11% year-over-year decline in originations I mentioned a moment ago. Net decrease in fair value was $86 million this quarter due to $85 million in net charge-offs. The net decrease in fair value was $13 million higher than the prior period, which benefited from a favorable $12 million mark-to-market adjustment on loans. First-quarter interest expense was $48 million, down $9 million year over year. This improvement reflects recent balance sheet optimization initiatives that I will share shortly. Net revenue was $90 million, down $11 million year over year, as the impact of lower total revenue and fair value offset the benefit from lower interest expense. Operating expenses were $91 million, down $1.3 million, or 1% year over year, reflecting continued cost discipline. Adjusted EBITDA, which excludes the impact of fair value mark-to-market adjustments on our loan portfolio and notes, was $29 million in the first quarter. This reflects a year-over-year decrease of $4.2 million as lower total revenue and higher net charge-offs more than offset lower interest expense and adjusted operating expense. Adjusted net income was $10 million, down $8.4 million year over year due to lower net revenue, partially offset by lower adjusted operating expense. Adjusted EPS declined year over year from $0.40 per share to $0.21 per share. Finally, GAAP net income of $2.3 million was similarly down $7.4 million year over year. Turning now to capital and liquidity as shown on Slide 9, we continue to strengthen our debt capital structure through continued balance sheet optimization by further reducing higher-cost corporate debt, lowering our overall cost of capital, and enhancing liquidity. I am pleased with the progress we made deleveraging, ending the quarter with a 6.8x debt-to-equity ratio. That is down from 7.6x a year ago and materially lower than the peak leverage of 8.7x we reported in Q3 2024. The improvements achieved since then and through the end of the first quarter include consistent GAAP profitability, a $69 million, or 21%, increase in shareholders' equity, and a $70 million, or 30%, reduction in our high-cost corporate debt. Q1 interest expense was $48 million, which was $9 million, or 16%, lower than the prior-year quarter, supporting our sustained profitability. This was driven by corporate debt repayments as well as actions taken related to our ABS notes and warehouse facilities. Also supporting our strong liquidity position, our cash flow has enabled us to continue to grow our unrestricted cash balance to $130 million as of the end of Q1 2026, up $25 million from year-end 2025 and up $52 million year over year. With this strong cash position, we paid down another $30 million of high-cost corporate debt following the end of the first quarter, lowering our remaining corporate debt principal balance to $135 million. Corporate debt repayments since the facility's October 2024 inception now total $100 million, reducing outstandings from the initial $235 million balance to $135 million, resulting in $15 million in annual run-rate expense savings. On the capital markets side, we completed a $485 million ABS transaction at a 5.32% yield in February. Over the last 12 months, we have issued $1.9 billion in ABS bonds at sub-6% yields, demonstrating our sustained access to capital on favorable terms. Next, I would like to turn to our updated guidance as shown on Slide 10. While our member base remains resilient, inflation above Federal Reserve targets, uneven job creation, policy uncertainty, and higher gas prices continue to create a cautious environment for low- to moderate-income consumers. We are particularly monitoring the impact of high fuel prices on our members, and while we have not seen any deterioration in our metrics as a result, we understand the pressure this can place on our customers if higher prices persist. Consequently, our outlook prudently assumes we maintain a tight credit posture through the balance of the year. We remain well positioned to adjust quickly as conditions evolve. Our outlook for the second quarter is total revenue of $227 million to $232 million, annualized net charge-off rate of 12.2% plus or minus 15 basis points, and adjusted EBITDA of $34 million to $39 million. At the midpoint, our Q2 revenue guidance implies a modest sequential increase from Q1 and a lesser year-over-year decline driven by higher originations from first-quarter levels. Our Q2 annualized net charge-off rate midpoint guidance of 12.2% implies 45 basis points of sequential improvement from the first quarter, supported by the favorable 30+ delinquency trends I discussed earlier. At the midpoint of $37 million, our Q2 adjusted EBITDA guidance implies strong sequential growth and a return to year-over-year growth of $5 million, or 17%, driven primarily by lower interest expense along with ongoing operating expense discipline. We are fully reiterating our full-year 2026 guidance, including total revenue of $935 million to $955 million, annualized net charge-off rate of 11.9% plus or minus 50 basis points, adjusted EBITDA of $150 million to $165 million, adjusted net income of $74 million to $82 million, and adjusted EPS of $1.50 to $1.65. Our full-year 2026 guidance continues to be underpinned by our expectations for a 1% to 2% decline in average daily principal balance, a reduction in interest expense of at least 10%, and substantially flat operating expenses. Also, our full-year annualized net charge-off rate midpoint guidance of 11.9% continues to indicate slight year-over-year improvement. Midpoint growth of 16% in adjusted EPS and 6% in adjusted EBITDA, even amid macro uncertainty for low- to moderate-income consumers, reflects the resilience of both our members and our business model. Before I turn it back to Doug, let me conclude with a brief summary of our unit economics progress. Although our long-term targets are GAAP targets, I will reference adjusted metrics because they remove non-recurring items and better reflect our future run rate. As shown on Slide 11, we generated 10.5% adjusted ROE during the first quarter. With ramping originations and lower credit losses embedded in our full-year guidance, we expect to improve on our first-quarter adjusted ROE performance in the balance of the year and outpace last year's 17.5% adjusted ROE. I am encouraged by the positive fundamentals we exhibited in Q1, particularly year-over-year improvement in cost of funds and operating expense efficiency. Our balance sheet optimization initiatives drove improvement in our cost of funds from 8.2% to 7%, a level well below our 8% target. And expense discipline enabled improvement in our adjusted OpEx ratio from 13.3% to 12.7%, nearing our 12.5% target. Our North Star remains delivering GAAP ROEs of 20% to 28% annually. We plan to achieve this by driving positive credit outcomes, growing the owned loan portfolio, and effectively managing operating expenses. We also intend to continue to drive our debt-to-equity leverage ratio this year toward our 6x target by reducing our debt outstanding and continuing to grow GAAP profitability. With that, Doug, back over to you. Doug Bland: Thanks, Paul. To close, I would like to emphasize that while Oportun Financial Corporation's foundation is stronger than it was, we need to establish predictable outcomes that result in durable growth. My focus now is on disciplined execution, deeper assessment, and coming back to you on our second quarter earnings call with a clearer view of the path forward. I want to underscore that Oportun Financial Corporation's mission to empower members to build a better future will continue. I see a tremendous opportunity to accelerate this mission. It is my focus to partner with our teams to determine ways to accomplish this. I am energized by what is ahead. With that, we will now open the call for questions. Operator: We will now open the call for questions. You may press 2 if you would like to remove your questions from the queue. It may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question comes from the line of Brendan McCarthy with Sidoti. Please go ahead. Brendan McCarthy: Great, thanks, everybody, for taking my questions, and welcome, Doug. I just wanted to start off on the outlook here. Originations were down 11% year over year. That makes sense considering your tighter underwriting position. How does the new risk-based pricing initiative fit into the 2026 guidance that calls for a mid-single-digit increase for the year? Paul Appleton: Thanks, Brendan. I appreciate the question. When it comes to the risk-based pricing initiative, as I mentioned in my comments, we are making good progress rolling out that program. As you know, for most of Oportun Financial Corporation's history, we did price above 36%. As we reintroduce this pricing regime, we certainly want to be thoughtful about the glide path and what it looks like. For guidance, we have embedded a little bit of benefit in there for 2026, but just a small amount given we want to test into it and the program is not live yet. Brendan McCarthy: Understood. I appreciate the color there. Looking at interest expense, it looked like a pretty steep year-over-year decline, and if you annualize Q1 it looks like you are trending well under that target for a 10% reduction in interest expense for full-year 2026. Do you see room there to boost margins over the course of the year? Paul Appleton: Possibly, yes. I see what you are looking at when you look at the run rate there. We are obviously pleased with the progress in paying down the corporate debt. As I mentioned in my comments, we are down $100 million from the initial balance of the corporate loan, and that is driving a $15 million annualized interest expense run-rate benefit. As I mentioned as well, we paid down another $30 million after the end of the quarter, which is included in that $100 million. So yes, there may be a bit of opportunity there, especially given some of the ABS execution we have had recently. Brendan McCarthy: That makes sense. And as a follow-up on leverage, I think you mentioned you are at about 6.8x leverage at this point. You are trending pretty quickly toward your 6x target. How can we think about your capital allocation once you reach that target? How might capital allocation change going forward? Paul Appleton: Great question, Brendan, thank you. The capital allocation priorities we have right now are continuing to invest in profitable growth and paying down the corporate debt. When we pay that down, that comes with a certain return—we know exactly the expense we are going to save, and the corporate debt has a high price to it. We are at that 6.8x leverage you mentioned. As we said on our last earnings call, we do expect to trend toward that 6x by the end of the year. For now, those are going to remain our two priorities, and then we can look beyond that once we reach the target. Brendan McCarthy: That is great. Thanks, Paul. Thanks, Doug. That is all for me. I will hop back in the queue. Operator: Thank you. Next question comes from the line of Analyst with Jefferies. Please go ahead. Analyst: Good afternoon, and thank you for taking my question. Welcome, Doug. I was just wondering if you have seen any changes to demand trends given the high fuel prices. Has this driven more borrowing given cash constraints? Thank you. Paul Appleton: In the first quarter, we continued to see demand outpace our originations, so there is certainly continued robust demand in the market. Analyst: Great, thank you. And then just a second question—thinking about the current mix of digital versus branch originations. Do you plan to evaluate any changes moving forward, and how should we expect this to trend in the future? Gaurav Rana: Thank you. The trends that we have today you can expect to continue through the course of the year. As Paul alluded to, we are still guiding toward mid-single-digit growth in originations, and we have lined up our marketing spend accordingly to drive that growth. Operator: Thank you. Next question comes from the line of Brendan McCarthy with Dougherty. Please go ahead. Brendan McCarthy: Great, thank you. Just a quick follow-up here. On the net charge-off guidance, I think hitting the 11.9% midpoint for the full year assumes a pretty nice step-down in the net charge-off rate to an average of around 11.6% for the rest of the year. How confident are you that you can really hit the midpoint there? What specific credit indicators are you looking for? Paul Appleton: Thank you for the follow-up question, Brendan. As you know, the 12.65% net charge-off rate we reported in the first quarter was elevated but expected—it was the midpoint of our guidance, and we achieved that. As we mentioned on prior earnings calls, the reason for that spike in net charge-offs was due to the mix shift that we experienced in 2025 when new loan originations accounted for a greater share of the mix than they do now. We have since shifted the mix back to returning borrowers, which is a positive tailwind for credit. Then you look at the guidance we set for the second quarter—we are doing that very informed by what we are seeing in roll rates. Late-stage roll rates that will contribute to second-quarter charge-offs are improving. The third positive trend is 30+ day delinquency that I mentioned in the comments, where those are trending lower than the first quarter. All those signs point to continued improvement. As you no doubt have factored in, when you put in the 12.65%, the 12.2%, and the 11.9% target for the full year, that does imply we are at the 11-handle for the second half of the year, in line with our 9% to 11% target. Operator: Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I would now like to turn the floor over to Doug Bland, Chief Executive Officer, for closing comments. Doug Bland: Thank you, everyone, for joining today's call. Before we close, I want to say a special thanks to the team, in particular Kate, Paul, and Gaurav, for working through the transition. Transition is, even under the best circumstances, never easy, and I think the team has done an excellent job continuing to drive this business focused on discipline, as you heard from the results they achieved during this quarter. I want to thank this team and look forward to working with them as we move forward. We appreciate your continued interest in Oportun Financial Corporation and look forward to speaking with you again soon. Thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Ladies and gentlemen, thank you for standing by. My name is Duncan, and I will be your conference operator for today. I would like to welcome you to Absci Corporation first quarter 2026 business update. All lines have been placed on mute to prevent any background noise, and after the speakers’ remarks, there will be a question and answer session. Now I would like to turn the conference over to Alex Khan. Please go ahead. Thank you. Alex Khan: Absci Corporation released financial and operating results for the quarter ended 03/31/2026. If you have not received this news release, or if you would like to be added to the company’s distribution list, please send an email to investorsasci.com. An archived webcast of this call will be available for replay on Absci Corporation's Investor Relations website at investors.avsci.com for at least 90 days after this call. Joining me today are Sean McClain, Absci Corporation's Founder and CEO; Zach Jonasson, Chief Financial Officer and Chief Business Officer; and Ronti Somerotne, Chief Medical Officer. Before we begin, I would like to remind you that management will make statements during the call that are forward-looking within the meaning of the federal securities laws. These statements involve material risks and uncertainties that could cause results or events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements. These include statements regarding the development and clinical progress of our pipeline programs, including ABS-201; the design, enrollment, product, and timelines of our ongoing Phase 1/2a headline trial of ABS-201 in androgenic alopecia; anticipated timing of interim proof-of-concept data readout for ABS-201 in 2026; the potential advancement of ABS-201 into Phase 3 development; anticipated initiation of a Phase 2 clinical trial of ABS-201 for endometriosis in 2026, and a potential proof-of-concept readout in 2027; the anticipated characteristics and product profile of ABS-201 as a drug product; our target product profile and its attributes; the potential for an expedited development pathway, including the possibility of advancing directly from Phase 1/2a into Phase 3; our plan to engage with the FDA regarding development strategy; and the potential market opportunity and commercial prospects for ABS-201. Certain statements may also include projections regarding potential market opportunity. These estimates are based on various assumptions, including potential regulatory approval, the final approved label, and the evolving competitive landscape, any of which could cause our actual addressable market to differ materially from these projections. In addition, certain research findings discussed today reflect participant responses to a hypothetical product profile and do not represent clinical results for ABS-201. Additional information regarding the risks and uncertainties that could affect our forward-looking statements is set forth in the press release Absci Corporation issued today, our most recent annual report on Form 10-K, subsequent documents, and reports filed by Absci Corporation from time to time with the SEC. Except as required by law, Absci Corporation disclaims any intent or obligation to update or revise any financial or product pipeline projections or other forward-looking statements because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast on 05/07/2026. With that, I will turn the call over to Sean. Sean McClain: Good afternoon, everyone. Thanks for joining us. Today, I will cover three things: where we are on ABS-201, a new addition to our prolactin pipeline, and the strategy driving both. 2026 is going to be a data-rich year for Absci Corporation with multiple readouts in front of us. Ronti will go through the headline trial and discuss early PK modeling that supports our targeted dosing frequency. At a high level, the Phase 1/2a is on track. We expect to share preliminary safety, tolerability, and PK data next month; interim 13-week hair regrowth data in the second half of this year; and full 26-week proof-of-concept data early next year. ABS-201 is not intended to compete with minoxidil. We are aiming to create a new category of hair regrowth therapy—a targeted biologic against the prolactin receptor that provides durable hair regrowth from a few injections. If successful, ABS-201 could represent the first new mechanism of action in androgenic alopecia in nearly three decades and a fundamentally different treatment paradigm for patients. In parallel, we continue to advance towards initiation of a Phase 2 endometriosis trial in the fourth quarter. We recently launched our endometriosis Clinical Advisory Board with leaders from Yale, UCSF, Duke, and Mayo Clinic. They bring deep expertise across reproductive medicine, fertility, and translational research and will help guide ABS-201’s endometriosis program. Endometriosis has the same kind of opportunity as AGA—large, underserved, and underexplored—and ABS-201 has the potential to open up a new category of therapy there as well. As Zach will discuss, our top strategic priority is using our platform to create novel, differentiated assets. ABS-201 in AGA and endometriosis is the clearest expression of that. We go after hard problems, novel biology, and large patient populations with real unmet need. Our platform is built for this, and our philosophy has always been simple: follow the science, and follow the data. One of the places this has taken us is prolactin biology. Prolactin biology is underexplored, underappreciated, and often misunderstood. Even inside the medical community, the name prolactin can read as narrow, and some still think of it as a lactation hormone. It is much more than that. The more mechanistic insight we have generated on prolactin, the prolactin receptor, and related pathways, the more opportunity we see for this target—well beyond AGA and endometriosis. We have started sharing some of these insights with the medical community as part of a broader education effort. Today, we are announcing another anti–prolactin receptor antibody, ABS-202, for an undisclosed I&I indication. ABS-201 in AGA, ABS-201 in endometriosis, and now ABS-202 in I&I are just the start of our prolactin pipeline. The reason we can do this comes back to our people and our platform, OriginOne. We figured out early that having a good platform is not good enough on its own. We need the people who know how to push it, and in this industry, you also need the assets—novel and differentiated programs that can make a real difference in patients’ lives. The places where unmet need is largest tend to be where biology is most complex and underexplored, and that is exactly where our platform and our people excel. That overlap is also where the potential return on investment is highest, both for patients as well as our shareholders. Our focus remains being an AI-native company dedicated to developing and delivering novel, differentiated therapeutic assets for patients. As we roll out our agentic AI workflows across Absci Corporation, each of our functions is scaling. Across Research, SG&A, and other functions, we are unlocking real efficiencies and new capabilities. That is the focus, and that is what we are committed to delivering. With that, I will turn it over to Ronti, who will walk through the ABS-201 clinical program. Ronti? Ronti Somerotne: Thanks, Sean, and good afternoon, everyone. As Sean mentioned, we are pleased to share that our ongoing Phase 1/2a headline trial for ABS-201 is progressing well and tracking according to plan. As a reminder, this trial is a randomized, double-blind, placebo-controlled study. The primary endpoint is safety and tolerability, while secondary endpoints include PK, PD, immunogenicity, target area hair count, target area hair width, and target area darkening or pigmentation. We will also collect patient-reported outcome data from this study. In the headline trial, we have now finished dosing all four planned healthy volunteer single-ascending-dose cohorts and initiated dosing in the first multiple-ascending-dose cohort. To date, emerging safety and tolerability data remain favorable. Additionally, preliminary PK modeling from this clinical trial supports ABS-201’s targeted dosing interval of two or three injections over a months-long period. Next month, we anticipate sharing blinded preliminary safety, tolerability, and PK data from the SAD cohorts. In that update, we plan to share clinical data that support the safety profile and anticipated ABS-201 dosing interval. In the second half of this year, we plan to disclose interim proof-of-concept data, followed by full proof-of-concept data in early 2027. The 13-week interim is, by design, a directional view. The 26-week time point is the trial’s full POC readout. Given the regenerative nature of the mechanism and our targeted dosing interval, the biology may continue to drive hair growth beyond that point, which is consistent with the long-acting profile we are working towards. Zach will speak to how this positions ABS-201 well for commercial success. We also continue to explore plans to execute our targeted, efficient clinical development strategy, which could enable expedited clinical development with the potential of advancing directly to registrational trials following this Phase 1/2a study. With that, I will pass it over to Zach to discuss our business strategy and to provide an update on our financials. Zach? Zach Jonasson: Thanks, Ronti. We remain focused on creating and developing therapeutic programs that offer the highest potential return on investment. Our strategic priority is the execution of the ABS-201 headline trial, which supports our future registrational study plans for AGA and our Phase 2 clinical trial plan for endometriosis. As Ronti mentioned, we plan to share an interim POC readout, including 13-week hair regrowth data, in the second half of this year. Based on the mechanism and our preclinical data, we anticipate the 13-week interim readout will give a directional view of hair growth, with the 26-week full POC providing the trial’s primary efficacy readout. Given the regenerative nature of the mechanism, we anticipate hair growth to continue beyond the 26-week time point. Conversations with the scientific and medical community, as well as patients, continue to affirm our view of the significant return-on-investment potential for ABS-201 in AGA and endometriosis. We estimate that the capital required to advance ABS-201 through registrational AGA trials will be a fraction of the clinical costs required for other large indications, such as oncology and IBD. Moreover, we expect to be able to leverage the SAD and MAD portions of the current headline trial to support Phase 2 initiation in endometriosis, thereby saving time and cost. Considering the significant potential market opportunities of AGA and endometriosis in conjunction with our efficient development strategy, we believe that ABS-201 offers a unique and compelling ROI. Our market research supports a significant commercial opportunity for ABS-201. In our surveys of AGA consumers and dermatologists, we evaluated a target product profile consisting of 2.5 years of hair growth following three injections of ABS-201, with a hair growth effect of approximately 35 hairs per cm² versus baseline, similar to high-dose oral minoxidil. Results from our market research support a potential total available market exceeding $25 billion annually in the U.S., with meaningful potential upside if hair growth exceeds the survey threshold. ABS-201 has the potential to significantly expand the overall AGA market as a new premium category of durable, regenerative hair growth therapy. Our market research indicates the ABS-201 target product profile would attract not only AGA consumers dissatisfied with current standard of care, but also those who elect to use ABS-201 alongside existing standard of care, such as oral minoxidil or new formulations of oral minoxidil. Similarly, in endometriosis, ABS-201 has the potential to define a new category of therapy that has the potential to address not only pain, but also underlying disease. Endometriosis is prevalent in up to 10% of women worldwide, including an estimated 9 million women in the U.S. We believe ABS-201’s differentiated profile could support potential peak sales in excess of $4 billion. As Sean mentioned earlier, our second priority is building and prioritizing an early pipeline of differentiated programs that offer the highest potential return on investment. Accordingly, today, we are pleased to announce the deepening of our pipeline with the addition of a new anti–prolactin receptor antibody, ABS-202. This program, which leverages our prolactin biology expertise and our AI platform, enables us to expand into new indications where we believe prolactin receptor inhibition will offer a novel and efficacious treatment option. Conversely, we have determined that certain programs no longer fit within our strategic scope, and so we will be deprioritizing development of ABS-301 and ABS-501. We will no longer commit internal capital or resources to further development of these programs. Our capital and resources will be directed toward programs that offer the greatest potential ROI within our strategy. In addition to the two previously discussed strategic priorities, we continue to advance partnering discussions associated with our other internal programs, which are at various stages of preclinical and clinical development. Overall, our strategy remains focused on executing the development of ABS-201 in AGA and in endometriosis, and then further building a pipeline of differentiated programs that provide optionality for internal development or partnering. Turning now to our financials. Revenue in the first quarter was $200 thousand, as we continue to progress our partnered programs. Research and development expenses were $19.3 million for the three months ending 03/31/2026, as compared to $16.4 million for the prior-year period. This increase was primarily driven by advancement of Absci Corporation’s internal programs, including direct costs associated with external preclinical and clinical development of ABS-201. Selling, general, and administrative expenses were $9.1 million for the three months ending 03/31/2026, as compared to $9.5 million for the prior-year period. This decrease was primarily due to a reduction in personnel-related costs. Cash, cash equivalents, and marketable securities as of 03/31/2026 were $125.7 million, as compared to $144.3 million as of 12/31/2025. Based on our current projections, we believe our cash, cash equivalents, and marketable securities will be sufficient to fund our operating plans into 2028. Our current balance sheet supports our execution of key upcoming catalysts, including potential proof-of-concept readouts for both AGA and endometriosis, and continued progress of our early-stage pipeline. We also remain focused on opportunities to generate additional non-dilutive cash inflows that could come from early-stage asset transactions and/or new platform collaborations with large pharma. In particular, we believe our early pipeline programs may offer attractive partnering opportunities. At the same time, we are aggressively implementing agentic AI workflows across our organization, including in business and scientific functions. These implementations are already creating meaningful efficiency gains as well as capability gains. Going forward, we expect to continue to realize cost savings and productivity gains from advancement of our agentic workflows. With that, I will now turn it back to Sean. Sean McClain: Thanks, Zach. Before we open up for questions, I want to thank the team at Absci Corporation for the work they put in each and every day. The catalysts ahead this year are: one, preliminary safety and PK data for ABS-201 next month; two, interim 13-week proof-of-concept hair regrowth data in the second half of this year; three, initiation of a Phase 2 endometriosis trial in Q4, subject to data and regulatory review; and last, continued progress on our early-stage pipeline, including our newest prolactin program, ABS-202. Looking into early 2027, we expect full 26-week proof-of-concept data for ABS-201 in AGA. We will now open the call for questions. Operator: If you would like to ask a question, please press star followed by one. Thank you. Your first question comes from the line of Brendan Smith from TD Cowen. Your line is now open. Please go ahead. Brendan Smith: Hi, guys. Apologies. Can you hear me now? Sean McClain: Yes. Brendan Smith: Thanks for taking the questions, and congrats on everything going on here. I guess maybe just a quick follow-up on the 202 conversation. Can you help us understand a little bit more, even on a mechanistic level, the most important distinctions versus 201 in terms of why it would make sense for some indications versus others, and whether there is a difference to product profile or something about actual mechanism that makes sense for that distinction? Thanks. Sean McClain: Yes, absolutely. With ABS-202, we are creating a differentiated profile, and we also want to position this outside of AGA and endometriosis for other indications where there may be pricing differences. With regard to prolactin biology, we are very interested in how prolactin is driving some autoimmune diseases. It appears to sit on a stress–inflammatory axis and is also driving some interesting B-cell biology. You see prolactin receptor expression throughout the body—bone, immune system, endothelial cells, synovium—so we are continuing to expand the biology there as well as going into other indications with ABS-202, and additionally looking at bispecifics that could be synergistic with this mechanism. Brendan Smith: That is super helpful. And then maybe just quickly on the upcoming MAD efficacy readout with 201. Appreciate the color on how you are thinking about some of this data. Given how the space has evolved in recent months, are you thinking comparable efficacy with clean safety and differentiated dosing is enough to win given how big the market is, or do you think you will need to show superior efficacy? Help us understand those dynamics. Sean McClain: Yes, absolutely. Zach can touch on this more from the consumer quant study we did, but we believe having comparable efficacy to oral minoxidil with infrequent dosing would be a home-run product. That convenience factor with equivalent efficacy is compelling, and any efficacy above that increases the overall TAM of the opportunity. Zach? Zach Jonasson: I would be happy to comment. As you know, we conducted sizable consumer surveys and surveys with dermatologists. The takeaway is that the profile of ABS-201 would establish a brand-new category of therapy based on durability, infrequent dosing, and a truly regenerative mechanism. When we test a profile with efficacy consistent with at least some reports of high-dose oral minoxidil—around 35 hairs per cm² in target area hair count—we see massive potential for adoption, and that is how we get to a potential $25 billion TAM on a TPP that looks like that. We think this product would expand the overall AGA market. Many patients dissatisfied with current standard of care would come to ABS-201, and over a third of males and females we surveyed said they would come first line, even before trying a nutraceutical. We also saw many patients would elect to use both—an oral minoxidil in combination with ABS-201. As a premium, new category of therapy, ABS-201 is very well positioned. Analyst: Good afternoon, and thanks for taking our questions. A little bit of a similar question as it relates to ABS-201 and ABS-202. Are there differences in pharmacokinetics or binding? Is there anything you can tell us about upgrades in ABS-202? And I have a follow-up on the ABS-201 program after this. Thanks. Sean McClain: At this point in time, we are not disclosing the specific profile we are looking to achieve for ABS-202, other than the fact that we are planning to take this into a different indication. Analyst: Fair enough. As it relates to the 13-week readout, another company noted “appreciable improvement” at two months. It is a qualitative measure at an early time point. Is this what we should be expecting at 13 weeks, or should we be expecting something more methodical? Thank you. Sean McClain: The 13 weeks is really a directional readout. We want to see hair growth, and the 26-week is where we expect to see the oral minoxidil hairs-per–cm² effect. That is the final readout. The 13-week is directional, and given differences in hair growth and the mechanism, we want to reserve the 26-week as the final definitive readout. Arseniy Shabashvili: Hi, this is Arseniy on for Vamil. Thanks for taking my questions, and congrats on all the progress. You previously talked about 90% receptor occupancy being necessary to achieve the full therapeutic effect with the prolactin mechanism. Has anything you have seen in the trial so far shifted that perspective in any way, and do you think it is ultimately achievable with the dosing schedule that you need? Sean McClain: So far, what we are seeing supports that as achievable. Ronti? Ronti Somerotne: We are not looking at anything like hair growth in the SAD study, and we designed the dosing paradigm conservatively. In our scaling, we are confident we can hit that 90% receptor occupancy. This is something to look forward to with the MAD data and then the hair growth data. Arseniy Shabashvili: One more follow-up. Do you expect variability in therapeutic response among patients you enrolled—because of biomarker profile, age—or is there something about this mechanism where you think essentially every patient will respond at least to some degree? Ronti Somerotne: At this point, we seem to have a balanced enrollment of the various stages of the Norwood classification. There is nothing from a biomarker perspective that I would expect to predict a variation in response in the AGA population. It is a reasonably sized, randomized study, and in terms of baseline hair characteristics, we are pleased with how patients are distributing amongst the arms. At this point, I am not worried about something else causing inter-subject variability in the mechanism of action itself. Sean McClain: We have not seen any such signals in the in vivo or ex vivo experiments we have run to date either. Analyst: Hi, how is it going? This is Alex on for Kripa. Really exciting time at Absci Corporation. Two questions from us. One, when can we expect to learn more about the mechanism and the properties and indication for ABS-202? And then also, in your consumer survey, did you specifically test for patient preference and desire for combination therapy for ABS-201 and other currently approved products? Thanks. Sean McClain: At the moment, we are not planning on disclosing more than we have on ABS-202’s mechanism of action, though we are very excited about the overall opportunities. As we get closer to the clinic, we will disclose more, but from a competitive standpoint, we are not disclosing at this time. Zach, do you want to take the second question? Zach Jonasson: Yes, absolutely. In the survey itself, we did not specifically segment by combination-therapy questions. What we did see, which was really exciting, is very high intent to seek out the product if available: 87% of men and 69% of women said extremely or very likely. In subgroups already on standard of care, such as oral minoxidil, those numbers went up dramatically—to 92% for men and 89% for women. We clearly see stronger interest among those already using standard of care, supporting the new-category definition where patients will look to ABS-201 either to replace standard care they are dissatisfied with or to use on top of standard care. Debanjana Chatterjee: Hi, thanks for taking my question. I have a question on the endometriosis program. I know pain is a very common endpoint for these trials, but historically the high placebo response has been an issue with pain studies. What structural elements would you implement in this trial to control placebo response? And I have a follow-up. Ronti Somerotne: Thanks for the question. I learned a lot in my time at Vertex overseeing the pain program there. The pain aspect of these studies is ultra important. The crux is how you execute the trial. We will spend a lot of time making sure the sites are carefully chosen, the investigators are carefully chosen, and all partners understand how to mitigate placebo response. Placebo training is really important. We will be surveilling the blinded data for evidence of a placebo response. There is a lot of operational work that is not in the protocol because these are things you have to do in execution. We have also engaged the FDA on how we are approaching mitigation of placebo response. It is really important, heavily operational, and done behind the scenes. Debanjana Chatterjee: That is helpful. For ABS-202, I know for competitive reasons you cannot share many details, but is that something for internal development, or would you partner it given pricing differences for I&I indications? Sean McClain: We are open to both options for ABS-202. The current plan is to pursue it ourselves, but given the opportunity and market size, we are considering both internal development and partnering. Analyst: Hey, guys. Can you hear me? Sean McClain: Yes, we can. Analyst: Thanks for taking my question this afternoon. When you talk about the hair growth benchmark for success, you have guided to that for the AGA MAD portion. Can you clarify whether that benchmark is what you expect at the end of the 26th week? And if it is, can you help us think about what you would expect to see at the 13-week mark based on preclinical work? Sean McClain: Great question. Where we want to be at 26 weeks is definitely where oral minoxidil sits. At 13 weeks, we are not putting an official guide on that; we want to see directional hair growth. Given the biology and the new mechanism, we do not want to set unrealistic expectations. The best lens is the 26-week readout, where we want to be around oral minoxidil with infrequent dosing. Zach Jonasson: To add, our survey shows that if we have a TPP with an effect size similar to high-dose oral minoxidil—think in the 30s—with convenient dosing and durability, that is a home-run, category-defining product. There is still a product with efficacy below that as well, but the research suggests that threshold is fantastic. Analyst: Got it. Maybe going back to the PK data you have seen so far. You said the modeling supports a few-times-a-year dosing regimen. Can you give more color on the key parameters driving that conclusion? Ronti Somerotne: We are assessing PK from all SAD cohorts. We just started dosing the MAD cohorts, so we do not have MAD PK yet, but the SAD cohorts are developing nicely. We feel pretty good about being able to dose at least every eight weeks subcutaneously. We will have more color and a more refined estimation of dosing frequency in a few weeks when we share the data. Sean McClain: From the preliminary half-life and PK, we are feeling very optimistic and look forward to sharing the full data in June. Swayampakula Ramakanth: Thank you. Good afternoon, Sean and Zach. I have a couple of questions. One, you stated that you are deemphasizing oncology products. What are the reasons behind that, and what interest are you seeing from outside for these novel drugs? Sean McClain: From a strategy standpoint, ABS-201 in AGA is a direct-to-consumer type of product, and we want to build out products that support this. I&I makes a lot of sense in that context. Oncology does not support that particular go-to-market strategy we want with AGA. We have deprioritized oncology and will not fund those programs internally, putting focus on assets that support the lead asset, ABS-201, in AGA and endometriosis. Swayampakula Ramakanth: On partnerships, you have been talking about generating partnerships, including with large-cap pharma, but the cadence has been slower than in previous years. Are large-cap companies building their own tools, or are the economics not viable for you? Sean McClain: Our focus is driving the clinical development of ABS-201. We are continuing to look for pharma partnerships around our pipeline, but they have to make sense for us. We are a limited team and want synergy, so we are selective about who we partner with and how they help build the portfolio and support ABS-201’s go-to-market strategy. It is a focus, but it has to be strategically sound. Zach? Zach Jonasson: Internally, we have the capability to generate assets, and we believe we have a leading platform focused on challenging targets, as well as leadership in areas like prolactin biology. Our internal analysis shows we can generate better economic terms on partnerships focused on an asset—even at a preclinical stage—versus tying up resources for target-based platform partnerships. We have a number of assets coming toward DC this year, and several are earmarked for partnering to generate non-dilutive cash flow. The risk-adjusted NPV from creating assets and partnering those is a multiple of what it would be for platform target-based deals on a target- or program-by-program basis. The economics point us in that direction. Analyst: Hey, guys. You mentioned adopting more agentic AI into your business. How is this impacting your drug discovery process and business operations, and any near-term cost savings you can point to? Zach Jonasson: We are aggressively implementing agentic AI workflows throughout Absci Corporation, including in Science and R&D and across SG&A. We are already seeing significant efficiency gains and expect to realize those in cost reduction as well as capability gains on a go-forward basis. Even over the next few months, we should start realizing some of those gains. Arseniy Shabashvili: Hi, it is Arseniy on for Vamil. One more on the hair repigmentation opportunity. You previously talked about it as roughly the same size as the AGA market. What do you expect to see there that would be clinically meaningful? Would you consider pursuing it as a separate indication with additional studies, or as an extra claim in the label in addition to the AGA indication? Sean McClain: We are really excited about the potential for repigmentation. We see it as creating an even bigger market opportunity. Right now, it is an exploratory endpoint, and we will see how the readouts go at 13 and 26 weeks and then determine how to proceed. Ronti Somerotne: The repigmentation data emerging elsewhere are interesting and exciting. Mechanistically, it makes sense as a potential finding. We will see what we can see and plan accordingly. Operator: We have reached the end of the question and answer session. This also concludes our call for today. Thank you, everyone, for attending this call. You may now disconnect. Goodbye.
Operator: Hello, and welcome to the EPR Properties First Quarter 2026 Earnings Call. [Operator Instructions] Also, as a reminder, this conference call is being recorded today. If you have any objections, please disconnect at this time. I will now hand the call over to Brian Moriarty, Senior Vice President of Corporate Communications. Brian Moriarty: Thank you, operator. Thanks for joining us today for our first quarter 2026 earnings call and webcast. Participants on today's call are Greg Silvers, Chairman and CEO and Ben Fox, Executive Vice President and CIO; and Mark Peterson, Executive Vice President and CFO. I'll start the call by informing you that this call may include forward-looking statements as defined by the Private Securities Ligation Act of 1995, identified by such words as will be, intend, continue, believe, may, expect, hope, anticipate or other such comparable terms. The company's actual financial condition and the results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of those factors that would cause results to differ materially from these forward-looking statements are contained in the company's SEC filings, including the company's reports on Form 10-K and 10-Q. Additionally, this will contain references to certain non-GAAP measures, which we believe are useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measures are included in today's earnings release and supplemental information furnished to the SEC under Form 8-K. If you wish to follow along, today's earnings release, supplemental and earnings call presentation are all available on the Investor center page of the company's website, www.eprkc.com. Now I'll turn the call over to Greg Silvers. Gregory Silvers: Thank you, Brian. Good morning, everyone, and welcome to our first quarter of 2026 Earnings Call and Webcast. In previous quarters, we've discussed our focus on accelerating growth. For the quarter, we delivered a 5.9% increase in FFO as adjusted per share versus the prior year and have established strong momentum as we accelerate on our investment spending for the year. The centerpiece of our investments was our announced acquisition of a Seven Park regional portfolio from Six Flags. This $315 million portfolio is our largest acquisition in the post-COVID era and we're pleased to own parks that have demonstrated success in the past and offer significant opportunities for the future. These properties comprise more than 1,600 acres across 6 states and Canada, include 418 attractions and have established guest bases that draw approximately 4.5 million visitors annually. We are delighted to be partnering with proven operators Enchanted Parks who operate the U.S. parks and La Ronde operations to operate La Ronde in Montreal. These parks have become staples in their communities and have established multigenerational patronage by delivering fun, excitement and lasting memories. Supporting both the stability of our portfolio and our confidence in our investment outlook is the sustained growth in consumer spending in the experience economy. As we highlight in our investor presentation, personal consumption expenditures in most of the categories we invest in have been growing for many years and most recently increased 7% from 2024 to 2025. In an environment with a variety of macroeconomic cost currents, our overall portfolio coverage remains stable and resilient with most tenants reporting steady or improving results. We're pleased to see box office running ahead of last year, supported by a variety of genres and titles. Additionally, Fitness & Wellness continued to demonstrate resilience as many consumers view this category as an essential part of their lifestyle. This reordering of priorities where consumers increasingly treat Fitness & Wellness as protected nondiscretionary spending reinforces the durability of the segment and supports the long-term thesis behind our investments in this category. Lastly, I'm pleased to report that we're increasing both our investment spending and earnings guidance. Last year, we delivered 5.1% growth in FFO as adjusted per share, with today's update, the midpoint of our 2026 guidance for FFO as adjusted per share represents 6.5% growth. This significant growth reflects the strength of our investments to date, our future pipeline, the quality of our portfolio and the momentum we've established. As our portfolio continues to expand and diversify, we anticipate additional opportunities to capitalize on the experiential movement and strengthen our competitive advantage. Now I'm going to turn over the call to Ben Fox, who is joining us for his first call as CIO. We look forward to his leadership and contributions in the coming years. Ben, please take it from here. Benjamin Fox: Thank you, Greg. I appreciate that. I am very pleased with the positive momentum we have demonstrated to date with our investment activity. In the first quarter, we completed $51.3 million of investments, including the previously announced acquisition of a VITAL Climbing Gym located on the Lower East Side of Manhattan as well as already committed development capital. Subsequent to quarter end, we completed the acquisition of 6 properties from Six Flags Entertainment representing the substantial majority of this $315 million 7 property transaction. We expect the remaining property, La Ronde located in Canada to close in Q2. This is a notable investment, which further diversifies the portfolio alongside best-in-class operators, and it underscores the value proposition we are uniquely positioned to deliver. Our deep roster of client relationships enabled us to provide Six Flags with a one-stop solution as it sought to reduce its operating footprint. By bringing trusted, proven operating partners to the table, we helped Six Flags achieve its objectives while acquiring irreplaceable real estate. In addition to these highlighted investments, as of March 31, we expect approximately $71 million in additional investment for existing experiential development and redevelopment projects, substantially all of which should fund over the balance of this year. Given the acceleration in our investment velocity, we're pleased to increase our investment guidance to $500 million to $600 million, which represents our highest investment expectation since COVID. This increase is reflective of the depth and breadth of opportunities we're seeing across all our verticals. We expect investment activity for 2026 to be weighted more towards acquisitions than development. We also expect to continue employing convertible or other similar mortgage structures selectively where it makes sense for both us and our clients. Significantly, this increase in investment cadence demonstrates the depth and quality of relationships our investments team has created allowing us to generate attractive proprietary deal flow across the experience economy. Before turning to the portfolio update, I want to spend a minute discussing the competitive landscape and pricing. Although the net lease sector is generally a competitive market, we're seeing cap rates holding steady for the investments we target. Again, this is reflective of the unique relationships we have in the insights that our underwriting and asset management teams provide. If anything, the continued volatility in the capital markets is providing an uplift in both the number of opportunities we're seeing and the corresponding conversion ratio for turning these opportunities into closed investments. Turning now to an update on the portfolio. At the end of the quarter, our portfolio represented $7.1 billion of gross investment value, consisting of 335 properties, which were 99% leased or operated. 94% of this value reflects investments across experiential assets. These 280 properties are operated by 54 clients and continue to be 99% leased or operated. The remaining 6% of the portfolio represents our Education segment comprised of 55 properties leased by 5 operators. At the end of the quarter, these properties were 100% leased. Importantly, the portfolio remains very healthy with 2x unit level rent coverage. This coverage demonstrates the resiliency that our portfolio diversification creates. Moreover, it's also reflective of resilient consumer spending patterns and the continued prioritization of experiences. Notably, within our Theater segment, the first quarter saw a 25% increase in North American box office grows, benefiting from an increase in both attendance and the number of films released. The current film slate sets the rest of the year up favorably compared to last year. Several recent announcements have continued to remove uncertainty while demonstrating the enduring power of theatrical exhibition. First, both the Writers & Screen Actors' Guilds have reached new 4-year agreements, removing any concern of strikes for the foreseeable future. Second, Amazon MGM has announced a commitment to 15 theatrical releases in 2027, with a standard theatrical window of 45 days. Following this move, Universal reversed course on its previous 17-day window, now committing to the standard window of at least 45 days. And most recently, Netflix announced on Friday that the upcoming release of Narnia, which initially was slated for a 2-week release exclusively in IMAX will be getting a wide release in both IMAX and standard formats for a 49-day theatrical window before moving to streaming. These moves reflect Studio's recognition that theatrical releases serve a dual purpose, generating box office economics upfront while meaningfully enhancing the value of films, streaming window downstream. Within the Eat & Play segment, our operators performed in line with the prior year, seeing a small amount of attendance volatility, offset by higher average spending per visit. Geographic diversification produced incremental gains in our Ski portfolio with significant outperformance in the Mid-Atlantic and East Coast properties more than offsetting the historically poor snowfall across the Western United States. Our Fitness & Wellness segment continues to deliver solid performance and we're continuing to see incremental gains at some of our recently opened properties. Lastly, our Education portfolio continues to perform well and coverage in this segment remains strong. Touching upon dispositions, the asset management team has done an outstanding job over the past several years on risk management and on resolving vacancies. Although dispositions targeting proactive risk management, will remain a core element of our asset management strategy. The emphasis over the near term will be on generating accretive proceeds through sales of noncore assets. Accordingly, we are increasing our disposition guidance by $25 million on the lower and upper bounds to a new range of $50 million to $100 million. In summary, our portfolio continues to be resilient and we remain enthusiastic about the investment landscape. We are encouraged by the depth of our investment pipeline at this point in the year and have confidence in our revised investment guidance. With that, I'll turn it over to Mark for a review of our financial performance. Mark Peterson: Thank you, Ben. Today, I will discuss our strong financial performance for the first quarter, provide an update on our balance sheet and close by discussing the increases to our earnings and investment spending guidance for the year. FFO as adjusted for the quarter was $1.26 per share versus $1.19 in the prior year an increase of 5.9%. And AFFO for the quarter was $1.29 per share compared to $1.21 in the prior year, an increase of 6.6%. Before I walk through the key variances, I want to explain 2 items excluded from FFO as adjusted and AFFO. First, during the quarter, we exercised our purchase option to convert a $70 million mortgage note receivable secured by an experiential lodging property into a wholly owned rental property subject to a long-term triple net lease. At the time of the conversion, we recognized a $1 million gain on real estate transactions and the $1.3 million benefit for credit losses. Second, benefit for credit losses was $5.6 million for the quarter, and related to the conversion I just discussed as well as changes to our expected -- our current expected credit losses in our third-party model based on improvements to both property level performance and certain relevant economic conditions. Now moving to the key variances. Total revenue for the quarter was $181.3 million versus $175 million in the prior year, an increase of $6.3 million. This increase was mostly due to the impact of investment spending as well as rent and interest bumps. This was partially offset by dispositions and a decrease in percentage rents and participating interest, which was $2.5 million for the quarter versus $5.1 million in the prior year. This decrease was mostly due to out-of-period percentage rent and participating interest totaling $2.9 million recognized in the first quarter of 2025. Both other income and other expense relate primarily to our consolidated operating properties, including the Kartrite Hotel and Indoor Water Park and our 4 operating theaters. The decrease in other income and other expense versus prior year is due primarily to the sale of 2 operating theater properties in the first quarter of 2025. On the expense side, interest expense net increased by $1.7 million due to an increase in average borrowings and a decrease in capitalized interest versus the prior year. Turning to the next slide. I'll review some of the company's key credit ratios. As you can see, our coverage ratios continue to be very strong with fixed charge coverage at 3.3x in both interest and debt service coverage ratios at 3.9x. Our pro forma net debt to annualized adjusted EBITDAre was 4.8x at quarter end, which is below the low end of our targeted range of 5 to 5.6x. Pro forma net debt is calculated by subtracting from net debt. The estimated net proceeds from the forward sales agreement we executed during the quarter that I will discuss shortly. Additionally, our pro forma net debt to gross assets was 39% on a book basis at quarter end, and our common dividend continues to be very well covered with an AFFO payout ratio of 70% for the first quarter. Now let's move to our capital market activities and balance sheet, which is in great shape to support our continued growth. At quarter end, we had consolidated debt of $2.9 billion, of which all is either fixed rate debt or debt that has been fixed through interest rate swaps with an overall blended coupon of approximately 4.4%. Our liquidity position remains strong with $68.5 million of cash on hand at quarter end and no balance drawn on our $1 billion revolver. Additionally, in March, we were pleased to enter into a forward sales agreement under our ATM program to sell an aggregate 797,422 common shares for initial gross proceeds of $47.5 million or an average sale price of $59.52 per share. We can settle the outstanding shares anytime before March 1, 2027 for the gross proceeds subject to various adjustments. As of today, we have not settled any of these shares. We are increasing our 2026 FFO as adjusted per share guidance to a range of $5.37 to $5.53 from a range of $5.28 to $5.48, representing an increase versus the prior year of 6.5% at the midpoint. We expect a similar percentage increase in AFFO per share. We are also increasing our 2026 guidance for investment spending to a range of $500 million to $600 million from a range of $400 million to $500 million and increasing disposition proceeds to a range of $50 million to $100 million from a range of $25 million to $75 million. We are confirming our percentage rent and participating interest income guidance of $18.5 million to $22.5 million which continues to be very heavily weighted to the back half of the year. We are also confirming our G&A expense guidance of $56 million to $59 million and the guidance for our consolidated operating properties, which is provided by giving a range for other income and other expense. Guidance details can be found on Page 23 of our supplemental. Finally, we were pleased to have increased our monthly common dividend by 5.1% to $3.72 per share annualized which began with the dividend payable April 15 to shareholders of record as of March 31. We expect our 2026 dividend to be well covered with an AFFO payout ratio below 70% based on the midpoint of guidance. Now with that, I'll turn it back over to Greg for his closing remarks. Gregory Silvers: Thank you, Mark. As discussed today, both our investments and earnings are accelerating and reflect the resiliency and opportunity of our experiential focus. We've also demonstrated our ability to utilize multiple sources of capital to fuel this growth with the initial execution of our ATM program, along with opportunistically recycling capital with planned asset sales. All of these positives reinforce our conviction that EPR's unique platform and asset classes position us to deliver outsized shareholder returns. With that, operator, why don't we open it up for questions? Operator: [Operator Instructions] Our first question will come from Jana Galan with BofA. Jana Galan: Congrats on a really nice first quarter. Mark, for the increase in AFFO guidance, can you help parse out how much came from a slightly better first quarter? And then how much you're seeing from the acceleration in investment activity? Or is it maybe also better yields on that investment activity? Mark Peterson: Yes, we did -- we were a little better for the quarter, about $0.01 or $0.02. But then as you look forward, really, the increase is due to a couple of things. One, obviously, we raised our investment spending and paid for that via the capital raise, but there was probably $0.01 out of that increased guidance. And then I think more broadly, we got a benefit from being fairly conservative with respect to the Six Flags transaction at the end of the year because we weren't sure -- for sure it would close and when exactly it would close. So I think the ultimate outcome of that was better than anticipated. And I think the remaining investments, not just the increase for the year, but the remaining investments are coming in a little bit sooner than planned and at a better cap rate. The last thing I'll mention that impacted our FFOAA guidance was the Margaritaville conversion to a -- from a note to a lease. We got incremental straight-line rent from that, and that was probably a little under $0.02 in terms of straight-line benefit converting from a mortgage to now a 20-year lease with escalators that had some straight-line impact. Jana Galan: And then maybe just one for Ben, on the strategy to kind of employ more convertible or other mortgage structures as a way to invest in assets. Just curious, is kind of the first quarter purchase option that you guys exercised kind of a key example of what this would look like? Benjamin Fox: Yes. Jana, that's exactly right. Really, the mortgages that we use, as I mentioned, are pathways to real estate ownership. And so that conversion of the Margaritaville is exactly representative of the types of structures we enter into. And so as opportunities present themselves, we will convert those and use those selectively. Operator: Our next question will come from Bennett Rose with Citi. Bennett Rose: I just wanted to follow up on that on these convertible mortgage opportunities. Could you maybe just talk a little bit about sort of how many you have and kind of what that could look like over the next couple of years as we choose to go down that path? Benjamin Fox: Yes. It's a good question. And really, if you look at our mortgage book, the majority of those, probably more than 80% are convertible, right? So what we're highlighting here is with this transaction in Margaritaville, that is just an example of the opportunities that sit within the existing portfolio as well as the types of structures that you could see us enter into in the upcoming quarters and years. Bennett Rose: Okay. And then I just wanted to ask you on your -- the acquisition of theme parks from Six Flags, do you guys see them, I guess, as a potential partner going forward? Is it your sense that Six Flags may want to shed more what they would consider noncore assets? And is that something you would be willing to lean into more at this juncture? Gregory Silvers: Smedes, it's Greg. I think -- again, I think, clearly, we've demonstrated a partnership with them. So we'll definitely take a look at that. I think they're exploring. And I think real estate solutions are being explored across the board in the attraction space. And I think our team has demonstrated our ability to be a market leader in that space, whether that's with Six Flags or with other participants. So I think us carving out our leadership position will ultimately probably create more opportunities, which I think we think we find very attractive. Operator: Our next question comes from Upal Rana with KeyBanc Capital Markets. Upal Rana: Just on the Six Flags transaction, could you walk through the strategy behind... Gregory Silvers: We kind of cut you off, but I think you're saying what was the strategy? So I think our put was, again, long term, we look at these as incredibly stable assets. If you look over time, that these are -- they're market-dominant that you just cannot create has been reported. These assets were -- have had multibillion dollars spent on them that we can buy very attractively, which we think create long-term stability. They're very much part of the communities and where they exist. So we feel like this is a really strong anchors to an experiential portfolio. I think, again, as we said, there's really been no new parks built in decades. So we feel the durability and the resilience of these are quite good. And we will continue, as I said, to explore opportunities. Upal Rana: Okay. Great. That was helpful. And then maybe in your prepared remarks, you mentioned you're encouraged by your pipeline that you're seeing. Maybe you could talk a little bit about that and what types of deals you're seeing and any kind of sizes? Gregory Silvers: I'll let Ben add a little bit to this, but I think what we're encouraged is kind of what I talked about in the beginning. Experiential spending continues to accelerate. And we continue to see multiple reports about how people are valuing experiences over things and continuing to prioritize those. So again, whether it's Attractions, Fitness, Eat & Play, across the board, we're seeing strength. And so therefore, I think we would say that almost all of our categories, as we said, we're not growing theaters, but all of our categories, our pipeline of opportunities is expanding, but I'll let Ben if you want to add anything. Benjamin Fox: I think that's exactly right. It really is across the board. And just the ability to get a lot of our relationships to the table is increasing, and there's a general increased willingness to transact and derisk capital markets exposure. Operator: [Operator Instructions] Our next question comes from Justin Haasbeek with UBS. Justin Haasbeek: This is Justin on for Michael Goldsmith. Are you seeing any cap rate compression or increased competition in your top 3 acquisition segments of Fitness & Wellness, Attractions and Eat & Play? And are those still your top 3 in terms of acquisition focus? Gregory Silvers: I would say, yes. I mean, again, especially on our flow business, I mean, clearly, with what we did with Attractions this year, that was a big anchor transaction, but our flow business, I think those are still the top. And as Ben commented in his opening comments, I think our cap rates remain stable. I think, again, our position as kind of a leading market participant here makes us get the first call usually on these type of assets. So I think there's always going to be competition. But again, everyone in this space knows who we are, and we're going to get that call. So I think that bodes well for us continuing to grow that pipeline more and more. Justin Haasbeek: Okay. Great. And does the strong box office performance in the first quarter here, does that change how you think about your exposure? And has there been any private market interest in theaters? Has that changed at all? Gregory Silvers: There's -- again, I -- first of all, I should answer the first one. I don't think it's changed our interest in the sense that we still believe that increasing our diversity is a strategic objective of ours. I think there's no doubt that there continues to be getting an improving interest in the theater space as this continues, especially with some of the things that Ben mentioned in his comments, you've got the studios now kind of embracing much more on a theatrical forward kind of direction whether it's embracing the windows, whether that's Netflix now starting to use theatrical. So I think there's a lot more positive feeling about it. So we're seeing more interest in there. We'll see if that plays out to a ability for us to transact. But there's no doubt that we're getting more inbound calls on our portfolio. Operator: Our next question will come from Michael Carroll with RBC Capital Markets. Michael Carroll: Greg, can you talk a little bit about the current macro uncertainty and how that has impacted the experiential space? I guess, mainly, have you received any calls from potential sellers looking to further derisk, I guess, their company and maybe doing a deal with you just given the potential volatility that could be caused in the capital markets? Gregory Silvers: I think, as Ben said, we're getting inbound calls of people who are -- again, I think the idea of it used to be at the beginning or the end of last year, wait until rates improve. And now I think that volatility in that market has helped in that sense. I think though, the underlying the thing that's got us is the underlying support and resiliency of the activities. I mean as we said, our coverage remains very strong against this backdrop. So I think it gives us confidence to move forward that the consumer is still there. And I think there is, as Ben noted, some people who on the capital side are looking at saying, Okay, it doesn't look like rates are going materially down, and there is a risk with where we're at of them going up. So let's see if we can lock in transactions. But Ben, I don't know if that's consistent. Benjamin Fox: That's very consistent with what we're seeing. Michael Carroll: Okay. And then on the disposition side, I know that you modestly increased your target. I mean should we think about those sales still mainly be coming from the early education segment? Is that the focus? Or is there other sales outside of that, you can look at? Gregory Silvers: I think it's going to -- you're going to see that probably will be a bulk of that. I think you will also see us, as I mentioned earlier, hopefully capitalize on some really interesting opportunities on our theater side to sell some assets, so that we can show some real kind of interest in that. So -- but we'll have to go from there. Michael Carroll: Okay. And then on the theater side, if you sell assets, I mean, can you -- I'm assuming you can't do much out of AMC given that's now in a master lease, right, unless you do a bigger JV. So should we think about those potential sales being with smaller operators. Gregory Silvers: One-offs or things offs and other opportunities there, but you're exactly correct. It will not -- probably not be out of the master lease. Operator: There are no more questions. So I will now turn the call back over to Greg Silvers, Chairman and CEO, for any closing remarks. Gregory Silvers: Thank you, guys. I appreciate the time and attention today. We look forward to talking to you as we go through the rest of the year and appreciate your interest. Thank you all. Thank you. Operator: Thank you for joining EPR Properties First Quarter 2026 Earnings Call. This concludes today's call. You may now disconnect.
Operator: Good morning. I will be your conference operator today. At this time, I would like to welcome everyone to the TerrAscend First Quarter 2026 Financial Results Conference Call. I will now turn the call over to Valter Pinto, Managing Director of KCSA Strategic Communications for introductions. Please go ahead. Valter Pinto: Thank you, operator, and good morning. Welcome to the TerrAscend First Quarter 2026 Financial Results Conference Call. Joining us for today's call is Jason Wild, Executive Chairman; Ziad Ghanem, President and Chief Executive Officer; and Alisa Campbell, Senior Vice President of Finance. I'd also like to welcome to the call our newly appointed CFO, Eric Jackson. Our remarks today include forward-looking statements, including statements with respect to the company's outlook, including the company's expected financial results from continuing operations for the first quarter of 2026 and the estimates and assumptions relating thereto, the company's expectations regarding its growth prospects in new and existing markets such as Ohio and New Jersey, its M&A strategy, anticipated timing and benefits regarding the sale of the company's assets in Michigan and the expectations regarding regulatory reform and the potential benefits thereof. Each forward-looking statement discussed in today's call are subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Actual results and the timing of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements, and reported results should not be considered as an indication of future performance. Additional information regarding these factors appears under the heading Risk Factors in the company's Form 10-K filed with the Securities and Exchange Commission and other filings that the company makes with the SEC from time to time, which are available at sec.gov, on SEDAR+ and on the company's website at terrascend.com. The forward-looking statements in this call speak as of today's date, and the company undertakes no obligation to update or revise any of these statements. Also during the call, the company may present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release and our quarterly report on Form 10-Q for the quarter ended March 31, 2026, which you can find in the company's Investor Relations website or on the SEC and SEDAR+ websites. I'd now like to introduce Mr. Jason Wild. Please go ahead, Jason. Jason Wild: Good morning, everyone, and thank you for joining us. Before we discuss our financial results for the quarter, I want to take a moment to highlight the recent rescheduling of medical cannabis. This is a monumental inflection point, which is a transformational development for the entire industry. The most immediate impact will be the elimination of the 280E tax burden on medical cannabis, which will materially improve profitability, further strengthen our balance sheet and lower our cost of capital over time. In addition, rescheduling medical cannabis paves the way for expanded clinical research, further validating its safety and efficacy and potentially opening the door for international export. We also see rescheduling as the first step to improving access to institutional capital over time and providing public multistate operators such as TerrAscend with an opportunity to uplist onto a U.S. exchange such as the NASDAQ or the NYSE, which we view as an important driver of liquidity and ultimately long-term value creation. Importantly, we see this first step as a catalyst for further federal cannabis policy reform, improved access to the banking system, uplisting, as I just mentioned, and the potential for retroactive tax relief, which could represent a meaningful upside opportunity that is not currently reflected in market valuations. While the timing and scope of additional changes remain uncertain, we continue to operate with a disciplined approach, positioning the business to benefit from regulatory progress while maintaining flexibility in our long-term strategy. As we've said many times, we operate the business independent of regulatory reform and successful reform like this is upside. With that said, we believe that moment is now here, and we are prepared to take full advantage. In addition to rescheduling, we view the upcoming Q4 psychoactive hemp regulation as a strong additional tailwind for our sector. The approximately $20 billion to $30 billion psychoactive hemp market is arguably our industry's largest competitor with none of our industry's regulatory and tax burdens. We are confident in our ability to produce best-in-class experiences across our branded and CPG portfolios and eagerly look forward to capturing the psychoactive hemp consumer as they turn back to the regulated market. Turning to our first quarter results. Revenue from continuing operations totaled $65.5 million, returning to year-over-year growth, while gross margins, adjusted EBITDA margins and other key profitability metrics grew sequentially and exceeded our targets for the quarter. Gross margin for the quarter was 52.8%, consistent with recent quarters, and adjusted EBITDA from continuing operations was $17.4 million, representing a margin of 26.5%. We generated approximately $8.7 million of net cash from continuing operations and $7.8 million of free cash flow during the quarter, marking our 15th consecutive quarter of positive operating cash flow and 11th consecutive quarter of positive free cash flow. Our strong results were supported by operational efficiencies and continued strength in our vertically integrated Northeast markets. In New Jersey, we fully integrated our Union Chill dispensary following its acquisition in early January. In Maryland, we are operating at an annualized run rate of approximately $75 million with gross margins in the quarter in the high 50s. And in Pennsylvania, we generated year-over-year revenue growth for the fourth consecutive quarter. We recently completed the first harvest from additional cultivation rooms in Pennsylvania, expanding our capacity in preparation for new product launches, increased wholesale demand and potential adult-use legalization. On the M&A front, we remain active in evaluating accretive opportunities. Our philosophy remains unchanged. We're focused on disciplined accretive acquisitions and have been selective in passing opportunities that were not attractive enough for us. The current environment continues to present strong opportunities, including distressed assets, particularly in our core markets. We look forward to hopefully sharing details on this front in the coming weeks. Before I turn the call over to Ziad, I want to take a moment to welcome our new CFO, Eric Jackson, to the call today. Eric brings more than 2 decades of finance and operational leadership experience across large-scale retail and consumer businesses. Welcome to the team, Eric. We're all excited to be working with you. With that, I'll now turn the call over to Ziad to provide an update across our key markets. Ziad? Ziad Ghanem: Thank you, Jason. Let me walk you through our performance in each of our key markets this quarter, beginning with New Jersey. In New Jersey, overall revenue improved during the quarter, led by retail, which included a full quarter of revenue from our Union Chill dispensary location, while wholesale revenue declined slightly quarter-over-quarter. Gross margins improved sequentially, primarily driven by increased verticality in the state. All 3 Apothecarium locations ranked within the top 25 and gained market share quarter-over-quarter, supported by high-quality products and new product launches, reinforcing our position as the highest grossing retailer in the state according to LIT Alerts. On the brand side, Kind Tree and Legend continued to perform well with combined growth across key categories. Flower sales were slightly higher, supported by strong performance from core strains such as White Iverson and Cherry Slushee, while Legend vape sales grew double digits and contributed to meaningful share gains according to BDSA. We also saw continued strength in our vape and edibles categories, maintaining a leading position in vape and Valhalla delivering growth in edibles. Looking ahead, we remain focused on disciplined growth in New Jersey, including continued evaluation of expansion opportunities at our cultivation facility in Boonton and additional retail licenses as we maintain our leadership position in the state. In Maryland, our operations are running at approximately $75 million in annualized revenue, while gross margins were in the high 50s. During the quarter, retail revenue was stable sequentially, while wholesale revenue was modestly lower. Our vertical structure and ongoing operational efficiencies have allowed us to consistently maintain strong margins even as the broader market has evolved. We continue to see benefits from our cultivation expansion, which is driving improved flower output and supporting retail and wholesale channels. 2 of our 4 Apothecarium retail locations in Maryland ranked among the top 10 in the state during the quarter according to LIT Alerts. On the brand side, Kind Tree and Legend are performing well with notable growth in flower and vape categories and the successful launch of Legend prerolls during the first quarter according to BDSA. In Pennsylvania, we generated year-over-year revenue growth for the fourth consecutive quarter. We also saw continued improvement in overall market share supported by strong brand performance and disciplined execution. Wholesale revenue and retail revenue both increased year-over-year, reflecting continued strong demand across our product portfolio, including flower, vapes and edibles. During the quarter, we launched Tyson 2.0 in Pennsylvania and Maryland, further strengthening our brand portfolio and supporting continued momentum across our wholesale and retail channels. The initial rollout featured a curated selection of premium flower and high potency vapes available through TerrAscend Apothecarium dispensaries and third-party wholesale partners. 5 of our 6 Apothecarium retail locations in Pennsylvania ranked among the top 15 stores in the state during the quarter according to LIT Alerts. On the brand side, Kind Tree and Legend saw double-digit growth quarter-over-quarter across key categories and continued share gains according to BDSA. We also saw another strong quarter in flower with record sales levels alongside significant growth in vapes and extracts where Kind Tree remains a leading brand in the state. We continue to generate higher revenue per store relative to peers, reflecting strong execution at the retail level and the strength of our product offerings. Importantly, we have a fully built out large-scale cultivation and manufacturing facility in Pennsylvania with no need for additional capital investment, and we have already brought incremental capacity online to support increased medical and adult-use demand. As part of that effort, we reactivated 6 additional cultivation rooms late last year with our first harvest completed in April. We expect product to be available for sale this quarter. This will allow us to meet increased demand in the state and improve our inventory ahead of potential adult-use conversion while leveraging existing infrastructure without incremental CapEx. Looking ahead, we see Pennsylvania as a key growth market and believe our infrastructure, brand portfolio and operating model position us to benefit meaningfully from future regulatory developments. In Ohio, Ratio Cannabis is now fully integrated into our existing operations. Our strategy in the state remains consistent, which is to build a scaled, high-quality retail footprint through disciplined and accretive acquisitions. Turning to Michigan. We have now completed approximately 85% of asset sales in the state and have significantly negotiated down our liabilities and debt. We are moving into the final stage of the exit process through receivership in Michigan to further mitigate liabilities. The majority of proceeds are being used to pay down existing debt. This exit has been executed efficiently and strengthens our focus in our core markets. In closing, TerrAscend continues to demonstrate strong operational progress across our core markets of New Jersey, Maryland and Pennsylvania. Our focus on efficiency, disciplined cost management and vertical integration continues to support consistent growth and adjusted EBITDA margins. We have generated approximately $24.3 million in free cash flow in the past 4 quarters, supported by improved working capital management and tighter inventory discipline across the business. We have generated $24.3 million in free cash flow in the last 4 quarters, supported by improved working capital management and tighter inventory discipline across the business. We are pleased with the foundation we have built, bolstered by our strong fundamentals, leading retail and wholesale assets in key high-quality markets, a targeted M&A strategy, no material debt maturing until late 2028, consistent positive operating and free cash flow generation quarter-over-quarter, representing an impressive 10.3% free cash flow yield in Q1, best-in-class sponsorship and a strong leadership team. Given all this, I am more confident in our future than I have ever been. Before I turn it over to Eric, I want to take a moment to thank Alisa for her leadership and professionalism over the past year as Interim CFO. She stepped into the role during an important time of our business and did an outstanding job maintaining financial discipline, supporting our teams and helping strengthen our financial foundation. We are extremely grateful for her contributions and look forward to her continued impact in her role as Senior Vice President, Finance, reporting to Eric. At this time, I would like to welcome our new CFO, Eric Jackson, for a few words. Eric Jackson: Thank you, Jason and Ziad, for the kind words. I'm honored to join at such an exciting time for the company and the broader cannabis industry. As a life long Ohio resident, I've witnessed the growth of the industry firsthand. I've had the opportunity to work in large-scale complicated retail operations with great brands. I believe TerrAscend is uniquely positioned with a focus on high-quality, high-growth markets and a proven record of strong financial performance. I'm excited to work with Jason, Ziad, Alisa and the rest of the team. I also look forward to introducing myself to the analyst community and loyal shareholders. With that, let me turn the call over to Alisa to provide more details on our financial results for the first quarter of 2026. Alisa? Alisa Campbell: Thanks, Eric, and welcome to the team. Good morning, everyone, and thank you for joining. The results I'll be reviewing today have been filed on both SEDAR+ and with the SEC, and all figures are presented in U.S. dollars. As a reminder, all financials discussed reflect results from continuing operations. Net revenue for the first quarter of 2026 totaled $65.5 million compared to $66.1 million in the fourth quarter of 2025. Retail revenue increased sequentially, while wholesale revenue declined. Gross margin for the first quarter was 52.8% compared to 52.1% in the fourth quarter of 2025. Sequential performance reflects continued strength in New Jersey, Maryland and Pennsylvania. G&A expenses for the first quarter were $21.5 million or 32.8% of revenue compared to $22.8 million or 34.4% of revenue in the fourth quarter of 2025 reflecting disciplined cost management and ongoing optimization of our operating structure. Net loss from continuing operations for the first quarter was $6.8 million compared to a net loss of $0.5 million in the fourth quarter of 2025. Adjusted EBITDA for the first quarter was $17.4 million or 26.5% of revenue compared to $16.7 million or 25.2% of revenue in the fourth quarter of 2025. The sequential improvement reflects strong gross margins and continued operating discipline across the business. Turning to the balance sheet and cash flow. Cash and cash equivalents were $39.1 million as of March 31, 2026, compared to $37.4 million as of December 31, 2025. Cash flow from operations in the first quarter was $8.7 million, representing our 15th consecutive quarter of positive operating cash flow, achieving an operating cash flow yield of 13.3%. Capital expenditures were $0.9 million in the first quarter, primarily related to ongoing cultivation and facility optimization projects. During the quarter, we continued to allocate capital in a disciplined manner while maintaining a strong liquidity position. Free cash flow for the first quarter was $7.8 million, representing our 11th consecutive quarter of positive free cash flow, achieving a free cash flow yield of 10.3%. Similar to Q1, we expect Q2 year-over-year revenue growth of 2% to 3%. We also expect consistent strong gross margin performance. In summary, our first quarter results reflect continued operational excellence, improving profitability and consistent cash flow generation, supported by disciplined cost management and a strong operating platform. We look forward to sharing continued progress in the quarters ahead. This concludes our prepared remarks. I'll now turn it back to the operator for questions. Operator: [Operator Instructions] Your first question comes from Kenric Tyghe from Canaccord Genuity. Kenric Tyghe: Congrats on the quarter. Jason, a question for you on rescheduling and the M&A calculus. Obviously, you're in a position here where you had an existing facility, but separately, you also now have increased balance sheet flexibility or pending increased balance sheet flexibility across the industry. How does that change the calculus for you? And separate to that, is the market or do you expect this to create increased certainty around potential M&A transactions and perhaps even a more rational backdrop as counterintuitive as that may sound. How are you thinking about it? Jason Wild: Kenric, thanks for the question. We've been -- I would say there hasn't been much change on the M&A front. We've been deep in several discussions on that front. We haven't noticed any change in tone by the targets. I think that actually it makes them more -- potentially more bullish on doing a deal with us because now they're looking -- all of these deals that we're looking at are structured, and there's a component of equity or a convert as part of the consideration. And now they're looking at our stock as something that has a higher likelihood of being able to go public on a U.S. exchange in the next, say, 12 to 24 months. So I would say it's only been a positive. The news has only been a positive as it relates to our discussions on the M&A front. Kenric Tyghe: That's good to know. And then just separate to that or maybe a follow-up. The Ohio market seems to have been very challenging or more challenging than expected to get anything done in. I mean, happy to see that the integration has been completed. But any additional color you could provide on Ohio market dynamics and separately on Ohio acquisition targets and perhaps what it is that needs to reset there for you be able to move forward and execute on some of these transactions? Jason Wild: Sure. I'm going to let Ziad take that one. Ziad Ghanem: Kenric, Ohio, we have one store in Ohio today. The store is still performing well and according to our expectation. Our strategy in Ohio continues to build the same business around that we've done in -- similar to what we've done in Maryland and other places we acquired -- the conversations, like Jason said, with some of the target acquisitions are still going well. We continue to be disciplined. We are seeing some of the challenges that you are describing, but it's not impacting our M&A conversation. We have said no to some of the deals that did not make sense to us, but we continue to look at some attractive opportunities. And as you said, our balance sheet is allowing us to have those conversations. So we'll share as soon as we have more news. Operator: Your next question comes from Frederico Gomes from ATB Cormark Capital Markets. Frederico Yokota Gomes: Congrats on the great quarter. First question, I think you mentioned you saw a sequential decline in wholesale for both New Jersey and Maryland. So just curious what's driving that? Is it just increased competition, price compression? Or is it maybe related to increased verticality in those 2 states? Ziad Ghanem: Both. Fred, you nailed it. It's a combination of pricing compression, strategic decision to balance our verticality in wholesale to continue to protect the gross margin that we've been showing for 5 or 6 or maybe even 8 consecutive quarters being where we are. And also a small part of it is timing between Q4 and Q1. So those are the reasons. But then when I look at wholesale and the health of our wholesale, it starts by the quality of our products. and how our SKUs are performing with the patients and the customers, both in our stores and in our wholesale accounts. The company in Q1 had a record of any quarter for finished goods sold to both in our retail and wholesale stores. We had the biggest market share in our Legend brand. The company also had record for single quarter finished unit sales of TerrAscend SKUs. The penetration and the number of accounts continue to be strong. We didn't see any scale back. But also, we have added one very healthy store to our New Jersey store, and that's where the protection of gross margin, the increase in verticality comes in. And we're going to continue to see those shifts. Our goal in New Jersey is to add more dispensaries like Union Chill, and we'll share as soon as we have news on this. But that's what gives us the confidence on that balance between revenue and gross margin. Frederico Yokota Gomes: Appreciate that. And then just a second question on, I guess, your margins and your G&A, a decline sequentially G&A dollars. So -- and obviously, you have very good margins this quarter, adjusted EBITDA. But I wonder how much more is there to optimize on the G&A front? I mean, should we expect further optimization initiatives? Or is it more about growing the top line here at this point? Ziad Ghanem: Yes. Look, first, I'll start by saying I couldn't be prouder of the team of what they've done on the G&A front and the outcomes that came out of it, both on the gross margin and on the EBITDA margin. In an industry like ours, where there are constant changes, we have to be ready to continue to innovate. Innovation comes in multiple fronts, right? Strain selection and integrated business process where you select a year in advance your portfolio that gives you the innovation, gives you the strains and allow you to protect gross margin and increase yield. There's more room on this, and we'll continue to do that. Another pricing pressure will continue to happen. We'll have to continue to work between our verticality and our -- increasing our verticality and protecting our gross margin. So I would say the room that exists is to protect against any headwinds and to protect any pricing pressure, but I have confidence in our gross margin where we are for Q1 and delivering the same thing for the rest of the year due to that dynamic. So the other point is we are launching the most number of SKUs in Q2 and Q3, which we're super excited about. I think our customers, both patients and consumers will love what we're coming in, both strain level partnership and new products. With that, we need some SG&A. So some of the savings would be savings to invest in order to protect the revenue and the gross margin. So in summary, the gross margin that you're seeing, both on the margins, both on gross margin and EBITDA margin are 2 things we're pretty comfortable with for the rest of the year. Operator: [Operator Instructions] There are no further questions at this time. I will now turn the call over to Jason. Please continue. Jason Wild: Thank you all for joining us today. We are very excited about the recent developments in the cannabis space. We hope that excitement is evident to all of you on this earnings call, and we look forward to sharing our second quarter earnings results in the coming months. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participation, and you may now disconnect. Have a good day.
Operator: Ladies and gentlemen, thank you for standing by and welcome to the MasterCraft Boat Holdings, Incorporated Fiscal Third Quarter 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Alec Harmon, Senior Director of Strategy and Investor Relations. Please go ahead, sir. Alec Harmon: Thank you, operator, and welcome, everyone. Thank you for joining us today as we discuss MasterCraft's fiscal third quarter performance for 2026. As a reminder, today's call is being webcast live and will also be archived on our website for future listening. With me on this morning's call is Brad Nelson, Chief Executive Officer; and Scott Kemp, Chief Financial Officer. Brad will begin with an overview of our operational performance. After that, Scott will discuss our financial performance. Brad will then provide some closing remarks before we open the call up for questions. Before we begin, we'd like to remind participants that the information contained in this call is current only as of today, May 7, 2026. The company assumes no obligation to update any statements, including forward-looking statements. Statements that are not historical facts are forward-looking statements and subject to the safe harbor disclosure or disclaimer in today's press release. Additionally, on this conference call, we will discuss non-GAAP measures that include or exclude items not indicative of our ongoing operations. For each non-GAAP measure, we will also provide the most directly comparable GAAP measure in today's press release, which includes a reconciliation of these non-GAAP measures to our GAAP results. As a reminder, unless otherwise noted, the following commentary is made on a continuing operations basis and all references to specific quarters and periods will be on a fiscal basis. Today's outlook also excludes any impact from the proposed combination with Marine Products Corporation. With that, I will turn the call over to Brad. Bradley Nelson: Thank you, Alec, and good morning, everyone. We delivered third quarter results that exceeded our expectations driven by disciplined execution across the business and continued new product momentum. In a dynamic market environment, we remain focused on our strategy and core strength driving operational efficiencies, aligning production with demand and delivering differentiated innovation that is resonating with customers and dealers. Our team's ability to stay agile and extend our premium product leadership continues to be a competitive advantage and a key driver of momentum across our brands. As we move into the heart of the selling season, we remain focused on dealer health and pipeline discipline, keeping our wholesale plans measured and flexible while continuing to build momentum across our brands. As always, I want to thank our team members and dealer partners for their focus and dedication as we move through the remainder of this fiscal year. Now turning to results. Q3 net sales increased $2.2 million or 3% year-over-year and adjusted EBITDA rose more than $3 million, a margin improvement of approximately 380 basis points. This year's progress and performance are a direct outcome of our continued innovation and focused execution. As a result, we are raising our full year guidance, which Scott will cover shortly. During the quarter, spring boat show results were encouraging and improved from prior year with particularly strong results at large shows in Salt Lake City, Dallas-Fort Worth and Atlanta for our MasterCraft brand. Feedback from both dealers and consumers reflect the impact of our premium product innovation and targeted commercial actions in key regions. Customers are rewarding us as we are winning on product design, performance and quality and premium value. At the same time in the broader market, recent geopolitical and broader macroeconomic developments have weighed on consumer sentiment and we are factoring that into our outlook. Reflecting our balanced approach to dealer health, we've continued to maintain healthy pipeline inventory levels ending the quarter with a 28% year-over-year improvement with inventory turns better than pre-pandemic levels. This is providing both us and our dealers with confidence and flexibility to navigate the current environment and generally align wholesale to retail demand moving forward. Our ability to generate cash flow at these volumes and our flexible operating model combined with our strong balance sheet position us well to manage near-term uncertainty while supporting sustainable long-term growth. Our capital allocation priorities remain disciplined and consistent. We have a solid balance sheet with no debt, strong cash flow and liquidity, providing flexibility and leaving our strategic growth initiatives fully funded. Now turning to our core brands. Within MasterCraft, premium product momentum continues to build across the lineup. Last month we announced the reintroduction of the X23 marking the return of a historic name in our portfolio and completing the next-generation X Series. Building on the momentum of our flagship XStar, we're seeing strong market engagement and share gains that reinforce our leadership position in the premium ski wake category. With positive dealer and consumer feedback and production ramping as planned, the X Series will further improve product mix sequentially in the fourth quarter. We expect MasterCraft brand and product momentum to continue through the summer as we showcase our product portfolio through opportunities for consumers to experience our newest models firsthand. As discussed in prior calls, our original assumption for MasterCraft retail for the year was to be down approximately 5% to 10%. Based on current product momentum and year-to-date solid retail performance, we are more optimistic and now anticipate retail for MasterCraft to be roughly flat to prior year as we exit the fourth quarter selling season. Looking ahead, we have an exciting lineup of on-water events planned throughout the summer designed to showcase innovation and deepen consumer engagement. These events are intended to expand our reach among new and aspiring riders supported in part by our continued partnership with the WWA, including events such as Rider Experience and Rule the Water. In parallel, we are expanding owner meet-ups and dealer-hosted events nationwide, reinforcing our culture while strengthening our direct connection with customers and the broader boating community. Turning to our Pontoon segment. The Pontoon category remains highly competitive with elevated promotional activity and cautious retail behavior across the industry. In this environment, we're staying disciplined, prioritizing dealer health, aligning production with demand and continuing to drive operational improvements. Across both our Pontoon brands, our focus remains on supporting dealers through the selling season, managing pipeline levels and executing our product and commercial plans in a way that positions the segment for sustainable progress and growth. Before turning the call over to Scott, I'd like to share a brief update on our proposed combination with Marine Products Corporation, which includes the history Chaparral and Robalo brands. Our conviction in the strategic rationale and long-term value creation of this combination remains strong. Our integration and synergy planning efforts continue to progress with detailed work streams in place driving confidence. We are progressing towards closing, including advancing our regulatory and disclosure processes as planned. We will hold a special meeting of stockholders 5 days from now at 8:00 a.m. Eastern Time on May 12, 2026, and expect to officially close the transaction shortly thereafter subject to formal approval by MasterCraft and Marine Products shareholders and the satisfaction of customary closing conditions. As we move forward, I want to thank our team members and dealer partners for their continued focus and commitment as we head into the final quarter of our fiscal year and beyond. We're excited about the opportunity to strengthen our partnership with the Chaparral and Robalo teams and begin to realize the value creation potential of the combination. Now I'll hand it to Scott to review the quarter's financials and forward guidance. Scott Kent: Thanks, Brad. Before turning to results, I'd like to echo Brad's comments regarding the progress we have made towards closing the proposed combination with Marine Products Corporation. We continue to see compelling scale, diversification and earnings power in the combined company. With dedicated teams, structured work streams and capital ready to be deployed; we are fully resourced to execute identified synergies and look forward to providing further updates and combined company guidance in our next quarterly call. Turning to our fiscal third quarter results. We are pleased with this quarter's performance delivering results above our expectations for both net sales and earnings due to the strong operating execution across our business. Retail and boat show results within the quarter performed well. Our efforts to return pipeline inventories to healthy levels and maintain a strong balance sheet leave us operating from a position of strength and well-equipped to manage fluctuations in market activity. Focusing on the top line, net sales for our third quarter were $78.2 million, up $2.2 million or 3% year-over-year. The increase was primarily driven by favorable model mix and options, pricing and discounts, partially offset by unfavorable volume, which is in alignment with our planned production cadence for the second half of the year. Gross margins improved 420 basis points over prior year to 25%, a result of strong operating performance across both segments, pricing and favorable options. Operating expenses were $20.8 million for the quarter, an increase of $9.2 million when compared to the prior year due to the business development and advisory costs related to the Marine Products Corporation transaction. Adjusted net income for the quarter was $7.2 million or $0.45 per diluted share. This compares to adjusted net income of $5 million or $0.30 per share in the prior year calculated using an effective tax rate of 23% in fiscal year '26 compared to 20% for the prior year period. We generated $10.7 million of adjusted EBITDA for the quarter compared to $7.5 million in the prior year, a 43% increase. Adjusted EBITDA margin was 13.7% compared to 9.9% in fiscal '25, a 380 basis point improvement over the prior year period. We ended the quarter with $84.6 million in cash and short-term investments, no debt and ample liquidity. Before moving to guidance, I'd like to provide an update on the pro forma financials for the combined company following close. Last quarter we provided a cash range of $40 million to $60 million. Costs associated with the transaction have been slightly higher than expected, but we still expect to finish fiscal year '26 at or near the bottom of this range. A strong balance sheet following the combination remains a strategic priority and with $75 million revolver availability, no debt and strong cash flow generation; we expect to be fully funded with ample flexibility to fund strategic growth initiatives. Our capital allocation priorities have not changed. We maintain a healthy balance sheet while pursuing organic growth first followed by share repurchases when valuation is attractive and disciplined M&A where it makes sense. Now turning to guidance for the remainder of the year. As a reminder, today's outlook excludes any impact from the proposed combination with Marine Products Corporation. As we look ahead, based on our fiscal Q3 performance and current expectations, we are raising the net sales, earnings and adjusted earnings per share guidance for the full year. For fiscal 2026, consolidated net sales are now expected to be $312 million with adjusted EBITDA now expected to be $40 million and adjusted earnings per share to be $1.65. We now expect capital expenditures to be approximately $8 million for the year. The strong fourth quarter implied in the full year guidance reflects the strategic debut and launch of new products, which will continue to have mix improvement sequentially over Q3. I'll turn it back to Brad for closing remarks. Bradley Nelson: Thank you, Scott. As we reflect on the quarter, what stands out most is our team's credibility and discipline in executing our strategy and the fundamentals of our business. In a dynamic environment: we remain grounded in maximizing what we can control, aligning production with demand, supporting dealer health and continuing to invest in premium differentiated product innovation. That focus has translated into solid operating performance and meaningful margin improvement during the quarter. Across the portfolio, we're seeing the benefit of this approach. At MasterCraft, completing the next-generation X Series with the reintroduction of the X23 alongside the X22 and X24 building on the momentum of our flagship XStar reinforces the strength of our premium product road map and our leadership position in the category. In pontoons, we're managing with discipline, keeping focused on execution and positioning the business for the long term. We remain confident in our strategy and ability to navigate market variabilities by staying disciplined, agile and focused on our core strengths. With a strong balance sheet, flexible operating model and a premium product portfolio that continues to resonate; we believe we are well positioned regardless of foreseeable market dynamics as we move through the remainder of the fiscal year. Looking ahead, we will continue to deploy capital to drive both organic and inorganic growth. With market momentum and the timely combination with Marine Products Corporation on the horizon, we are well positioned to capitalize on the market upswing moving forward. Operator, you may now open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Joe Altobello from Raymond James. Martin Mitela: This is Martin on for Joe. Congrats on the strong quarter. First of all, I want to quickly touch on the MPX combination. Now that you're further along with the process, is there any updates to the synergies expected? Scott Kent: I think as we kind of alluded in the prepared remarks there, we've created work streams. We're frankly seeing the progress being made on those and we're probably more convicted towards the numbers we've put out in the proxy in the last quarter than we were even before. So things are progressing along pretty well. Martin Mitela: Okay. Great. I just really want to quickly touch on retail cadence. Would you mind providing what it looked like for the quarter and just exiting the quarter as well? Scott Kent: So obviously as Brad kind of mentioned in the call, we are a little bit more proactive or confident in our retail assumptions than we were even a quarter ago. So on the MasterCraft front, I think we've been saying we thought we'd be down 5% to 10% for the year. We're now saying we should be closer to flat on retail. Really the boat show results as we went through boat shows have remained pretty solid and given us a lot more confidence as we go out of the -- as we exit the year. The other thing that gives us a little confidence is I know we talk about our X Series launch and all of the X Series boats that are coming out. Going to be very heavily weighted in our fourth quarter towards that X Series product and largely, most of the X Series product that we're going to generate in wholesale is actually already retail sold as well. So again this gives us a little more confidence that our fourth quarter is going to hold up pretty well to give us that flattish retail for the full year for MasterCraft. Operator: Our next question comes from the line of Kevin Condon from Baird. Kevin Condon: I wanted to ask as we look out and you start to lap all this destocking activity, I think you noted dealer inventory was down 28% year-over-year so imagining this year fiscal '26 ends with wholesale well below retail. But just is there any way to think as we kind of roll into a more one-to-one wholesale to retail environment in terms of units, what that would look like in terms of the lift to wholesale shipments in your revenue growth? Scott Kent: So we're not prepared to give '27 guidance, but I think you've got the gist of the philosophy going into next year. We will end the year a little bit wholesale under retail again this year largely because retail is a little overperformed where we expected it to be. So next year -- as we go into next year, our goal is to certainly align wholesale and retail a lot closer. So we'll certainly need to get through the rest of the selling season, see how it ends, and then we'll be prepared to give guidance on that as we go into the '27 year. Bradley Nelson: Also, Kevin, this is Brad. We've got a lot to learn with the upcoming selling season. But coming out of boat show season and here in early spring, we've been generally pleased with the results. One thing I'd like to highlight is not only is our inventory better than pre-COVID traditional levels, inventory turns are also below those levels. So that together with the momentum coming out of boat shows, continued lean in from customers and dealers on our new products gives us that confidence as well as the visibility into our production model that Scott referenced earlier. Kevin Condon: Got you. And then I had 1 quick follow-up. Just the closer to flat retail assumption, is that for like total company retail or is that a ski wake MasterCraft brand-specific comment? Scott Kent: That's a MasterCraft specific comment. Operator: Our next question comes from Anna Glaessgen of B. Riley Securities. Anna Glaessgen: I'd like to ask on the gross margin performance in the quarter, really nice expansion, I think reached the highest level since 2023 in the quarter despite a lower sales growth. Could you maybe unpack the mix benefit or the contributors to that expansion and just generally how we should be thinking about gross margin as we assume greater parity between retail and wholesale? Scott Kent: There are several drivers to our margin. They are really more or less consistent that we've had through the entire year, but certainly affecting us in the Q3 as well. So in Q3, our margins are certainly improved a little bit by discounts. Our discounts have generally been lower as we go into -- have been all year. But certainly as we go into Q3, our margins are certainly impacted by that. We do have a little bit of segment mix as well as the Pontoons wholesale went down a little bit more than the MasterCraft units did as well. So we get a little benefit from the extra MasterCraft sales there. We've also been having really good operations improvements really throughout the year as we've had some cost improvements there. Our Pontoon business has had fairly flat sales for the year, but our margin improvement on the Pontoon business has been about $1.9 million of adjusted EBITDA. So that's helping our overall margins as well. Along with some quality improvements, we've been having a little bit of favorable warranty really throughout the entire year and that continued into the Q3 as well. So lots of things ultimately chipping away and adding to that margin improvement as we've gone through the quarter and the year. Anna Glaessgen: Okay. And then secondly, I know the acquisition hasn't closed, but anything you could share on MPX's retail this quarter and potentially into April, May? Scott Kent: Yes. Obviously I think you can go out on their website and you can see their kind of results for the quarter. I think they're publishing today as well. I'll leave the quarter to them to talk through. But you can certainly go out and look at that on their own website. Anna Glaessgen: Okay. And then 1 more follow-up on guidance. I believe in the prepared remarks, you said something to the effect of incorporating the current uncertainty into the guidance. I guess could you expand on what you're thinking there and how that's impacting the guidance? Bradley Nelson: Anna, that's really just driven around some of the macroeconomic and geopolitical issues that are happening. And there has been a little bit of a pausing or a downdraft at retail across the broader industry and broader categories. We've been generally pleased with our outperformance at the retail level inside of that, but it's more geopolitical in nature and which we view as temporary. Operator: Our next question comes from Brandon Rolle from Loop Capital. Brandon Rollé: First, just on general and administrative cost. It seems like that ticked up a little bit in the quarter. Is that expected to continue throughout 4Q and into fiscal year '27? Scott Kent: I realized that most of the pickup was really the onetime costs associated with the acquisition. So I think of the $9.2 million in the quarter, if you looked into our adjustments there, about $8.4 million of that was related to the acquisition. We also have some continued costs related to our ERP implementation for a couple of hundred thousand dollars as well. And then we do have some timing between quarters as well as just a little increase year-over-year in sales and marketing. I think those are the 3 main drivers that kind of are impacting that. Obviously the acquisition costs will go away, the ERP costs will go away and the sales and marketing are kind of timing related. Brandon Rollé: Okay. Great. And then just on the Pontoon category, I think you gave more optimistic retail expectations for the MasterCraft brand. Any update on kind of recent trends within the Pontoon segment and any updated retail expectations there? Bradley Nelson: Yes. Pontoon in general hasn't really got going yet. Of course that business traditionally is more of a payment buyer highly compressed in the summer selling season, of which we're just in the early rounds of that. We view '26 for us as really a stabilization year as we fight through just macroeconomic pressure and a promotional environment out there that's still elevated from traditional levels. And our brand -- using Crest as an example, that's a very proud brand with 68 years of brand equity. We're working hard on this business with discipline, aligning inventory, strengthening our dealer network. So overall, that category it's giant. It's the biggest subsegment within marine. We've got good tradition and history there, strong brands as well as a good dealer network. So as we stabilize going forward through the summer selling season, we do need to see sustained retail in that market. What we think will drive that is more macroeconomic attitude in general that would apply to the entire marine category as well. Scott Kent: So just remember, that stabilization was really done what we plan to do this year, right, and we really have seen that happening. So on a year-to-date basis, the adjusted EBITDA for the Pontoon segment has gone up about $1.9 million on relatively flat wholesale. So this year has done exactly what we wanted it to do, get that stabilization and now we've really got a platform set for the growth in the future. Operator: Our next question comes from Gerrick Johnson of Seaport Research Partners. Gerrick Johnson: Piggybacking on Anna's question, you did not mention anything about commodities. Wondering how those are trending for you, how you lock in price or hedge and what you're seeing and experiencing going forward on those commodities, resins and aluminum in particular. Scott Kent: So on the fuel petroleum-based products; resins, gels and really foam; it's still a relatively small portion of our entire bill of material. So we do have some implied increases coming into that in our fourth quarter guidance or our full year guidance. It's not significant. I think you can think of like 1% of our entire gross margin are material costs. It's just not that significant overall. We are doing what we can to work with our suppliers to mitigate that as best as possible, but not having a huge impact necessarily on our full year profitability. But again we do have some of that embedded in our guidance and margins assumptions for the full year. On the aluminum front, that's really more impacted by tariffs and the tariff -- even the past tariffs. As you might recall, we have at the MasterCraft level been putting a surcharge on our invoices for tariffs and that is largely doing exactly what we planned. We are offsetting the cost of those tariffs on an almost dollar-for-dollar basis through what we've been charging through that extra surcharge. So we have been kind of netting out the effect of the aluminum increases. Gerrick Johnson: Okay. Got you. And then on your pro forma, thank you for the pro forma examples. But you are issuing shares to consummate this deal. So are you able to provide us depreciation, tax rate and pro forma shares to help us get to an EPS? Scott Kent: We will give you more of that guidance when we get into the '27 year. Obviously the proxy that we sent out has some of that data in it and you can get a little bit of that data. But just keep in mind that there's going to be a lot of purchase accounting adjustments. So anything you see even in MPX's past numbers is going to change a bit as we move into getting finalized on purchase accounting and moving forward. So we'll give you a little bit more of that guidance when we finalize some of those entries going into '27. Gerrick Johnson: Okay. Got you. And 1 last one. You mentioned retail has overperformed. You've been launching new models particularly MasterCraft, the X Series. the X22 in November, the X24 in January, now the X23. Just wondering how much more of the market can you get with that 1 foot difference? Do you cannibalize from the X22 and X24 or can you get incremental customers? Just the rationale behind the X22, X23 and X24; 1 foot each. Bradley Nelson: Gerrick, in general our momentum there from dealers at the consumer level isn't just new products. This is about a customer experience and unrivaled support, quality products in general which are surging, a catalyst with new products certainly is helping. The new lineup, recall last year we launched the XStar at the top end, ultra-premium end of the space, which is garnering share. And now with X24, X22 and X23, as you mentioned, same thing is happening. What we're hearing from dealers and consumers alike is that these products are winning on 3 fronts: design, performance and quality and premium value. And we like how they're positioned against the competition and they're winning incremental share. Now the market continues to lean premium. That's an advantage for us with our premium brands. We expect that to continue especially until the mass market starts to recover. But there's no doubt that with our share capture momentum that we're pleased with, we're winning incremental business, but it's not just all on the backs of new products. We're seeing surges in pretty much all of our product lines. Scott Kent: And Gerrick, we do work really closely with our dealers and actually the dealers are the ones that requested to have a X23 in the lineup. They believe we believe that we will get -- by having all 3 of those products in the lineup, we will get incremental share and incremental sales from the combine of the 3 models combined. It gives us a really nice price point. Certain markets are better with a X23, certain markets are better with a X22 and some markets can sell the X24. So it does make a difference to our dealers. They have certainly requested it and we listened to them and put it back in the lineup. Operator: Thank you. I am showing no further questions at this time. I'd like to thank you all for your participation in today's conference. This does conclude the program. You may disconnect.
Operator: Good morning, and welcome to Allegro MicroSystems Fourth Quarter and Full Fiscal Year 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Jalene Hoover, Vice President of Investor Relations and Corporate Communications. Jalene Hoover: Thank you, Alliah. Good morning, and thank you for joining us today to discuss Allegro's fiscal fourth quarter and full fiscal year 2026 results. I'm joined today by Allegro's President and Chief Executive Officer, Mike Doogue; and Allegro's Chief Financial Officer, Derek D'Antilio. They will provide highlights of our business, review our fourth quarter and full fiscal year 2026 financial results and share our first quarter outlook. We will follow our prepared remarks with a Q&A session. Today's call includes remarks about future expectations, plans and prospects, which are forward-looking statements. Such statements are based on current expectations and assumptions as of today's date and are subject to risks and uncertainties that could cause actual results and events to differ materially from those anticipated or projected on today's call. The company assumes no obligation to update these statements, except as required by law. For a discussion of these risks and uncertainties, please refer to today's press release and the risk factors contained in our periodic filings with the SEC. Additionally, we will refer to non-GAAP financial measures during today's call. Today's earnings press release, which is available on the Investor Relations page of our website at www.alllegromicro.com, contains important information about our non-GAAP financial presentation and also includes reconciliations of our non-GAAP financial measures to the most directly comparable GAAP measures. This call is also being webcast, and a replay will be available in the Events and Presentations section of our IR page shortly. It is now my pleasure to turn the call over to Allegro's President and CEO, Mike Doogue. Mike? Michael Doogue: Thank you very much, Jalene, and good morning. Thank you all for joining our fourth quarter and full fiscal year 2026 earnings call. We finished fiscal year 2026 with strong momentum, delivering a fifth consecutive quarter of sales growth at $243 million. Fourth quarter EPS was $0.17, nearly tripling year-over-year. FY '26 sales increased by 23% year-over-year to $890 million and EPS more than doubled to $0.54 per share. This performance is a result of our team's dedicated execution of strategic initiatives discussed at our February Analyst Day. In automotive end markets, our focused auto sales, which includes xEV and ADAS, increased 30% in FY '26. Content expansion and share gains drove this growth. FY '26 growth included gains in steering and braking for ADAS applications, increased adoption of high-voltage traction inverters and ramping programs for VLDC motor drivers and xEV powertrain systems. As a result, total auto sales grew 17% in fiscal 2026, well above our SAAR plus 7% to 10% target coming off an inventory digestion period. Industrial and other end markets led fourth quarter sales growth with a data center up 41% sequentially to establish a new quarterly record at 14% of total sales. For fiscal 2026, industrial and other end markets grew 38%, led by data center and robotics and automation. This is well above our high-teens sales growth target for our industrial business. Our high-efficiency motor drivers for 3-phase data center fans continue to gain traction. Historically, these fans cooled CPUs and GPUs but they've now expanded into power supplies and into network switching equipment. We're also seeing growing adoption of our high-speed current sensors in power supplies, battery backup units and capacitor backup units across the data center. Our data center content is not limited by unit volume growth. We are seeing strong growth as a result of our expanding product portfolio and the adoption of new high-voltage data center architectures. As AI racks move from 15 kilowatts to 1 megawatt of power consumption, Allegro's content scales with power per rack. Because we solve the thermal and sensing challenges that come with extreme power density, our content opportunity per rack scales from approximately $150 in today's servers to over $425 in next-generation AI configurations. I'd like to share a few highlights from my trip to Asia last month, where I met with our top data center customers in Taiwan and Vietnam. Three things stood out. First, customers expect data center fan volumes to grow for the foreseeable future, even as liquid cooling is adopted. Continued growth is driven by fan proliferation into power supplies and into network switching equipment, which use a large number of fans and are rarely liquid cooled. Second, design win activity for our current sensors in power supplies and backup systems is large and growing. Both Hall and TMR current sensors are shipping or will soon ship across multiple hyperscaler platforms in AC to DC, PFC and DC-to-DC power stages. Current sensors for data centers are emerging as a meaningful new growth pillar, and we expect this to be an area of significant growth over the next several years. And finally, we're seeing significant design in progress for high-voltage drivers and data center power supplies. In addition to data centers record performance, robotics and automation sales doubled year-over-year in fiscal 2026. We saw increasing adoption of our sensors in factory and building automation applications during the year, along with growing engagement and design wins with humanoid robotics customers. For example, we secured two design wins with leading Chinese robotic companies for use in robotic joints during the quarter. In the first win, our current sensors were selected over local alternatives based on superior performance and our smaller package size. In the second win, our latest inductive sensor was selected in an approximate 90 IC per robot opportunity, where small form factor, high-precision motor control capability and our local coil design expertise were decisive factors. Initial shipments will begin in calendar 2026 with volumes expected to increase in 2027. Now turning to design win and backlog momentum. Our fiscal '26 design wins increased more than 30% year-over-year. Focus auto, including xEV and ADAS, led automotive design win activity with powertrain-agnostic safety, comfort and convenience also achieving strong results. Data center-led industrial design wins for the full year. In addition, we exited the year with a total company backlog sitting at a multiyear high. These metrics give us confidence in our forward-looking momentum. Our R&D investments are guided by our core value innovation with purpose, which drives differentiated sensor and power technology. Great pride in holding the #1 position in magnetic sensing, reflecting our broadest portfolio and our leading performance in the market. Allegro's magnetic current sensors enhance our technology and market leadership positions in output accuracy, bandwidth and power density. To illustrate this leadership, I'll share some recent examples. In Q4, our 10 megahertz TMR current sensor was named EDN's 2025 Sensor Product of the Year. As the industry's first 10 megahertz TMR IC, it offers the highest bandwidth solution available today, enabling the high-speed control required for next-generation gallium nitride and silicon carbide power systems across xEV, data center and robotics applications. We also expanded our sensor portfolio during the quarter with the release of an ASIL D passive TMR angle sensor. This IC delivers the fail-safe reliability essential for the industry's transition to steer-by-wire ADAS systems. Those systems support Allegro's 2 to 3x content uplift compared to conventional steering systems. One of our more differentiated and fastest-growing technologies in magnetic sensing is. We expect CMR to extend our leading magnetic sensing position. During fiscal 2026, TMR represented approximately 30% of our sensor product releases offering the superior accuracy, bandwidth and low power consumption that our customers demand. We're also expanding our lead in power ICs, which we expect to drive continued share gains. In fiscal 2026, we released our first isolated gate driver specifically designed for silicon carbide transistors and are seeing strong customer interest. Our power-through architecture delivers up to 40% greater efficiency -- and we expect to see a 2 to 3x dollar content uplift from isolated gate drivers as customers move toward 800-volt xEV platforms and higher power AI architectures. This is a clear example of how our differentiated technology translates directly into content expansion and share gains. As we enter fiscal 2027, we see demand trends that support continued growth, and we remain confident in our ability to execute towards our target financial model. I'll now turn the call over to Derek to provide additional color on our financial performance as well as our first quarter outlook. Derek D'Antilio: Thank you, Mike, and good morning, everyone. Starting with our fourth quarter results. Sales were $243 million and non-GAAP earnings per share were $0.17. As a percentage of sales, gross margin was 50%, operating margin was 15.6% and adjusted EBITDA was 20.4%. Q4 sales increased by 6% sequentially and 26% year-over-year. Sales to our automotive customers were essentially flat sequentially at $164 million, including an expected decline in China due to the Chinese New Year. Auto sales increased by 18% over Q4 of FY '25 and focused auto sales, which include xEV and ADAS, increased by 25% versus Q4 of '25. Industrial and other sales increased by 23% sequentially, $79 million and 49% over Q4 of FY '25. We led by continued strength in data center to record levels. Sales to our data center customers were 14% of Q4 sales, up from 10% in Q3 and 8% in Q2. And as Mike discussed, we are seeing continued strength in data center demand as we move into fiscal '27. From a product perspective, magnetic sensor sales increased by 2% sequentially to $141 million, an increase by 21% over the prior year quarter. Sales of our Power Products increased slightly 12% sequentially to $102 million and 35% over the prior year quarter. Sales by geography on a ship-to basis were as follows: 30% of sales in the rest of Asia, 25% of sales in China, 17% Japan, 15% of sales in Europe and 13% in the Americas. Now turning to Q4 profitability. Gross margin was 50%, up from 49.9% in Q3 and 45.6% in Q4 of fiscal '25. Operating expenses were $84 million, an increase of $5 million sequentially, largely due to annual payroll tax resets and higher incentive compensation. Operating margin was 15.6% of sales compared to 15.4% in Q3 and an increase of 660 basis points compared to 9% in Q4 of fiscal '25. The effective tax rate for the quarter was 6%. Interest expense was $5 million, which included $650,000 of expenses related to the repricing of our term loan down another 25 basis points to SOFR plus 175 basis points. The fourth quarter diluted share count was 187 million shares and net income was $32 million or $0.17 per diluted share. Non-GAAP EPS increased by 13% sequentially and 183% over a year ago quarter on sales increases of 6% and 26%, demonstrating the significant operating leverage in our business model. Now turning to a summary of our full fiscal year 2026 results. Total sales increased by 23% year-over-year to $890 million. Auto sales were $629 million, an increase of 17% compared to fiscal '25 and were 71% of our total sales. Focused auto sales, which is ex EV and ADAS with $349 million, an increase of 30% year-over-year and represented 55% of our auto sales. Industrial and other sales were $261 million, an increase of 38% year-over-year, led by data center, which more than quadrupled and represented 10% of our total FY '26 sales. From a geographical perspective, the rest of Asia and China sales led regional growth. Rest of Asia sales increased 44% year-over-year due to strength in data center and China sales grew 36% year-over-year, led by growth in our Focus Auto. Gross margin for the full year was 49.4%, an improvement of 140 basis points year-over-year. Operating leverage and factory efficiencies helped to more than offset price and commodity cost increases. The cost of gold in particular, was an approximately 200 basis point headwind in fiscal 2026. And as we move into FY '27, our teams remain focused on our goal to call for conversions as well as other cost reduction in factory efficiency initiatives as we progress towards our gross margin targets. Operating margin was 14.1% of sales. Adjusted EBITDA for the year was 19.1% of sales and earnings per share were $0.54, more than double the prior year. Moving to the balance sheet and cash flow. We ended Q4 with $175 million of cash. Q4 cash flow from operations was $36 million. CapEx was $17 million and free cash flow was $19 million. For the full year, free cash flow was a record $125 million, and we also made $60 million in voluntary debt payments. Bringing our total debt balance to $285 million and net debt to $116 million exiting the year. From a working capital perspective, fourth quarter DSO was 35 days. Compared to 40 in Q3 and inventory days were 128 days compared to 133 in Q3. Finally, I'll turn to our Q1 fiscal 2027 outlook. We expect first quarter sales to be in the range of $245 million to $255 million. The midpoint of this range equates to a 23% year-over-year increase. Additionally, we expect the following, all on a non-GAAP basis. Gross margin to be between 50% and 51%. Operating expenses are expected to decline sequentially to $80 million, plus or minus $2 million. Within that, we expect to continue to make strategic investments in R&D and sales to drive above-market growth, and these are funded largely through continued reallocation of resources and process efficiencies. Interest expense is projected to be $4 million. We expect our non-GAAP tax rate to be approximately 9%. We estimate our weighted average diluted share count will be 187 million shares. And as a result, we expect non-GAAP EPS to be between $0.19 and $0.23 per share. Now I'll turn the call back over to Jalene for questions. Jalene Hoover: Thank you, Derek. This concludes management's prepared remarks. Before we open the call for your questions, I'd like to share our first fiscal quarter conference line up with you. We will attend TD Cowen's 54th Annual Technology, Media and Telecom Conference in New York on May 27, Evercore's 2026 TMT Global Technology Conference on June 2 in San Francisco, Bank of America Securities 2026 Global Technology Conference on June 3, also in San Francisco; and Mizuho's Technology Conference 2026 on June 9 in New York. We will now open the call for your questions. Alliah, please review our Q&A instructions. Operator: [Operator Instructions] Our first question comes from the line of Gary Mobley of Loop Capital. Gary Mobley: I know you mentioned in your prepared remarks that backlog is at a multiyear high. I'm hoping that maybe you can share some additional details in terms of what's changed in the past 90 days as far as revenue KPIs go and then perhaps maybe drilling down by end market. Anything you can provide there would be helpful. Michael Doogue: In the last 90 days, in the prepared remarks, I talked about a trip, I took to visit data center customers. It gave me increasing confidence that we have a strong story there, especially as we see the current sensors ramping on top of continued strong demand in fan drivers. So we're feeling good about the industrial market as we look ahead. In the automotive space, we're seeing good signs of strength, both in terms of the backlog, but also forward-looking design wins. And at our Analyst Day, we talked a lot about the importance of our increasing dollar content story, and it's encouraging to see a preponderance of wins in our automotive area coming in those applications that have higher dollar content. So those would be the two most notable trends. Gary Mobley: Okay. And Derek, I know in the past, you've communicated that the gross profit drop through over the long term, should range between $0.60 and $0.65. It looks like what's embedded in the Q1 guide is something about that, maybe $0.67. So perhaps maybe you can share with us the drop through you expect for the year and perhaps some additional detail by quarter as some seasonal factors might play into the expense equation. Derek D'Antilio: Sure. And as you can see in the numbers, the Q4 drop-through was in the low 50s, and that typically happens as our annual price negotiations with customers happen in that March quarter. Sort of revenue declines in that quarter for those price negotiations. And even though we negotiate potential cost declines in certain areas, whether it be wafers or OSATs or those sort of things, that takes a quarter or 2 to cycle through inventory. So we see some of that benefit going into our first quarter with a drop who's actually closer to 70% in the first quarter at the guide of 50% to 51%. I also mentioned on the call that we have had some significant headwinds, particularly commodity costs and recently fuel costs. And I might get the question of what are we going to do with prices we are doing select price increases, but it's very nuanced, that didn't start in Q4, that will start at the end of Q1. And what we, of course, always look to do is offset any sort of cost increases we have with factory efficiencies with improvements with our vendors. And we did a lot of that in 2026. We improved our gross margin by 140 basis points even with the annual price declines even with the cost headwinds, we'll continue to do that as we go into 2027 and look to do select price increases as we move throughout the year. Operator: Our next question comes from Quinn Bolton of Needham & Company. Neil Young: This is Neil Young on for Quinn Bolton. So data center grew pretty strongly quarter-over-quarter. As you look into fiscal year '27, can you help us think about the -- or help us think through the durability of that growth? And specifically, how much of the forward pipeline is still fan driver driven versus the newer current sensor and isolated gate driver opportunities? And then I have a follow-up. Michael Doogue: Sure. This is Mike. And when we look at the data center business, we see very terrible demand in the call last quarter. There were some back and forth about what is the right growth rate for the business on a long-term basis. And we look at that growth rate for our data center business coming in well north of 20% on a long-term basis. As we look ahead in FY '27, we believe our growth rate will come in well above 20%. We're not going to forward guide with specific numbers, but we do see strength data center coming into FY '27. Back to the question on the mix. The majority of our business is still with the fan drivers, and that's a good story. It's a good story because, as I mentioned in the prepared remarks, the fans are starting to appear in new locations within the data center build-outs, most notably power supplies. So that business continues to grow and remains strong. On top of that, current sensors in these power supplies, that business started to ramp in FY '26 and we believe it will ramp even more strongly in FY '27. The isolated gate driver business is still 18 to 24 months out from having material revenue in the data center but we're encouraged by design and activity that's happening now. Derek D'Antilio: And this is Derek. To add one piece of context. Current sensors entering FY '23 virtually 0 part of that data center business. In Q3, it was about 10%. In Q4, it got closer to that 20% of our data center business. Neil Young: Great. And then you guided June quarter gross margin in the 50% to 51% range, while the longer-term model still is targeting that over 55%. Could you maybe walk us through the biggest drivers of that bridge from here, whether it be op leverage, factory efficiency, mix, new products, et cetera? And which one of those are most controllable versus volume dependent? Michael Doogue: Sure. The three pieces of that really operating leverage. And so when you look at our model, as Gary pointed out, we're going to grow at about 70% drop-through in the Q1, and that always happens in that quarter. But the typical drop-through is between 60% to 65%. That's our variable contribution margin. So as we put more volume through our back-end facility in Philippines and the fixed cost growing inflation, you get a significant amount of leverage. So if you're plugging your revenue numbers like we have at our Analyst Day, that's the biggest driver of overall gross margin going forward. The second biggest piece though is improving that variable contribution margin and we talked about this gold to copper conversion program that's ongoing. It's not going to happen all in one quarter. There's customer qualifications that are required. So it will happen over time. But that was a 200 basis point headwind in FY '26 alone. So as we move through that program, that's a significant uplift in addition to negotiating cost savings with our wafer suppliers and others, especially as they get through these geopolitical times right here. Those are the two biggest pieces, and those are the pieces. The second piece is clearly controllable by us. The first piece is market dependent, which we see good things happening right now. And the third level, which is not insignificant, is continued factory efficiencies. And within FY '26, again, we were able to offset 200 basis points of gold headwinds and still improve our gross margin just through factory efficiencies, and we'll continue to do those things going forward. Operator: Your next question comes from Joe Quatrochi of Wells Fargo. Joseph Quatrochi: Maybe first just to start, can you kind of walk through the puts and takes of focus auto for the March quarter, I think that was kind of flattish sequentially? And then how do you think about that kind of accelerating? Or where could that go in fiscal '27? Michael Doogue: So Focus Auto, the way I look at it, it was up roughly 30% year-over-year in FY '26. So it's demonstrating strength on the annualized basis of FY '26. And I think we'll see something similar in FY '27. And the reason for that goes back to what I mentioned just a few minutes ago, when we look at our design wins, where they're happening, do we have share gains, we get a very positive story in our Focus Auto segment and that we do see strong share gains. We do see significant wins in these areas with expanding dollar content. So we remain positive on the future of Focus Auto, and we remain positive on our ability to outgrow auto production SAAR plus 7% to 10% because of our strong story between share gains and dollar content gains. Derek D'Antilio: And Joe, a little specificity on Q4. The reason why focus Auto was flat to down a little bit was largely China -- we have a large business in China on the focus auto that continues to grow. In fact, our design wins were led by China ADAS applications. So that's encouraging for the future. And within that, we're expecting focus auto and auto to be up in Q1 a couple of percentage points. and then Q1 will be led by data center on the industrial side, as you might imagine. Joseph Quatrochi: Yes, that's helpful color. And maybe just on the industrial side, I think maybe ex data center, that was actually pretty strong sequentially. What's driving that? Is it I assume robotics is still maybe a little bit small, but any help there and just kind of what's driving nondata center industrial? Michael Doogue: Yes. In our category of robotics and industrial automation, it's not large, but I wouldn't necessarily characterize it as small either. So we saw some meaningful movement there. On the factory automation side of things, we're not talking about certainly humanoid robots but there are a lot of robotic systems in factories, product moving equipment, et cetera, and we're seeing strength there. Additionally, we're seeing strength in energy infrastructure. I think there's some pull-through there perhaps because of data center build-outs, and we see continued strength in the 2-wheeler market as well, 2-wheeler transportation. Operator: Our next question comes from Timothy Arcuri of UBS. Timothy Arcuri: Derek, I wanted to ask also on data center and what's being assumed for the guidance in June? Because if it grows in the same -- I mean, it grew 40% in December, it grew 40% in March. If it grows 40% in June, then the rest of the business is down like 3% to 4% and the rest of industrial is down like mid-teens, which doesn't seem to make a lot of sense. So maybe data center is assumed to slow down on a sequential basis in June. Can you kind of go into that? Derek D'Antilio: So you could -- look, data center was 14% of our total sales in Q4. You could increase that by a couple of percentage points, 2 or 3 percentage points. So in Q1, it will be 16%, 17% of our total sales. which implies 20% to 25% growth in the data center. And I wouldn't call it a slowdown. It's the law of large numbers, right? And so if you take 20% to 25% a quarter, that's still a pretty significant growth rate. Remember, in FY '26, entering the year, data center was still 2% or 3% of our sales as we had a real rebound in fans and then the current sensors the last couple of quarters. Timothy Arcuri: Okay. Got it. And then -- so it seems like mature node foundry is getting pretty tight. You have two of your three major foundries there. Are you seeing cost pressure? You did cite gold -- pressure from gold. Is some of it like wafer pricing pressure as well? And can you sort of talk about -- you did talk about maybe raising prices a little bit to kind of pass that on. Can you just talk about the foundry costs? Derek D'Antilio: Yes. So Joe, I think we've done a pretty good job and our foundry partners have been really good working with us. So that's not the biggest headwind we have necessarily right now. I think they've been really good partners. I guess headwind happens to be gold and then more recently, fuel charges for freight and also in our Philippines facility. To touch on the pricing increases, it's not the first place we go. It's not a cost-plus type of situation. We work with these customers. We've worked with for years on finding efficiencies and of course, converting some of those things from gold to copper on the wires. That's the first place. We will do select price increases that will begin here at the end of Q1. Some of that is surcharges related to those two costs that I mentioned. Operator: Our next question is from Vijay Rakesh from Mizuho. Vijay Rakesh: Just a quick question on the data center side again. It looks like if you quadrupled for this fiscal, your content is going up 4x. Just wondering -- sorry, from $150 million to $425 million, I guess. As you look at fiscal '26 -- fiscal '27, '28, any thoughts on how the data center side should grow? And are you going to be breaking it out every quarter? Michael Doogue: As I mentioned, we look at the long-term data center growth rate north of 20% and what we really see as you go through that evolution of dollar content, it's really driven by architectures and the on-ramp of new technologies in the data center, right, whether it be 800-volt architectures, et cetera. So for our current sensors, Derek mentioned, we saw a nice ramp in FY '26. That will be the next step-up for us and the speed with which they ramp is somewhat correlated to the different architectures that are adopted and when and with what market share but we see nothing but positivity there. Like I said, we expect FY '27 to be well above a 20% growth rate and we're seeing very positive signs right now from customers and from the architectural evolutions happening out there that seem to benefit Allegro. Vijay Rakesh: Got it. And in terms of the auto side, are you seeing any memory constraints affecting that in the second half or into '27? That's it. Michael Doogue: Yes, this is Mike. I'll take that one. Our customers all seem concerned. But when we see it is when somehow orders are impacted, and we are not seeing that. We're seeing no impact of material shortages on our orders. So I know it's tied out there, but it's not really impacting our business at this point, at least as far as we can tell. Operator: Our next question comes from Tom O'Malley of Barclays. Matthew Pan: Matthew Pan on for Tom. Just curious, one of the other analog players with high auto exposure is sort of guiding to auto sequential growth in June, pretty well above historic seasonality. Sort of looking at like your guys' historic seasonality in March -- or sorry, in June. And I know you talked about sort of up a couple of points for auto in June. Is there any reason you shouldn't be growing above seasonality there? Derek D'Antilio: No. I mean our guide total for the March quarter is up about 3% at the midpoint. The range is obviously a little bit higher than that at the high end of that. And within that, auto grows a couple of percentage points as China comes back. And then we're also shipping a significant amount of our products as we talked about into industrial and data center. To be honest, we have a little bit of delinquency that we're starting to build in certain pockets in both auto and in industrial that we're putting some capacity in the back end in the Philippines, as you saw, $17 million in CapEx in Q4. So that will help with capacity to facilitate both of those. Matthew Pan: Got it. And just a follow-up on -- we're hearing more about China EVs for exports. How impactful is this to you? And is your content any different on exports? Michael Doogue: I'll take that one. We remain confident in our China business overall. Certainly, China is the largest automotive market in the world, and we're having good success with China OEMs. I would say from a dollar content perspective, we feel positive about the dollar content we're establishing by OEM in the Chinese OEM landscape. So as those cars may now become export models into the world. We have good dollar content in those cars, and we view that as a good to neutral thing. We have no concern about Chinese cars selling at higher levels relative to a dollar content. Operator: Our next question comes from the line of Joshua Buchalter of TD Cowen. Joshua Buchalter: To start, maybe we could -- could you provide an update on what you're seeing in the auto backdrop, specifically on inventories? Like still safe to assume that we're not seeing any meaningful signs of restocking, but that you're comfortable that inventory levels are low. And then should -- I guess, if indeed inventories are at healthy levels, any reason we shouldn't be modeling the 7% to 10% plus SAAR for this fiscal year as we see it right now? Michael Doogue: So we still see somewhat thin inventory levels in automotive. We've seen no clear signs of restocking, at least not at a broad level. So that's the environment that we're in right now. And when we look to the future, as I mentioned earlier, with share gains, with the dollar we have. We certainly model when we look ahead, SAAR plus 7% to 10%, and that's probably the best model to put forth at this point. Joshua Buchalter: Okay. And then on the data center side, obviously, CPUs have gotten a lot of renewed attention recently. Is it safe to assume that most of your cooling fan exposure is on the CPU side? Or maybe you can just help us with the CPU versus accelerated servers exposure as we think about your current sensing and the PMIC side of the house in data center? Michael Doogue: Sure, Josh. I actually did a bit of digging on my trip with customers to just actually model out as cooling is adopted to cool GPUs, CPUs, et cetera, what does that really do to fan demand? And our top customers painted a picture where because of the enormous number of power supplies going into the architectures and the fact that there are fans in those power supplies, they still see a story of growth for fan drivers in the data center even as liquid cooling is adopted. Now to be clear, fans that were cooling GPUs and TPUs will go to liquid cooling. That is a fact. But the proliferation of fans into the power supplies is significant, and it seems that it more than overcomes the loss of fans when GPUs are liquid cool. Operator: At this time, I'm showing no further questions in the queue. I would now like to hand it back to Jalene for closing remarks. Jalene Hoover: Thank you, Alliah. This concludes today's call. Thanks to all of you for taking the time to join us this morning. We look forward to seeing you at various investor events over the coming weeks. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the SGL Carbon Conference Call Results for the First Quarter of 2026. I am Mattilda, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Claudia Kellert. Please go ahead. Claudia Kellert: Yes. Thank you. Good afternoon, and a very warm welcome to our today's conference call. We would like to give you an overview about the business development of the first three months in 2026 and a short overview on the current sentiment today. Andreas Klein, our CEO; and Thomas Dippold, our CFO, will lead the presentation and will answer your questions. So let's start. So I hand over to Thomas Dippold for the financials. Thomas Dippold: Hello, everybody. This is Thomas. It's my pleasure and my privilege to guide you through the results for the first quarter. And as a summary, we can clearly state that our top line, as we already anticipated, and I think as everybody of you joining this call already know, is influenced to a large extent by discontinued unprofitable business activities, which we closed down in the course of the year 2024. And therefore, we cannot repeat this unprofitable sales in this year. We also suffer in some sales drops in Graphite Solutions and also Process Tech and the three effects, all in all, stand for, which you can see on this slide here on Slide #3, they stand for a reduction of our group sales of EUR 50 million or 21.3%, coming from EUR 234 million in the first quarter last year to EUR 184 million this year. And as I said, EUR 28 million clearly can be attributed to the discontinuation of the carbon fiber activities in Lavradio and Moses Lake, which we closed roughly at half year 2025. In Graphite Solutions, we still see weak demand from our silicon carbide customers. The inventory levels are still very high. However, what we are trying to do there is on an individual customer basis, we try to renegotiate with them in a partnership way, some specific adjustment of the CTP contract. And one of them is already in Q1, but I come to that when we talk about Graphite Solutions in particular. And for the first time since four years, the continuous growth, at least in profitability and a stable -- roughly stable sales platform. Also Process Tech suffered a severe downturn in the market. We have anticipated that also in a way. We had always, as you remember that in the second half of last year, already a declining book-to-bill ratio. And this now kicks in, and therefore, also our sales in Q1 for Process Tech suffer. And these three factors influence our top line. However, we managed to keep the EBITDA pre on a group level in, I think, a moderate way in just a moderate decline. Our EBITDA dropped by EUR 4 million coming from EUR 33.5 million in the first quarter 2025. And in the first three months of this year, we reached EUR 29.6 million. So it's a decline by 11.6%, which is less than the decline in our top line. And how does it come from -- or where does it come from? We have lower contributions, of course, from the high-margin silicon carbide business in Graphite Solutions. We have lower contributions from Process Technology, where in the past, you remember that we also saw margins of about 25% and beyond. But we can compensate that with continuous cost savings and our ambition to keep the cost intact. Our EBITDA pre margin increased to, I think, a very healthy 16% for a company which is so capital intensive like us. And this is exactly as we predicted Q1 and which is exactly in line with our guidance. We come to that later in the next chapter. Now on Slide #5, coming to the individual business units, Graphite Solutions, as I already just pointed out, suffered an 8.8% decline in the top line, which stands for EUR 10 million, coming from EUR 116 million last year to now EUR 106. This is influenced in the top line in sales, in EBITDA and also in cash by one settlement with one of our CDP silicon carbide customers, where we anticipate future sales in the course of the year and make it already a payment right now. So we kind of anticipate future sales, but also have a kind of a breakup fee in that where we adjust the conditions of the contract. There's maybe more to come, but Andreas will talk about that later in the chapter when we talk about guidance and outlook and strategy. As I said, we are still suffering from a sluggish demand in silicon carbide customers. The other markets that we see there are also burdened by some difficult macroeconomic environment. You know that our GDP is hardly growing. You know how the overall economic situation in Europe, in particular, but also worldwide in general looks like. And therefore, there is no real spark that our sales go into an opposite direction if we leave out the small, medium reactors, but they're also part of the strategy, Andreas will touch the latest status on that in his chapter. EBITDA-wise, I think we also managed it quite well that our EBITDA dropped only from EUR 21.6 million last year in the first three months to first quarter 2026, EUR 18.4 million this year, which is minus 14.8% or minus EUR 3 million. The negative impact comes from the decline in the high-margin silicon carbide products, which hit then the bottom line overproportionally. We try to do our best in order to keep our costs in the right way. And I think if you see the decline in the margin only from 18.5% last year to 17.3%. I think this is a remarkable achievement when you see that your super high-margin business goes down in a way as it does in Graphite Solutions. Coming to Process Tech. And as I said, for the first time since many years, we have to report a major decline in sales and also EBITDA for this business unit. Where does it come from? We see a postponement and a lot of uncertainty in the meantime in the chemical industry. So even a lot of maintenance projects and also some overhauls and parts and service business is really declining significantly for us. And other investment projects where somebody builds up a new synthesis plant or a heat exchanger really came to a standstill and everybody is waiting that the bottleneck gets solved, and we have a little bit more visibility and clarity whether or not these investments are really viable. So our order intake also in the first three months stays below our sales. So this is also for the next months, we don't expect a real recovery. And when you look at our overall performance in the first three months of the year, and we are coming down from EUR 36.5 million to EUR 25.5 million, which is a EUR 30 million decline -- 30% decline, sorry, for that, and minus EUR 11 million in our top line. This is really remarkable how hard it hit us in Q1. And this, of course, also hits our bottom line as this is a project business, and we only are left with some fixed costs. our profitability declined by 62% coming from EUR 11 million to now EUR 4 million. The absolute impact is minus EUR 7 million is not that much given the impact on the group. But relatively, of course, for Process Tech, this is a big decline that we are trying to fight against in the upcoming months. The margin is now 16.1%, which is not bad at all given the historic averages that we've seen. Of course, in the past -- in the last two, three years, we had a very special economic situation for us where we had margins above 25% and beyond. But we always said that 18% is a very good margin, and I think we came close to that. And maybe we can recover a little bit in the course of the year. And now for the first time, I can introduce our business unit Fiber Composites. As you probably can remember, we merged our remaining carbon fiber activities with the Composite Solutions business unit starting from January 1. So with the start of the new year 2026, we only have Fiber Composites. In the end, you can just add those two business units together. There's hardly inter business unit consolidation effect. In the end, you just can add the two together. This is more or less the right figure. There we see also the impact from the discontinued business, which I started my presentation with. We are coming from EUR 76.6 million first three months last year now to EUR 47.7 million. This is a decline by EUR 29 million. I said EUR 28 million is a decline of the discontinued businesses of the carbon fiber and more or less, this is now the new normal that they roughly have EUR 50 million in a normalized and like-for-like activity. This is a decline by EUR 37.7 [ million ]. But as I said, the big chunk of it comes from the discontinuation of the unprofitable businesses of Carbon Fiber. The profitability, however, increased significantly. There are many factors in that. On the one hand side, we are only left with the profitable remains of the carbon fiber business. We have a steady and healthy Composite Solutions business, which also pays in for that. And also our BSCCB JV, which is consolidated at equity contributed EUR 4 million to that. So if you exclude the EUR 4 million, then our new business unit has an operative result of EUR 5 million. And this is roughly a 10% operating margin. If you include BSCCB, then it's 18.9%. I think it's a super healthy recovery that we've seen. And I think it was a very stringent and consequent restructuring that we did last year. And I think the result of that can be seen now where we are only left with profitable businesses there. Then maybe a quick look on the bottom line of the P&L, the cash flow and maybe also some balance sheet figures. Our net result turned positive. Last year in the first three months of the year, we were left with minus EUR 6 million, which was thanks to the fact that we had EUR 16.6 million restructuring and one-off costs in the first quarter. There are also some purchase price allocation depreciation there. So when you look at in our quarterly report, you see EUR 17.7 million, if I'm not mistaken. Now we see EUR 5.9 million. So it's a big turnaround by EUR 12 million from minus EUR 6 million to plus EUR 6 million. And I think this is the other strong message. We only are left with EUR 1.4 million restructuring and one-off costs in Q1. This is exactly what we told you three weeks ago when we presented our full year figures for 2025. The restructuring is over to a large, large extent. We only have some couple of smaller remains, which we digest in the course of the year. But when you see that the first quarter is only affected by EUR 1.4 million, I think this clearly underlines what we said three weeks ago. Our free cash flow is again positive and increasing from EUR 5.1 million to EUR 6.4 million like-for-like despite the fact that last year, we also had some cash-wise restructuring costs, but we expect the free cash flow to be on the level of last year also for a full year figure. So we are on a good way to achieve that. And last but not least, thanks to the good free cash flow, our net financial debt declined a little bit again. So we have a very healthy leverage ratio of 0.7. Our equity ratio is getting closer to 40%. Again, we are at 39.5% and the ROCE is roughly 10%. So I think these are very, very steady and solid figures that we can report there. For the outlook and the guidance, I hand over to Andreas, who will lead through that chapter. Andreas Klein: Thank you very much, Thomas, and also a warm welcome from my side you know the guidance just a couple of weeks ago in the next slide. You even know that slide, the EUR 720 million to EUR 770 million sales level we guided leading to an EBITDA pre of EUR 110 million to EUR 130 million. However, I would like to highlight two topics in the assumptions part of that slide because they have been particularly reconfirmed in the last couple of weeks. It's number one, the assumption of an overall weak economic development and uncertain geopolitical environment. Of course, we all know that this has been underlined by the ongoing Middle East conflict, the Strait of Hormuz developments and also recently the further tariff activities. So overall, all paying into ongoing uncertainty. And of course, for many of our industries, for many of our customers, that's a negative development because it doesn't enable our customers to take the decisions needed. The second thing I would like to highlight is that we do not foresee a recovery in the semiconductor and automotive sector for 2026 yet. This has been confirmed by the development in Q1 and further customer discussions and of course, also the uncertainty and the tariff developments paying into the automotive sector doesn't help the downstream demand for these applications. Digging a little bit deeper in the next slide, I would like to give you some more details on the current sentiment and how we see it. As already mentioned, we see ongoing high uncertainty, especially in automotive and chemicals, impacting basically all our three business units, as already commented for the Q1 performance by Thomas. We see availability and prices of raw materials and energy negatively impacting key markets. So that's adding to the uncertainty and the weak economic development we were already seeing. And of course, that's a lot driven by the developments in the Middle East. However, we are quite relaxed on the cost side in the short term because a rather nice hedging rate for the year 2026 and also constructive discussions with customers to forward these cost impacts in the chain should be able to limit the effects from the cost side as much as possible. In the area of defense, that's the third point commenting on the current sentiment. We see the budgets feeding slowly through the chains. So the -- especially in the Western government Hemisphere, all these big funds are arriving at the primes in the defense industry, they are feeding through the Tier 1 and Tier 2 steps. And this is what we need to create the certainty and the commitments for us to finally ramp up that business in the area of defense and generate contribution from that business as anticipated in our Strategy 2030 plan. What do we focus on at the moment in light of these developments? We mentioned one example already from the semiconductor side that impacted already Q1. We are in negotiations with our silicon carbide customers, with the CDP customers to, yes, bridge the situation we are currently in together with still high inventories in the chain, although we see them continuously decreasing and bridging from that situation in a sustainable long-term cooperation and the growth future we foresee for silicon carbide as an important demand driver for SGL. The second thing is we are expanding project development in the defense sector, a lot of network cooperation activity in the highlighted application fields in defense from our strategy work. And these discussions that networking, that intensification leads now to piloting steps and a step-by-step ramp-up of that business, hopefully having the potential to impact 2027. As you know, for this year, we didn't take into account any more significant contributions from defense yet. Last but not least, and this is for sure, the most present activity with a rather short-term impact. You know that from the publication from the announcement we did in January, we are working intensely on ramping up the full value chain. It's quite a long value chain in our network for the Energy projects and the orders we had received. So we are operationally well on track in that regard. And this is why we can also here reconfirm the impact of the USD 100 million over the next three years from these orders. The three focus areas to the right side of this slide, they are all paying into SGL Growth 2030. So we can clearly confirm we are intensifying the implementation activities for the long-term strategy, and we consider ourselves to be well on track to leverage the potential as soon that is possible in the respective markets. Many thanks for your interest, and we are looking forward to your questions now. Operator: [Operator Instructions] Claudia Kellert: At the moment, I don't see any questions. So, it seems that our press release and quarterly statements are very clear in our messages. So I think we give you an additional minute to write your questions. So, then I think it's everything really clear. So maybe you have an upcoming question in the next hours or days. Give me a call that we can answer your information needs. Thanks a lot for your time. I know it's a busy day today of announcement of quarterly statements of other companies. So thanks a lot for your participation, and have a nice afternoon. Goodbye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect.
Operator: Good morning, and good evening. Thank you all for joining the conference call for the SK Telecom earnings results. This conference will start with a presentation followed by a Q&A session. [Operator Instructions]. Now we will begin the presentation on SK Telecom's First Quarter of Fiscal Year 2026 Earnings results. Tae Hee Kim: [Interpreted] Good afternoon. I am Tae Hee Kim, IRO of SK Telecom. I'd first like to ask for your kind understanding that the earnings call started later than scheduled. Let us now begin the earnings conference call for the first quarter of 2026. Today, we will first deliver a presentation on the financial and business highlights, followed by a Q&A session. Please note that all forward-looking statements are subject to change depending on various factors such as market and management situations. Let me now present our CFO. Jong-seok Park: [Interpreted] Good afternoon. This is Jong-seok Park, CFO of SK Telecom. At the beginning of this year, we said that we would focus on strengthening fundamental business competitiveness centered on customer value and restore profitability through sophisticated AI business in 2026. The first quarter was a significant period in which this direction began to translate into actual results. Thanks to [indiscernible] efforts to regain our customers' trust, the company recorded a net subscriber add this quarter and the fundamentals of our core telecom business are rapidly returning to normal. The performance of the AI business is gradually improving as a result of business restructuring based on a strategy of focus and prioritization. As these changes led to actual results, we were able to post earnings similar to the levels prior to the cybersecurity incident. With business performance returning to normal, the company has decided to resume dividend payments starting this quarter. Dividend per share for the first quarter is KRW 831 (sic) [ 830 ]. We are pleased that we were able to deliver on the promises that we made during the last earnings call. We will make every effort to restore the dividend level by normalizing earnings on a full year basis through continuous improvement of the telecom business fundamentals and creation of additional results from the AI business. Let me now report on the financial results for Q1. Consolidated revenue posted KRW 4.39 trillion, up 1.5% Q-on-Q on the back of MNO revenue growth driven by subscriber growth and the growth trend of the data center business. We posted KRW 537.6 billion in consolidated operating income. Our quarterly operating income exceeded more than KRW 500 billion, which is attributable to extensive efforts to regain customers' trust and company-wide initiatives to improve productivity. Let me now present business highlights by business line. MNO achieved a handset subscriber net add of approximately 210,000 in the first quarter, which is a substantive outcome of diverse measures taken to innovate customer value and restore customers' trust. Yet we are not complacent, but remain committed to further strengthening business fundamentals and competitiveness with customer-friendly products and services. We have expanded customer benefits and usability by restructuring the membership program, and we're currently overhauling price plans to offer more choices to customers. The fixed-line business is also producing stable results, thanks to continued subscriber net adds, an increase in the share of subscribers signing up for higher price plans, including Giga price plan and a stronger subscriber retention trend. We will do our utmost to achieve the dual objectives of subscriber recovery and profitability enhancement through constant change and execution based on the philosophy that customers are the essence of our business. In the AI business, the effects of the strategy of focus and prioritization are gradually becoming visible. AI data center revenue is maintaining a growth trend year-over-year, driven by Pangyo Data Center and higher utilization of Gasan Data Center. The construction of Ulsan AI Data Center is underway, and we plan to pursue additional scale-up by building new data centers in areas, including Seoul. New opportunities are emerging for our AI data center business due to the surge in demand for AI data centers from global tech companies. Based on business experience and differentiated competitiveness across the entire value chain of AI data centers, we will actively pursue partnerships with global players and keep expanding our AI infrastructure business. Within AI B2C business, the agent business is evolving in a direction that creates synergy with the telecom business and enhances fundamental competitiveness. We plan to improve ADAS performance by linking it with our proprietary AI foundation model to strengthen its own competitiveness. With the increase in AI adoption, the B2B market is undergoing structural change driven by AI transformation and new AI-based markets are taking shape. SK Telecom will secure leadership in the rapidly evolving market by utilizing full stack AI capabilities across infrastructure, models and agents and mobilizing the customer base and execution capabilities secured from our B2B business. We ask for the continued support and interest of our investors and analysts as we overcome the crisis and continue driving change and embracing challenges to achieve greater growth. Thank you. Operator: [Interpreted] [Operator Instructions] The first question will be provided by Seung Woong Lee from Yuanta Securities. Seung Woong Lee: [Interpreted] I'm Seung Woong Lee from Yuanta Securities. I have 2 questions. First of all, as you mentioned during your earnings presentation, the company started quarterly dividend payment starting from Q1. And I'd like to understand the overall shareholder return plan and the size of the shareholder return for the entire year of 2026. Secondly, I can see that the company was able to produce earnings results that are similar to the levels prior to the cybersecurity incident. Is it safe to understand that this type of trend will become a new normal? And I'd like to get some guidance from the company on the full year basis earnings outlook. Jong-seok Park: [Interpreted] First of all, thank you for your questions. I'd like to comment on the question on our annual earnings outlook, and then I'll move on to addressing your second question on shareholder returns. First, on our annual earnings outlook. In the first quarter, our operating profit posted KRW 537.6 billion, and the trend has reversed from the downward trend after the cybersecurity incident and shown an upward trend to be approaching the pre-incident levels. Our goal is to improve the full year earnings further from the current levels. For our telecom business, thanks to our efforts to restore customers' trust, which is our #1 priority in 2026, we achieved a net addition to handset subscribers in Q1, contributing to the recovery of the bottom line as well as the top line. For our AI business, we are reviewing and implementing various measures to improve the structural profitability by pursuing pivoting and discontinuation of low-margin businesses through the strategy of focus and prioritization. In addition, data center business is seeing a meaningful growth trend and the B2B business has revised its strategy to focus on AI full-spec capabilities. And we believe that these businesses will drive revenue and contribute to bottom line improvements for the remainder of the year. And finally, we are working to improve productivity in terms of business operations and processes through enterprise-wide AI tool adoption and AX transformation of call centers, and these measures are having a positive impact on cost efficiency improvement. So in short, we will do our utmost to recover the annual [indiscernible] to be higher than the pre-incident levels through profitability recovery of the telecom business, expansion of growth businesses centered on AI data centers and continuous productivity enhancement. Now I'd like to speak about shareholder returns for 2026. As was announced earlier, we resumed quarterly dividend payments with the DPS for the first quarter of KRW 831 (sic) [ 830 ]. I'd like to thank our shareholders very much for their kind understanding and patience. As earnings continue to recover this year, we plan to conduct dividend payments as stably as possible. As for the size of the dividends for the whole year, when concrete full year earnings become more materialized, the Board of Directors will have discussions and make decisions in consideration of business performance and financial structure. I won't be able to share with you any specific number at this point, but I promise that we will do our utmost to restore the dividend levels to the previous levels. At the Annual General Meeting of Shareholders in March, the company transferred capital reserves of KRW 1.7 trillion to retained earnings to allow tax-exempt dividends, which is expected to deliver substantive benefits to shareholders. And for your reference, according to relevant law, tax-exempt dividends are possible from the 2026 year-end dividends. Operator: [Interpreted] The following question will be presented by Joonsop Kim from KB Securities. Joonsop Kim: [Interpreted] I'm Joonsop Kim from KB Securities. I have 2 questions, one on MNO marketing, the other on AI DC. You have produced a recovery trend in terms of the net subscriber adds as well as market share. So I'd like to understand the overall subscriber market share target for SK Telecom and the marketing direction and how you're planning to strike a balance between profitability and marketing. Secondly, you reported that the AI DC revenue in the first quarter has increased by 89% year-over-year. And I'd like to understand how this AI DC business is making meaningful contribution to your profitability. If you can give us some color, I would appreciate it. Jong-seok Park: [Interpreted] Thank you for your questions. I'd like to address your question on our AI DC business, and I will hand over to [indiscernible] in charge of MNO support, who will answer your question on our MNO subscriber targets. First, let me comment on the time line as to when AI DC business will be able to make meaningful earnings contribution. First of all, I'd like to remind you that we only announced the AI DC revenue numbers, and we do not disclose any other indicators, including profitability-related indicators. We're aware that the market is interested in knowing this, but please understand that we are doing so in consideration of various factors, including the domestic data center market situations. Nevertheless, what I can say is that the AI DC business is comparable to the existing telecom business in terms of profitability, and there's much room for the AI DC business to become even more profitable going forward. Since AI DC is our key growth business, we will think of what we can share to help investors better understand our AI DC business performance. Now I'd like to turn to [indiscernible] in charge of MNO support to answer your question on our MNO subscriber targets. Unknown Executive: [Interpreted] I'd like to comment on our MNO subscriber target. The New Year 2026 started with the number of handset subscribers reduced by around 986,000 year-over-year. Reflecting on our performance in the first quarter, we were able to achieve a net add in subscribers on the back of changes in the competitive landscape, back-to-school marketing to attract new subscribers and S26 flagship handset marketing. As a result, we were able to achieve a net addition to our handset subscribers of 208,000. Throughout the year, we will continue to make efforts to recover subscribers by targeting new segments, including foreigners and strengthening competitiveness in terms of products, services and sales channels. When we continue to strengthen fundamental competitiveness through business operation focused on profitability, we believe that the subscriber base and the market share will naturally grow. And based on this approach, we will avoid engaging in excessive spending competition aimed solely at increasing subscriber numbers, but rather focus on market operation on securing high-LTV subscribers. Operator: [Interpreted] The following question will be presented by Aram Kim from Shinhan Securities. ARam Kim: [Interpreted] I'm Aram Kim from Shinhan Securities. I'd like to ask you 2 questions. First of all, telecom's equipment providers, both in Korea as well as abroad are focusing on developing AI-RAN, which is about using telecommunications network infrastructure for AI functions such as inference. So I'd like to get SK Telecom's view on AI-RAN. And secondly, there is an increasing demand and growth for AI traffic. And I'd like to understand what this increase in AI traffic, what kind of business opportunities will this bring to SK Telecom as a telco? Jong-seok Park: [Interpreted] Thank you for your questions. On your questions on AI-RAN as well as business opportunities brought by AI traffic, [indiscernible] in charge of Network Strategy will address them. Unknown Executive: [Interpreted] I'm [indiscernible] in charge of Network Strategy. I'd like to first talk about expected benefits and commercialization plans of AI-RAN. AI-RAN is evolving in 2 domains. One is to improve telecommunications network infrastructure using AI and the other is to use wireless network infrastructure as a platform to provide AI services. So in the first domain, we expect to be able to automate base station operations through AI-based failure prediction, optimization of traffic and resources and power efficiency improvement. This will lead to higher efficiency and improved customer experience. As for the second domain, we may be able to create new business opportunities and generate profit from the provision of AI services such as inference and media processing by utilizing AI computing resources at the base stations. We are actively participating in technology research and standardization together with global players and manufacturers such as Samsung, DOCOMO and NVIDIA for the evolution of AI-RAN. However, AI-RAN is still in an early stage, so we will consider the adoption of AI-RAN by comprehensively considering various aspects such as technology maturity, standardization, validation on commercial networks and other aspects. We will continue to maintain technology leadership in the next-generation network technology areas, including AI-RAN and use the technology leadership to proactively secure new business opportunities. Next, I'd like to make some comments on AI traffic. While there is a significant increase in AI traffic, the share of AI traffic in the entire traffic is still not very high. However, we're considering ways to make AI traffic increase with a connection with AI-RAN and how to distribute traffic across the networks. So we will continue to look into technology to be able to do so. Operator: [Interpreted] There are no questions in the queue right now. Tae Hee Kim: [Interpreted] This concludes the earnings conference call for 2026 first quarter of SK Telecom. If you need further explanations or have additional questions, please contact IR at any time. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Julia Vater Fernandez: Hello, everyone, and welcome to the Vtex Earnings Conference Call for the quarter ended 03/31/2026. I am Julia Vater Fernandez, VP of Investor Relations for Vtex. Our senior executives presenting today are Geraldo Thomaz Jr., Founder and Co-CEO, and Ricardo Camatta Sodre, Chief Financial Officer. Additionally, Mariano Gomide, Founder and Co-CEO, and Andre Colliolo, Chief Strategy Officer, will be available during today’s Q&A session. I would like to remind you that management may make forward-looking statements related to such matters as continued prospects for the company, industry trends, and product and technology initiatives. These statements are based on currently available information and our current assumptions, expectations, and projections about future events. While we believe that our assumptions, expectations, and projections are reasonable in view of the currently available information, you are cautioned not to place undue reliance on these forward-looking statements. Certain risks and uncertainties are described in the Risk Factors and Forward-Looking Statements sections of Vtex’s Form 20-F and other Vtex filings with the U.S. Securities and Exchange Commission, which are available on our Investor Relations website. Finally, I would like to remind you that during the course of this conference call, we might discuss some non-GAAP measures. A reconciliation of those measures to the nearest comparable GAAP measures can be found in our first quarter 2026 earnings press release available on our Investor Relations website. With that, Geraldo, the floor is all yours. Thank you. Geraldo Thomaz Jr.: Good afternoon, everyone. Thank you for joining us. Last quarter, we outlined a clear strategic framework centered on four key growth factors: global expansion, B2B, retail media, and AI. In the first quarter, we continued to execute against this strategy. Today, we will update you on several recent product launches that directly reinforce our positioning across these opportunities. From a financial perspective, our top-line results were in line with our guidance, while our profitability and cash generation both doubled year over year and exceeded our guidance. This reinforces the resilience of our model and our disciplined execution in a dynamic macro environment. While we acknowledge that recent growth has been below our long-term ambitions, we remain committed to executing with discipline and driving long-term value creation. Starting with our vision and product launches, we see our industry entering a new phase where artificial intelligence transitions from a conceptual layer into a structural driver of growth, efficiency, and competitive advantage. We see this as an attractive opportunity for Vtex. In the last technological revolution—the cloud—we architected our platform to fully embrace it from inception with a multitenant approach, avoiding the technical debt that constrains many legacy systems. Now a highly scalable foundation positions us to capitalize on the AI technological shift, enabling us to rapidly deploy innovation and operate at scale as we navigate this new era. At the heart of this transformation is our reinvented Vtex Commerce Platform. We are moving beyond the traditional software-as-a-service model to deliver what we believe is the first AI-native commerce suite—one that delivers simplicity, ease of use, and, most importantly, tangible and measurable business outcomes for our customers. This is AI with real impact. The command center for this new paradigm is the Vtex AI Workspace. This is where our agents for catalog, promotions, and search collaborate. They are engineered to do more than just flag problems: they autonomously diagnose root causes, architect strategic action plans, and execute them with minimal human oversight. For example, our catalog agent does not just manage data—it hunts for revenue opportunities. It systematically analyzes an entire product assortment by leveraging real-time shopper navigation data to understand precisely where and how the catalog should change to increase conversion. It sees where customers drop off, what search terms lead to dead ends, and how they interact with product attributes. Armed with these insights, the agent autonomously optimizes the catalog. It goes beyond simple data entry, performing tailored content improvements across millions of SKUs by enriching descriptions, standardizing attributes, and ensuring every item aligns with our brands’ merchandise guidelines. This allows our customers to maintain a high-quality, high-converting catalog at a scale and speed previously unimaginable, turning a traditionally labor-intensive process into a strategic advantage. This is just one of many intelligent experiences that are now possible. By laying this groundwork, we are paving the way not only to expand our own suite of agents, but to eventually enable a marketplace where customers and partners can deploy third-party agents, creating a truly open and extensible conversational ecosystem. And this intelligence extends far beyond the back office; it transforms the entire customer journey. For shoppers, our new storefront with an AI personal shopper combines conversational interactions, semantic search, and hyper-personalization to guide discovery and dramatically increase conversion rates. For our B2B customers, we are streamlining complex sales cycles with B2B commerce and AI order quotes, enabling sales teams to generate complete, accurate quotes instantly from a simple file upload or even a voice command. More broadly, our B2B and global expansion strategy are being significantly enhanced as the inherent complexity of managing multi-country, multi-currency operations is precisely the challenge our AI works is designed to address at scale. To capture demand wherever it emerges, our integrations with Google Universal Commerce protocol enable shoppers to discover products and check out directly within Gemini and Google web AI modes, with a native cart synced back to our platform. And to empower our entire ecosystem, we introduced the Vtex AI Developer Kit, embedding AI assistance directly into developer workflows across tools like Cursor, Copilot, and others, while connecting them to Vtex’s knowledge base to accelerate development and drive innovation. We are delivering a platform where AI enhances operators, drives conversion for shoppers, accelerates sales for B2B teams, and empowers developers to build faster. This is a complete end-to-end vision for AI-native commerce. But today, Vtex is much more than its commerce platform. We have evolved into a multiproduct company. Beyond our core commerce platform, we now offer two additional strategic solutions—our CX platform and our Ads platform—both enhanced with AI, where we have also introduced significant recent advancements. In our CX platform, we go beyond the traditional storefront to capture demand wherever it originates. The Vtex CX platform redefines customer experience through coordinated AI agents that operate seamlessly across the entire journey, making commerce more fluid and conversational. This includes a truly multichannel approach where AI guides discovery and transactions across web, WhatsApp, and other messaging interfaces. We have introduced a fully integrated WhatsApp store, enabling consumers to complete their entire purchase journey without leaving the conversation, as well as voice commerce for real-time interactions. Importantly, this capability extends into the post-purchase phase, where autonomous post-sales agents manage order status, exchanges, and returns with over 91% automation, allowing human teams to focus on more complex, high-value engagements. In our Ads platform, we are significantly enhancing the power of our platform by embedding AI across orchestration and campaign execution. This enables our customers to transform their digital environments into high-margin media assets and unlock new revenue streams. With our AI campaign management capabilities, retailers and their brand partners can move beyond manual workflows—simply defining an objective such as improving return on ad spend—while AI agents autonomously build and optimize multichannel campaigns to deliver results. This is further strengthened by AI-driven insights offering real-time visibility into performance attribution and market share, all within a privacy-first framework supported by a secure data clean room. Ultimately, we are helping customers convert their traffic into a scalable and strategic growth lever. While we have just launched these updates, we are already seeing some early but encouraging results. For instance, Whirlpool has leveraged our AI capabilities to identify underperforming products, diagnose content gaps, and automatically generate optimized assets, compressing what was two days of manual work into minutes while improving conversion. At TheCapsule, our promotions agent enables real-time competitive responses through automated campaign recommendations. Across these use cases, the pattern is clear: AI is poised to redefine how customers drive sales, accelerate execution, and capture new levels of operational efficiency. These outcomes are particularly relevant in the context of enterprise commerce, where operations are complex, mission-critical, and increasingly global. Customers are not simply selecting a software vendor; they are selecting a strategic backbone that can scale, adapt, and evolve with the next generation of commerce. With knowledge that it is early days and our excitement around this innovation is not yet reflected in our current growth rates, to be fully transparent, we are still evaluating the long-term transformational impact of these waves at scale. However, our commitment is to remain data-driven and grounded in reality, and we look forward to updating you on broader adoption in the coming quarters. We have embedded AI at the core of Vtex, transforming the company into what we believe is the first AI-native commerce suite. We believe Vtex is uniquely positioned to serve this role. Our multitenant software-as-a-service architecture, outcome-aligned business model, and deep transactional data foundation allow us to deploy innovation at scale and align directly with our customers’ success. With that, let me welcome some new customers who went live in 2026, including Central Gana in Argentina; Amadin Paraíba and L’unelli in Brazil; VPCL in Canada; HomeSentry in Colombia; and Omicás in Portugal. We also expanded our relationship with existing customers such as Whirlpool, which launched its Compre Geraeta Parceiros in Brazil, its official B2B channel for distributors, resellers, and authorized service centers; and Electrolux, which launched a B2B channel in Chile; Grupo Itchasac, which launched EBC Atacado de Beleza in Brazil, its official B2B channel for beauty professionals and resellers; Much Leiser, which launched the official OPPO store in Brazil, expanding the smartphone brand’s presence in the country; and Dafiti expanded to Chile, adding to its operation in Brazil. Now, before I hand the call over to Ricardo, I would like to express my sincere gratitude to our 1,147 Vtex employees, our customers, partners, and investors for their continued trust and support. Together, we are building the future of commerce. Ricardo, over to you. Ricardo Camatta Sodre: Thank you, Geraldo. Hi, everyone. I am pleased to share with you Vtex’s financial results. In Q1 2026, GMV reached $5.1 billion, up 17% in U.S. dollars and 7% FX-neutral. Subscription revenue was $60 million versus $52.6 million in Q1 2025, an increase of 14% in U.S. dollars and 4% FX-neutral. The moderation in GMV growth relative to last quarter was primarily driven by Brazil, where the high interest rate environment and persistent promotional marketplace behavior continue to pressure consumer demand in proprietary channels. In Q1, our non-GAAP subscription gross margin reached 81.5%, representing an expansion of 240 basis points year over year. This improvement is mainly driven by structural gains in AI-powered automation in customer support and, to a smaller extent, a positive FX tailwind. Our total gross margin, including services, reached 80%, an expansion of 400 basis points year over year. This continued improvement reflects not only steady gains in subscription gross margin, but also our deliberate de-emphasis of services, as our global partner ecosystem increasingly leads complex implementations with reduced reliance on Vtex-led services. Our expense management continues to reflect our alignment with long-term growth priorities. Total non-GAAP operating expenses in the first quarter were $38 million, up 6% year over year. While Sales & Marketing and G&A remained relatively stable, we deliberately increased investment in R&D, focusing on innovation, product development, and AI capabilities that reinforce our competitive positioning. In other words, even as we extend margins, we are simultaneously strengthening the foundation for sustainable, profitable growth. As a result, our non-GAAP income from operations reached $10.6 million, doubling from $5.3 million in Q1 2025. This also represented a non-GAAP operating margin of 17.4%, up 770 basis points year over year. In short, our operational discipline continues to translate into stronger margins and a more profitable growth trajectory while we focus on revenue reacceleration. Non-GAAP net income was $8.1 million in Q1 2026, up 51% year over year. This earnings step-up reflects strong underlying operational performance, driven by operating leverage and efficiency gains, reinforcing the sustainability of our model. This was partially offset by unrealized mark-to-market losses on our U.S. dollar-denominated investment-grade cash position held in Cayman, following a significant repricing of the yield curve toward the end of the quarter, which has already recovered in April. These continued profitability gains are showing up in our cash generation, which remained strong once again this quarter. Free cash flow for the quarter was $13.3 million, doubling year over year and reaching a free cash flow margin of 21.9%. We also maintained a disciplined approach to share repurchases. During the first quarter, under the $50 million 12-month share repurchase program for Class A shares approved in February 2026, we repurchased 2.5 million Class A common shares at an average price of $3.86 per share, for a total cost of $9.7 million. As we look ahead, our focus remains on disciplined execution as we work toward growth reacceleration, focused on our four growth levers: global expansion, B2B, ads, and AI. While macro headwinds persist—particularly in Brazil, where high interest rates and promotional marketplace behavior continue to weigh on GMV growth—we remain encouraged by the quality of new customer additions, our competitive positioning among global enterprise customers, and the compelling market opportunity across our four key long-term growth initiatives. Importantly, while this affects our near-term growth outlook, it does not change our conviction in the structural opportunity across our four growth levers, nor our ability to continue improving profitability. With that, for Q2 2026, we expect subscription revenue to grow at a low- to mid-single-digit percentage rate on an FX-neutral year-over-year basis; gross profit to grow at a mid-single-digit percentage rate on an FX-neutral year-over-year basis; non-GAAP income from operations to be in the high-teens to low-20s percentage margin; and free cash flow to be in the high-teens to low-20s percentage margin. For the full year 2026, we now expect subscription revenue to grow at a mid-single-digit percentage rate on an FX-neutral year-over-year basis and gross profit to grow at a high-single-digit FX-neutral rate, while maintaining our outlook for non-GAAP income from operations in the low-20s percentage margin and free cash flow also in the low-20s percentage margin. Assuming FX rates remain broadly consistent with April’s average rates, the FX-neutral growth guidance outlined above would translate into higher reported U.S. dollar subscription revenue growth, adding approximately 10.3 percentage points in the second quarter and 8.6 percentage points to the full year 2026. We continue executing with discipline, investing behind our four growth levers to drive durable growth and shareholder value, while improving profitability and maintaining a strong balance sheet. We will now open the call for questions. Thank you. Operator: We will now begin the question and answer session. To ask a question, simply press star followed by the number 1 on your telephone keypad. Please pick up your handset and ensure that your phone is not on mute when asking your question. Our first question comes from the line of Lucca Brendim with Bank of America. Please go ahead. Lucca Brendim: Hi, good afternoon. Thank you for taking my question. I have two from my side. First, could you comment on the main drivers for the reduction in the guidance for top-line growth and gross profit growth for the year—was it mainly driven by macro and competition, or was there something else? Also, does this guidance incorporate anything from the new AI products you have been rolling out, or are those still not incorporated into the guidance? Second, could you give us an update on how you are seeing expansion in the United States and Europe, and the clients that were still in the process to go live—if everything is proceeding according to expectations or if there were any changes? Thank you. Ricardo Camatta Sodre: Hi, Lucca. Good afternoon. Let me start with the guidance. For Q2 and for the full year, we are aligning our short-term outlook with what we are seeing in the business today, while remaining confident in the long-term opportunity. For Q2, we are guiding subscription revenue growth in the low- to mid-single-digit range on an FX-neutral basis, essentially reflecting a continuation of recent trends, particularly in Brazil, where macro conditions remain challenging and continued marketplace promotional intensity is temporarily pressuring proprietary channels. For full-year 2026, we now expect mid-single-digit subscription revenue growth on an FX-neutral basis. The vast majority of this guidance adjustment reflects a lower growth outlook for Brazil GMV, as FX-neutral GMV growth in Brazil decelerated from mid-teens in Q4 to the mid-single-digit range in Q1, driven by a meaningful moderation in same-store sales. Looking beyond Q2, growth is expected to come primarily from the ramp-up of customers we signed in 2025, combined with continued execution across our four strategic growth levers—global expansion, B2B, ads, and AI. On the profitability side, we remain confident. We are targeting non-GAAP operating margin and free cash flow margin in the low-20s for the full year, supported by structural efficiency gains across the organization. While current market conditions affect our near-term growth outlook, they do not change our conviction in the structural opportunity across our four growth levers, nor our ability to continue improving profitability. The message here is realism in the near term combined with continued discipline and conviction in the long term. Geraldo Thomaz Jr.: On the AI contribution to revenue, our AI strategy is about transforming how we serve customers and deliver value through the product. The Vtex AI Workspace is the first product we are offering within this strategy. The idea is to rebuild Vtex from the ground up, informed by the AI revolution. We are seeing interest from a small group of early adopters, such as Whirlpool, Mobly, and Casa do Vidro, who are actively using the product. Our focus is deliberate: prove value creation and satisfaction for a small number of early adopters, then expand. There may be opportunities to monetize these products in different ways over time, but our expectation is that the biggest value after this AI-driven transformation will be acceleration of the sales pipeline as customers see a new way of operating commerce with Vtex. Mariano Gomide: Regarding the United States and Europe, we are seeing good momentum. We continue to close relevant enterprise brands, and we are building a strong and healthy pipeline in both regions. The demand environment from a strategic standpoint remains encouraging, although sales cycles are longer than in the past. Demand is solid for an AI-native commerce suite that delivers efficiency. Global markets—which for us are basically the U.S. and Europe—grew in the 20 handle in Q1. Although they represent a smaller portion of our revenue base, our global markets expansion is contributing disproportionately to our overall growth, and we expect that contribution to increase over time as it scales. As always, we will share more details and customer names as they go live. Overall, we are encouraged by what we are seeing. Operator: Our next question comes from the line of Analyst with J.P. Morgan. Please go ahead. Analyst: Hi. I would like to make two questions. Thank you for the opportunity. First, I would like to explore the B2B segment. Could you share more details about how your B2B strategy is advancing? We heard strong feedback from industry players regarding this market during your Vtex Day in Brazil, so it would be interesting to hear how your commercial pipeline is evolving, when we should see traction in revenues coming from this segment, and if the new logos of Whirlpool in Brazil in B2B and Electrolux in Chile should help unlock value in this segment. Thank you. Mariano Gomide: On B2B, we continue to see solid traction, particularly in the U.S. and Europe, where roughly half of our pipeline is already coming from B2B solution opportunities. In Brazil and broader LatAm, as expected, adoption has been slower. A big part of our effort there has been educating the market on the value of digitalizing B2B channels and replacing very old legacy interfaces for B2B. Encouragingly, we are now starting to see increased demand in Brazil and growing interest across the LatAm region. On the product side, we are focused on strengthening our B2B solutions, making them more robust, and supporting multiple B2B sales channels—self-service portals, call centers, sales teams, and automation, among others. Our goal is to be the transactional backbone for our customers across all B2B and B2C channels. As a data point, B2B grew roughly in the 20 handle in Q1. Although it represents a smaller portion of our revenue base, our B2B solution is contributing disproportionately to our overall growth, and we expect that contribution to increase over time as it scales. It is still early, but we are seeing the right signals in terms of both pipeline and market awareness, and we remain very focused and encouraged by the trajectory so far. Analyst: May I make just one follow-up? Another feedback we heard from the industry is that the B2B sales cycle should take longer than B2C. Can you share more details on this front—the differences between the sales cycle and the closing process—and your outlook for when this should appear more prominently in your revenue growth? Mariano Gomide: Overall, the sales cycle has been getting longer in recent years for both enterprise B2B and B2C customers, largely driven by macro conditions and what we describe as an “AI wait-and-see.” When companies make long-term infrastructure decisions, they want clarity on how AI will reshape their stack, so naturally decision-making is taking longer. On the other hand, AI is affecting implementations in a positive way—shortening the process of implementing the software. So while the sales cycle is getting longer—and we do not expect that to change soon while AI remains a major consideration—the implementation dimension is generating good signals for us. Importantly, we are not seeing deterioration in our win rates or churn; those fundamentals remain intact. Operator: Our next question will come from the line of Maria Clara Infantozzi with Itaú. Please go ahead. Maria Clara Infantozzi: Hi, everyone. Thanks for the opportunity. First, could you please explain how you intend to monetize your new AI launches going forward? Does it make sense to think about increasing take rates with AI products gaining penetration? Second, can you please give us an update on how you feel about the competitive environment both in Brazil and in Argentina? Thank you. Geraldo Thomaz Jr.: On AI monetization, it is too early to give very detailed information because there is still a lot of discovery happening in the market. Many say the path is to charge by outcomes, and that aligns with how AI creates value. In our case, we have charged by outcomes since 2012, and our Vtex CX platform also charges per outcome—particularly for services that do not require a human in the loop. We believe that as AI increases the output and results of our software, we will be able to charge more accordingly. Also, as we transform the product into an AI-informed, AI-based software suite, we expect customers to move beyond the wait-and-see and resume modernizing their commerce infrastructure—and we will be there to serve them, with sales normalizing over time. Operator: This is the operator. I apologize, but there will be a slight delay in our call. Please hold, and we will resume momentarily. You may resume the meeting. Ricardo Camatta Sodre: Continuing on the competitive environment, we have not seen a meaningful change in competitive intensity among direct commerce technology providers. We have taken a different approach to AI—rebuilding the platform to be AI-native rather than layering incremental features on top of legacy systems as we see some players doing. That allows us to deliver better usability and, more importantly, real outcomes to our customers. We feel our strategic positioning has strengthened with this approach. We are a geographically agnostic, comprehensive commerce suite with efficiency benefits driven by our engineering scale and a founder-led culture, which together give us the reputation to lead in AI commerce. Mariano Gomide: To complement, we look at competition across two dimensions. First, consumer behavior: traffic is fragmenting beyond traditional channels like Google, Instagram, and marketplaces. Messaging platforms like WhatsApp, LLMs, and emerging AI interfaces are playing a more relevant role. This shift may be slow and then sudden, and those new channels could take a significant portion of traffic. In a tough macro, high-interest-rate environment, brands and retailers are being challenged to find efficiency and be more conservative in growth, not financing consumers as before. Second, on technology providers, as Ricardo said, we do not see a significant change in competitive intensity. Our AI-native approach is the core of our differentiation. Operator: Our next question comes from the line of Analyst with UBS. Please go ahead. Analyst: Hi, everyone. Thanks for taking the question. It is about the roadmap of your AI investments. We have seen some margin expansion and an increase in R&D as a percentage of revenues. R&D is an ongoing investment, but should we expect this increase to be transitory or to persist in the interim? Any detail would be helpful. Thank you. Geraldo Thomaz Jr.: Thank you for the question. We recently introduced our Vtex Vision in 2026, laying out how we are approaching AI and turning it into real, measurable impact. At the core is a unified suite of AI-powered platforms orchestrating key commerce workflows across Commerce, Customer Experience, and Ads. This AI-native commerce suite is now available for selected customers. First, the Vtex Commerce Platform is powered by the AI Workspace—the new back-office front end that is evolving into an AI-native operating system. It allows customers to move from manually executing tasks to orchestrating outcomes with AI agents handling workflows like search optimization, catalog management, pricing, and data insights. Second, the Vtex CX platform extends into the customer journey with agents that drive discovery and improve conversion through conversational commerce while automating post-sales. In some cases, we are already seeing 90–91% automation levels in customer interactions, which translate directly into higher efficiency and better conversion. Third, the Vtex Ads platform brings AI into retail media, enabling retailers to monetize their traffic and giving brands more effective, data-driven campaign execution. From a roadmap perspective, we are expanding this ecosystem with new agents and capabilities across all three platforms—from search and content optimization to B2B assisted sales and advanced campaign management in ads. The key focus right now is twofold: keep innovating at high speed and drive adoption of what we have already launched so it translates into tangible results for customers. Regarding R&D investment levels, despite the significant product transformation underway, you are not seeing a meaningful increase in our R&D expenditures. This is also related to AI adoption by our teams. We are transforming internally to leverage AI to be much more efficient—improving throughput in product development, customer support, and sales. You are already seeing this in how we support our customers. The internal manifestation of this revolution is higher throughput, better bundling of products that deliver higher-level jobs, and converting what was previously a service into software-driven outcomes—for example, retail media campaign creation handled autonomously. There is a lot of work ahead—it is still early days for AI—but we are encouraged by the trajectory. Operator: This concludes our question and answer session. I will now turn the call back over to Geraldo for any closing comments. Geraldo Thomaz Jr.: As we step back, what we are building at Vtex is increasingly clear. We are redefining how commerce operates. The convergence of our cloud-native foundations with AI is enabling us to move from systems that support decisions to systems that execute them. We are still in the early stages of this transformation, but the direction is clear. AI is already delivering measurable impact across our customers—driving higher conversion, faster execution, and greater efficiency—and as adoption expands, we believe this can become a fundamental driver of long-term value creation for both our customers and our shareholders. At the same time, our evolution into a multiproduct platform—Commerce, CX, and Ads—positions us to capture a broader share of the commerce value chain while reinforcing our role as a strategic partner to global enterprise customers. Looking ahead, our priorities remain consistent: disciplined execution, continued innovation, and scaling these capabilities across our base. We are confident in our ability to translate this strategy into sustainable growth, margin expansion, and durable competitive advantage. Thank you all for your time and continued support. You may now disconnect.
Operator: Good afternoon. I will be your conference operator. At this time, I would like to welcome everyone to Applied Optoelectronics, Inc. First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Please note that this call is being recorded. I will now turn the call over to Lindsay Savarese, Investor Relations for Applied Optoelectronics, Inc. Ms. Savarese, you may begin. Lindsay Savarese: Thank you. I am Lindsay Savarese, Investor Relations for Applied Optoelectronics, Inc. I am pleased to welcome you to Applied Optoelectronics, Inc.’s first quarter 2026 Financial Results Conference Call. After the market closed today, Applied Optoelectronics, Inc. issued a press release announcing its first quarter 2026 financial results and provided its outlook for 2026. The release is also available on the company's website at aoinc.com. This call is being recorded and webcast live. A link to the recording can be found on the Investor Relations section of the Applied Optoelectronics, Inc. website and will be archived for one year. Joining us on today's call is Dr. Thompson Lin, Applied Optoelectronics, Inc.’s founder, chairman, and CEO, and Dr. Stefan Murry, Applied Optoelectronics, Inc.’s chief financial officer and chief strategy officer. Thompson will give an overview of Applied Optoelectronics, Inc.’s Q1 results, and Stefan will provide financial details and the outlook for 2026. A question and answer session will follow our prepared remarks. Before we begin, I would like to remind you to review Applied Optoelectronics, Inc.’s Safe Harbor statement. On today's call, management will make forward-looking statements. These forward-looking statements involve risks and uncertainties, as well as assumptions and current expectations, which could cause the company's actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied in such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as believes, forecasts, anticipates, estimates, suggests, intends, predicts, expects, plans, may, should, could, would, will, potential, or thinks, or by the negative of those terms or other similar expressions that convey uncertainty of future events or outcomes. The company has based these forward-looking statements on its current expectations, assumptions, estimates, and projections. While the company believes these expectations, assumptions, estimates, and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond the company's control. Forward-looking statements also include statements regarding and expectations related to the expansion of the reach of its products into new markets and customer responses to its innovation, as well as statements regarding the company's outlook for 2026 and for the full year 2026. Except as required by law, Applied Optoelectronics, Inc. assumes no obligation to update these forward-looking statements for any reason after the date of this earnings call to conform these statements to actual results or to changes in the company's expectations. More information about other risks that may impact the company's business are set forth in the Risk Factors section of Applied Optoelectronics, Inc.’s reports on file with the SEC, including the company's annual report on Form 10 and quarterly reports on Form 10 Q. Also, all financial results and other financial measures discussed today are on a non-GAAP basis unless specifically noted otherwise. Non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation between our GAAP and non-GAAP measures, as well as a discussion of why we present non-GAAP financial measures, are included in the company's earnings press release that is available on Applied Optoelectronics, Inc.’s website. Before moving to the financial results, I would like to note that Applied Optoelectronics, Inc. management is attending the 21st Annual Needham Technology, Media, and Consumer Conference on Wednesday, May 13. This discussion will be webcast live, and a link to the webcast will be available on the Investor Relations section of the Applied Optoelectronics, Inc. website. Lastly, I would like to note that the date of Applied Optoelectronics, Inc.’s second quarter 2026 earnings call is currently scheduled for 08/06/2026. Now I would like to turn the call over to Dr. Thompson Lin, Applied Optoelectronics, Inc.’s founder, chairman, and CEO. Thompson. Thompson Lin: Thank you, Lindsay, and thank you for joining our call today. We are pleased to deliver solid first quarter results that were in line with our expectations, driven by robust demand in both our data center and CATV businesses. We generated our fourth consecutive quarter of record revenue as we executed well to expand our manufacturing capacity. We continue to see accelerating customer demand needed to support the next wave of AI infrastructure deployment, and we anticipate solid sequential revenue growth throughout this year, with a significantly larger ramp expected starting in Q3 as additional capacity comes online. During the first quarter, we delivered revenue of $151.1 million, non-GAAP gross margin of 29.2%, and non-GAAP loss per share of $0.07, all in line with our expected guidance range. Importantly, during the quarter, we saw and continue to see strong customer engagement around our 800G and 1.6T products, particularly as AI-driven data center investment accelerates. We completed our first volume shipment of our 800G single‑mode transceiver to one of our large hyperscale customers in Q1, and we continue to anticipate a strong volume ramp starting in Q2. During the first quarter, we announced that we received our first volume order for our 1.6T transceiver from another long-term major hyperscale customer, along with two new volume orders from this customer for our 800G single‑mode transceivers. Looking ahead, forecast demand continues to outpace our production capacity through mid-2027. We are working hard to add additional capacity to meet this demand. Based on new demand and our anticipated capacity ramp, we now believe our 2026 revenue will exceed $1.1 billion, and we now expect to generate more than $140 million in non‑GAAP operating income this year. With that, I will turn the call over to Stefan to review the details of our Q1 performance and outlook for Q2. Stefan? Stefan Murry: Thank you, Thompson. As Thompson mentioned, we are pleased to deliver solid first quarter results that were in line with our expectations, driven by robust demand in both our data center and CATV businesses. We generated our fourth consecutive quarter of record revenue as we executed well to expand our manufacturing capacity. We continue to see accelerating customer demand needed to support the next wave of AI infrastructure deployment, and we anticipate solid sequential revenue growth throughout this year, with a significantly larger ramp expected starting in Q3 as additional capacity comes online. In Q1, we delivered revenue of $151.1 million, which was in line with our guidance range of $150 million to $165 million. We recorded non‑GAAP gross margin of 29.2%, which was in line with our guidance range of 29% to 31%. Our non‑GAAP loss per share of $0.07 was in line with our guidance range of a loss of $0.09 to breakeven. Notably, we continued to make progress on our key priorities in the first quarter, which included: one, scaling our next‑generation data center products, including both our 400G and 800G solutions; two, expanding our production capacity in a disciplined manner to support anticipated demand, particularly in our Texas facility; three, diversifying our revenue base; and four, strengthening operational execution to improve our margins and long‑term profitability. Importantly, during the quarter, we saw and continue to see strong customer engagement around our 800G and 1.6T products, particularly as AI‑driven data center investments accelerate. We completed our first volume shipment of our 800G single‑mode transceivers to one of our large hyperscale customers. Notably, 800G revenue in the first quarter was $4.6 million, or 5.6% of our total data center revenue. Looking ahead, we continue to anticipate a strong volume ramp of our 800G products starting in Q2. During the quarter, in line with our expectations, along with the increasing demand for our 800G products, we also saw particular strength for our 400G products. Looking ahead, we expect continued strength in our 400G business, and we expect to ship nearly four times the quantity of 800G compared to our Q1 shipments. In Q1, we announced that we received our first volume order for our 1.6T transceivers from another one of our long‑term major hyperscale customers. We also announced that we had received two new volume orders from this customer for our 800G single‑mode transceivers. Following product qualification, we expect to begin delivering these 800G orders in Q2, the 1.6T order as early as Q3, and to complete all of the deliveries by the end of this year. This hyperscale customer has been a key and valued customer of ours for many years, and we are excited by the increased engagement and meaningful discussions we have had as this customer boosts its network bandwidth for AI workloads. We expect these orders to return this customer as a 10%‑plus customer for us. Forecast demand for 800G and 1.6T modules is projected to continue to exceed our production capacity through mid‑2027. We are working to add additional capacity to meet this demand. At OFC in March, we provided more color on our ambitious plans to increase our manufacturing capacity. During the first quarter, we made solid progress on this production capacity ramp, particularly for our 800G and 1.6T products. As a reminder, our U.S. manufacturing footprint is anchored in Sugar Land, just outside Houston. Through a combination of real estate acquisitions and leases, we have expanded our Texas manufacturing footprint to about 900 thousand square feet. This includes 135 thousand square feet of existing capacity at our headquarters; two new buildings of 388 thousand square feet in Pearland, Texas; a 210 thousand square foot facility which is under development; and a 154 thousand square foot building in Houston, Texas. For those of you who are not familiar with the Houston area, all of these facilities are located within a 15‑mile radius of our current headquarters facility in Sugar Land. During the quarter, we made progress building out our recently leased 210 thousand square foot facility. We expect to begin initial production in this facility in the third quarter. Notably, this facility is located just a few hundred yards from our headquarters, and it will be entirely dedicated to manufacturing of 800G and 1.6T transceivers. While this will not directly increase our indium phosphide wafer capacity, we plan to move the existing transceiver production from our current headquarters facility to this new building, which will allow expansion of our indium phosphide capacity. The facilities in Pearland and Houston will be built out to expand our production capacity for 800G and 1.6T transceivers. We expect these facilities to come online in early 2027. As a reminder, internationally, we have 795 thousand square feet across three facilities in Taiwan focused on optical transceivers, as well as a larger 1.2 million square foot facility in Ningbo, China primarily dedicated to transceiver and cable TV manufacturing. Exiting Q1, our total manufacturing capacity approached 100 thousand units per month of 800G and 1.6T capacity. Looking ahead, we expect to continue to rapidly expand our production to approach 150 thousand per month of 800G and 1.6T this quarter. As a reminder, we expect by the end of this year we will be capable of producing over 650 thousand pieces of 800G and 1.6T products per month, with about 30% of that output coming from Texas, as we expand into additional facility space and bring new production online. By the end of next year, 2027, we expect to grow our production capacity to be able to produce over 930 thousand pieces of 800G and 1.6T products per month, with over half of that output coming from Texas. These investments reflect measured scaling of our footprint while aligning with our strong and growing customer demand and qualification progress across both 800G and 1.6T products. As a reminder, our 800G and 1.6T products can be manufactured on the same production line with the same process. While our 1.6T products will require different final testing, our 800G automated manufacturing lines have been developed with an architecture that will allow us to support future high‑speed products as customer demand materializes and evolves over time. While we continue to be encouraged by the conversations we are having with our customers pertaining to our 1.6T product, we continue to believe that our 800G products will drive the near‑term data center ramp. Our 1.6T products are on track to begin to contribute to our overall revenue later this year, with a bigger ramp beginning in 2027. At OFC, we also discussed our plans to increase our manufacturing capacity for our external light source, or ELSFP, for co‑packaged optics, or CPO. This utilizes the ultra‑narrow linewidth high‑power laser that we announced late last year. We have very limited production of these modules now, but anticipate ramping production later this year and into 2027, culminating in about 400 thousand pieces per month by 2027. As a reminder, we will be making the high‑power lasers for these modules for the in‑house production of the ELSFP. We believe our in‑house laser capabilities continue to be an advantage for the company. As we have mentioned before, we have been manufacturing lasers internally for many years. This has allowed us to avoid some of the shortages that affected others in the industry. As we continue to expand our footprint in Texas, our in‑house laser manufacturing positions us well to support both near‑term customer needs and longer‑term growth. We believe that in the future, CPO will continue to drive increased demand for high‑power lasers, and we plan to continue to expand our laser manufacturing capacity in Texas in order to accommodate these future growth drivers. We expect to further expand our laser fabrication capacity by around 350% by 2027. A central element of our strategy is a high‑automation process for transceivers, which allows us to deploy production capacity where it makes the most sense economically and geopolitically while scaling output quickly, reliably, and efficiently. As I mentioned, this automation platform is also highly flexible, enabling us to produce across multiple generations—from 400G to 800G to 1.6T—using many of the same techniques and equipment. In a fast‑moving AI environment, that flexibility is critical, as it allows us to rapidly ramp specific products and shift production in response to changing customer demand. This capability is the result of over a decade of investment in proprietary, in‑house‑designed equipment and tightly integrated product and process engineering. The plans that we have unveiled have been evolving for some time. So while some of the required equipment does have long lead times, we have already ordered many of the key pieces of equipment and are working closely with our vendors to ensure on‑time delivery. Notably, equipment availability has not been a problem for us to date, which we believe is largely due to the fact that most of this equipment is developed in house, which means that we are not generally in direct competition with other similar companies for supply of the necessary machinery and equipment to build our factories. There are exceptions to this, of course, but overall, we feel that our in‑house developed technologies give us an edge in ensuring reliable supply of production equipment. During the first quarter, direct tariffs had a $1.4 million impact on our income statement. With the overturn of the AIPA tariff, we have applied for a refund, which we currently anticipate will be at least $5.7 million. Our application for the refund has been approved, but as the process is still very new, we currently cannot estimate the time frame for recovery of these tariffs. Turning to our first quarter results, our total revenue was a record $151.1 million, which increased 51% year over year and increased 13% sequentially off a strong Q4, and was in line with our guidance range of $150 million to $165 million. During the first quarter, 54% of revenue was from our data products, 44% was from cable TV products, and the remaining 2% was from FTTH, telecom, and other. In our data center business, Q1 revenue came in at $81.4 million, which was up 154% year over year and 9% sequentially. Sales of our 100G products increased 36% year over year, while sales for our 400G products increased tenfold year over year. In the first quarter, 41% of data center revenue was from 100G products, 46.7% was from 200G and 400G products, 5.6% was from 800G transceiver products, and 5.6% was from 10G and 40G transceivers. In our CATV business, CATV revenue was $66.8 million, which was up 4% year over year and 24% sequentially, and was at the high end of our expectations of $61 million to $67 million. Similar to the last couple of quarters, we shipped a significant quantity of 1.8 gigahertz amplifiers to our largest CATV customer in Q1, and based on recent conversations with customers, we believe demand will be somewhat higher than our initial projections for 2026. We continued to see momentum with the newer set of MSO customers that we have talked about on our prior few earnings calls. Looking ahead to Q2, we expect our CATV revenue will be between $75 million and $80 million. Looking further ahead, we now currently expect to generate over $325 million annually in CATV. While the vast majority of our CATV revenue expectations for this year are related to our amplifiers, we do anticipate that we will generate some revenue from our software solutions this year. Now turning to our telecom segment. First quarter revenue from our telecom products of $2.6 million was down 13% year over year and 50% sequentially. As we have said before, we expect telecom sales to fluctuate from quarter to quarter. For the first quarter, our top 10 customers represented 98% of revenue compared to 97% of revenue in Q1 of last year. We had three greater‑than‑10% customers: one in the CATV market, which contributed 44% of total revenue, and two in the data center market, which contributed 26% and 25% of total revenue, respectively. In Q1, we generated non‑GAAP gross margin of 29.2%, which was in line with our guidance range of 29% to 31%, and compared to 31.4% in Q4 2025 and 30.7% in Q1 2025. As we discussed on our last quarterly earnings call, we do expect continued gradual improvement in gross margins; we continue to expect that the revenue mix in data center in the short term will be a slight headwind. We remain committed to our long‑term objective of returning non‑GAAP gross margins to around 40% and believe that this goal is achievable as our mix shifts towards higher margin products and as we capture additional efficiencies across our operation. That margin expansion, combined with increased scale, positions us to move towards sustainable profitability, which we continue to expect to approach on a non‑GAAP basis beginning this quarter. The revenue figures presented above are net of contra‑revenue amounts due to the accounting for warrants provided to customers. As a reminder, this amounts to approximately 2.5% of revenue derived from certain customers to whom Applied Optoelectronics, Inc. has provided warrants in exchange for future revenue. In Q1, the amount of this contra‑revenue was $1 million. Total non‑GAAP operating expenses in the first quarter were $51.4 million, or 34% of revenue, which compared to $35.5 million, or 36% of revenue, in Q1 of the prior year, and were in line with our expectations of $50 million to $57 million. Non‑GAAP operating loss in the first quarter was $7.3 million compared to an operating loss of $4.8 million in Q1 of the prior year. GAAP net loss for Q1 was $14.3 million, or a loss of $0.19 per basic share, compared with a GAAP net loss of $9.2 million, or a loss of $0.18 per basic share, in Q1 of the prior year. On a non‑GAAP basis, net loss for Q1 was $4.9 million, or $0.07 per share, which was in line with our guidance range of a loss of $7 million to a loss of $300,000 and non‑GAAP earnings per share in the range of a loss of $0.09 to breakeven. This compares to a non‑GAAP net loss of $900,000, or $0.02 per share, in Q1 of the prior year. The basic shares outstanding used for computing earnings per share in Q1 were 76 million. Turning now to the balance sheet. We ended the first quarter with $449.4 million in total cash, cash equivalents, short‑term investments, and restricted cash. This compares with $216 million at the end of 2025. We ended the first quarter with total debt, excluding convertible debt, of $77 million, which compared to $67.3 million at the end of last quarter. As of March 31, we had $206.2 million in inventory, which compared to $183.1 million at the end of Q4. The increase in inventory is primarily due to raw material and work in progress needed for production, partially offset by a decrease in finished goods inventory as purchase orders to customers were fulfilled in the quarter. We made a total of $68.7 million in capital investments in the first quarter, which was mainly used for manufacturing capacity expansion for our 400G, 800G, and 1.6T transceiver products. We expect to continue to make sizable CapEx investments this year as we prepare for increased 400G, 800G, and 1.6T data center production. On a quarterly basis, we expect our capital expenditures to be above the total that we spent in Q1. We expect to finance these investments through a combination of cash on hand, cash generated from operations, and some equity sales along with additional debt. Notably, in Q1, we increased availability under existing and new loans by $13.4 million and added another $14.5 million in April. Going forward, we believe we are well positioned for sustained growth across both our data center and CATV businesses, and the capital investments underway are expected to fundamentally strengthen the company as we execute on these opportunities. Given the rising demand, we now believe that by mid‑2027, 100G and 400G revenue will be approximately $90 million monthly, 800G revenue will be approximately $217 million monthly, and 1.6T revenue will be approximately $164 million monthly. In total, this is about $471 million per month of data center transceiver revenue, with about 40% of this capacity in the U.S. Moving now to our Q2 outlook. We expect Q2 revenue to be between $180 million and $198 million, accounting for a sequential increase in CATV revenue as well as a sequential increase in our data center revenue. We expect non‑GAAP gross margin to be in the range of 29% to 30%. Non‑GAAP net income is expected to be in the range of a loss of $2.5 million to income of $2.8 million and non‑GAAP earnings per share between a loss of $0.03 per share and earnings of $0.03 per share using a weighted average basic share count of approximately 80.7 million shares. Looking more broadly at 2026, we now expect to generate over $1.1 billion in revenue this year, with a non‑GAAP operating profit of over $140 million. As we have discussed previously, this revenue level is limited by our production capacity and supply chain, not market demand, which we believe is much larger. Based on our planned capacity additions, we expect to see an acceleration in the second half of the year as new production capacity comes online and additional customer qualifications are completed and orders begin to ship. We believe that this is an ambitious yet achievable target based upon our customers' forecasts and what we know about the unprecedented investments that are being made in AI infrastructure. With that, I will turn it back over to the operator for the Q&A session. Operator? Operator: We will now open the call for questions. Please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw the question, please do so now. At this time, we will pause momentarily to assemble our roster. Our first question comes from Simon Matthew Leopold with Raymond James. Please go ahead. Simon Matthew Leopold: I wanted to dig in a little bit to understand the risk profile ramping the capacity. I appreciate the nuance that you do a lot of your own tooling and machinery, and so that should put it in your control. But I wonder if you could reflect on sort of the prior capacity expansions—what led to any kind of timing or disruption—and help us understand how to prioritize the risks for meeting your schedule. And then I have a quick follow‑up. Stefan Murry: Sure, Simon. I think it is important to understand that the expansion that we are undergoing, while it is large in scope, is not something that is brand new to us. We have built significant capacity, especially in our Asian factories, over the last couple of years, and now we are basically adding additional increments to that capacity—the same type of equipment, the same manufacturing process—mainly here in the U.S., here in Texas, as we talked about during the call. So from a risk standpoint, the risk of doing something that you have already done is a lot lower than doing something that is brand new. As we mentioned in the prepared remarks, a lot of this equipment is developed in house, so the risk of supply chain disruptions for the equipment—it is not eliminated, of course—but it is a lot lower than if we were relying on the same equipment that was being bid up by other suppliers and it had limited supply to begin with. I think those two risks are minimized because of the nature of the manufacturing process that we have. It is worth noting too that because our process is very highly automated, we are not hiring a lot of people. So the labor risk associated with quality control issues or being able to scale labor does not really exist to any great extent for us as well. It is really just a matter of: can we get the equipment in, and can we put it into production on time? So far, we are executing very well to that, which is not surprising because we have done a good job of it over the last couple of years already. Thompson Lin: Great. Simon Matthew Leopold: Just a quick follow‑up. I want to make sure I understand and clarify the metric you shared with us towards the end of the call—the $471 million monthly production by 2027. I want to make sure I understand: Is that a capacity number, or is that a number that assumes a certain percent utilization of the total capacity available? How should we take that $471 million value? Is that a revenue forecast, or is that a capacity capability, and we should assume some haircut to that for lower utilization? Thank you. Thompson Lin: Simon, this is Thompson. That is based on revenue. Actually, the actual capacity is higher. But you understand, when you get equipment, you need to save a month to hire people and do qualification. So that means, based on the orders in hand or minimum commitments from customers, plus the equipment fully qualified, we believe we can deliver that level in June, July next year. For sure, another risk is material. This is why we are working with all the material suppliers. That is the number we feel comfortable committing to at this moment. The actual demand could be even higher than this number, but that is the best we can do. The actual number from the customer is bigger, and actually what they expect is April, not June, July. So that is why everything is being pulled in. And, Simon, just to make it really clear, if you go back to our remarks in the last earnings call, that number was $378 million monthly. So that $471 million is directly comparable to that, and it represents almost $100 million a month of additional revenue starting in the middle part of next year. Simon Matthew Leopold: Appreciate it. Thank you. Thompson Lin: You are welcome. Operator: Up next, we have George Notter with Wolfe Research. Please go ahead. Analyst: Hey, guys. It is Terren Cott on for George Notter. On the ELSFP business, can you talk a little bit more about the customer engagements you are seeing there? How many customers are you working with? Any details would be appreciated. Stefan Murry: We have a couple of large customers that we are working with. We have not said who they are. Thompson Lin: Let me say that right now, we are working on three‑year long‑term agreements with several customers—around three—including lasers and the ELSFP. That is the number we are talking about. That is why, not only for transceivers, we are expanding very fast in our laser capacity. Right now, we have been doing a four‑inch growth process. Our target is to go to six‑inch by end of next year. So, yes, I think we need to do more investment to meet the demand for the CPO market. As you know, the CPO laser is about 300 to 400 milliwatts, compared to 70 milliwatts for 800G transceivers and 100 milliwatts for 1.6T transceivers. The die size is much bigger—minimum maybe five or six times bigger. That is why we already went from two‑inch to three‑inch to four‑inch in the past 18 months, and we still plan to go to six‑inch by end of next year. That will increase our capacity a lot. At the same time, we are adding a lot of capacity, like MOCVD, e‑beam, and everything. Stefan Murry: Yes, Terren. We see a shortage of indium phosphide laser manufacturing capacity across the industry right now, and we think that is going to persist and even get more acute with the advent of ELSFP, as Thompson mentioned. That is why we see this need to really expand our indium phosphide fabrication capability pretty dramatically over the next 12 to 18 months. Analyst: Great. And then just to follow up on that, how do you see the ability to secure substrate capacity for the indium phosphide? Thompson Lin: Right now, we have four to five suppliers. We are in some discussions—sorry, I do not know how much we can say—but four of them are outside of China. I would say right now, we should have enough inventory minimum for almost one year. But since the volume will increase so fast, we are making calls with all the suppliers. Stefan Murry: I would say we have good line of sight into how we think we can not see a shortage there. But we cannot say too much about it specifically at this point because a lot of it is under discussion. Analyst: Got it. Thank you. Thompson Lin: Welcome. Operator: Our next question comes from Michael Edward Genovese with Rosenblatt Securities. Please go ahead. Michael Edward Genovese: Great. Thank you. Can you give us more granularity on when you expect qualification for 800G with this hyperscaler that sounds like it will be your third hyperscale 10% customer? When in the quarter exactly do you think you will have this qualification? And then does your guidance derisk it—meaning that if you got it sooner or if things went to plan, would there be upside in the quarter? Stefan Murry: Well, as we mentioned in our prepared remarks, we have already started shipping. So I am not sure what the qualification question really is referring to. Michael Edward Genovese: Okay. So— Thompson Lin: We have two big customers. One is qualified. Another one is almost qualified. The one that gave us a large order for—I do not remember—$140 million, I think, because it was AI with some kind of three‑year long‑term agreement with a very big volume. The qualification is pretty smooth. I think we start shipping volume next month. Another customer we have been working with for a long time is qualified. We will increase the capacity in this month and this quarter too. So we start shipping volume to two big customers, not including smaller ones. Michael Edward Genovese: Got it. Okay. And then your guidance for the year—you are doing about a third of the revenue for the year in the first half, and then obviously expect big sequential growth in the third quarter. Would we then have more big sequential growth in the fourth quarter, or is 3Q and 4Q more linear? How should we think about the shape of the second half? Stefan Murry: Not linear. That is a great question. Right now— Thompson Lin: Let me explain. From the day when you order equipment—qualification, installation, everything—and some reliability, even in Asia it usually takes five to seven months. In the U.S., it adds another two months because of shipping. That is why the ramp is from Q3, not Q2. Even if we got some equipment in already, it still needs to go through a lot of process, which still takes several months. So right now in Q3 compared to Q2, we see 60% to 80% increase. Q4 should be similar. And you can figure out the number. Let me say that the actual demand is not $1.1 billion. The actual demand is $1.4 to $1.5 billion. Right now, our target is still to go to $1.2 billion, but we still need to work very hard with the supply chain, adding manpower, everything. Right now, $1.1 billion is the number we feel very confident in, and it has increased from the $1.0 billion we committed in the last quarter. But our internal number is higher. Stefan Murry: To summarize what Thompson said, the limiting factor for deliveries is our manufacturing capacity. Once that capacity that we have been building—we talked in detail about the real estate that we have, the number of square feet that we have added, and the equipment—once that starts to come online, it is not going to be a linear type of thing. It is going to be another large increment, and then another large increment in Q4, as Thompson outlined. You cannot extrapolate from the first half and assume only a certain growth rate. When you have new factories coming online, that adds capacity very quickly. Thompson Lin: And even when you get equipment, it still takes, including the manufacturing cycle time, at least more than three months—or even longer—to deliver revenue. Sometimes customers need to do another on‑site audit and qualification. So we got a lot of equipment in, but the count of when we are ready is more like Q3. That is why I said Q2 we may have maybe 30% growth—that is limited by capacity—but Q3 and Q4 we are talking about 60%, 70%, or even 80% growth in each quarter. Actually even in Q1 next year too. The next few quarters will be very fast because this plan lets us start delivering to the customer. Michael Edward Genovese: Perfect. Great. Thank you so much. Appreciate the color. Operator: Our next question comes from Ryan Boyer Koontz with Needham. Please go ahead. Ryan Boyer Koontz: Great, thanks. I want to get back to the indium phosphide topic and where you are in terms of that capacity relative to your demand and the different fab equipment you need to support that growth. Can you maybe walk us through some of the major milestones we should think about for the laser supply internal here over the next couple of quarters? Stefan Murry: Great question. As I said earlier, indium phosphide capacity is critical right now. The fact that we have our own in‑house laser manufacturing capability is one of our key advantages. Certainly when you talk to customers, that is one of the big things that they like about us, especially now that we are seeing shortages across the industry. Our fab expansion is well underway. As Thompson mentioned, we have a number of critical pieces of equipment—MOCVDs, coating machines, and others—that are in various stages of either being delivered or being qualified. It does take a pretty extended period of time to qualify a new piece of laser manufacturing equipment, as you can imagine. You do not want to take a risk of having an unknown quality issue there. A lot of that equipment is already here and already undergoing qualification, or it is very close to being here. That is why we can be pretty confident that our capacity is going to be where we need it to be. It is just a matter of going through that qualification process internally, which is, by the way, different from the transceiver qualification—here I am talking about our internal qualification of new equipment as it comes in. Thompson Lin: Let me say it is very different from transceivers. For lasers, from the day you place the order to the equipment supply, it takes a minimum of 18 months or even longer. Right now we saw equipment delivery could take 21 to 24 months for you to start to deliver lasers to the customer. Sometimes the customer requests 2 thousand hours or even 5 thousand hours of reliability data. So we placed a lot of orders to more than 50 suppliers. We got commitments from the suppliers, and we are getting some equipment in house already every month. Let me say that by end of next year, we should be, I would say, minimum top three in laser production worldwide. I cannot tell you how many pieces of equipment we have—it is cumbersome. That is why we are working with customers for long‑term needs for lasers, not only for transceivers, including lasers for ELSFP. As I said, ELSFP is very challenging. There is very high spec and very high power, especially with wavelength control. I would say the challenge is more than 10 times that of a 70 or 100 milliwatt laser for transceivers. It is a totally different ballgame. That is our focus. And, you know, Applied Optoelectronics, Inc. has been doing lasers since day one, including my PhD—our team has been doing lasers since 1990. So we know how to do a good job. Ryan Boyer Koontz: That is impressive, Thompson. Thank you. If I could have a quick follow‑up in terms of your margins and how we think about that and the mix. As your production mix of 800G moves up here, should we think about that as a tailwind for margins? Maybe unpack that for us a little bit—how to think about the mix? Thank you. Stefan Murry: The margins get a lot better as we expand the capacity. Right now, what is going on is we are in this shifting mix between 400G and 800G and between predominantly cable TV and predominantly data center. As we see that continue to shift and as 800G takes precedence, you will start to see growth in gross margin primarily in the second half of the year. Thompson Lin: I would say we go to 35% gross margin by end of this year. At the same time, in Q1 and Q2, since we start ramping up, we need time to fine‑tune the process. So the efficiency is not as good as what we expect, but I think within two to three months, with a fully automatic manufacturing line, we can tune the efficiency very fast. That is the major advantage of automation. For sure, by Q4, the gross margin—by Q3, the whole company—should be, I would say, more than 40%, especially with the laser business. That will kick in in Q3, Q4 next year. Ryan Boyer Koontz: That is helpful. Thank you both. Thompson Lin: Alright. Yep. Operator: Please press star then 1. Our next question comes from Timothy Savageaux with Northland Capital Markets. Please go ahead. Timothy Savageaux: Hey, good afternoon. First question is trying to understand where you are capacity‑wise versus what you are forecasting. In the release, you talked about 100 thousand units a month in 800G exiting Q1, and that puts your capacity revenue‑wise over $100 million a quarter. You have orders in hand for $124 million of 800G. You have the capacity, theoretically, to ship those orders. And yet you are guiding to, what, $18 million to $20 million in 800G revenue. What I am trying to understand is that delta and what is driving that apparent disconnect. I have a follow‑up. Stefan Murry: It is just timing on how long it takes to do the manufacturing process, really. Not all of that 100 thousand was online in the middle of the quarter, and then you add the cycle time to it. It puts the real production output for that closer to the middle to even two‑thirds of the way through the quarter. It is just the timing of the manufacturing lead time. Thompson Lin: That is why when we talk about $471 million for June, July next year, that is revenue, not capacity. The capacity is much higher because, as I say, when you have capacity, you need to add more than one month and my phase—cycle time of six weeks—plus maybe the customer needs to do on‑site auditing and qualification. There are all kinds of requirements. So the day you even install, download the trial run—everything—you still would take another two, three, or four months to realize the revenue. Some customers even have different processes. That is why I made clear: when we are talking about $471 million, it is revenue, not capacity, and we are talking about equal to about 780 thousand transceivers per month by middle of next year. Actually, it could be higher. Timothy Savageaux: Got it. Speaking of competition, earlier this week we had a prominent contract manufacturer in the space announce two deals whereby they would be making transceivers for hyperscale customers directly. How would you assess the competitive and margin impact of that development on Applied Optoelectronics, Inc.? Thompson Lin: We do not really know. But right now I think the most important part is delivery, and there are LTAs we are negotiating with these three customers. The three‑year numbers are crazy high. For multimode, it is easier—maybe you can use VCSELs or even do it for DR. It is easier to manufacture. But it would be very tough for 800G or 1.6T 2xFR4, because you need four lasers. The same thing: can you get lasers or not? Even for many transceiver suppliers, how quickly can they get lasers? Right now, MOCVD is on complete backlog—even program. Without lasers, how can you make any transceivers? Timothy Savageaux: And last one for me. This goes back to the 1.6T comments where, Stefan, I think you talked about some revenue contribution later in the year and a bigger ramp in ’27. And yet my understanding was that the big order would be shipped and completed in ’26. Has there been some change there, or what is the schedule for that particular order? Thompson Lin: It means that order is just a small order compared to what we are going to see in 2027. The 2027 one is much, much bigger. I think the volume is like— Stefan Murry: Alright, so we have to define our terms—$200 million is not a big ramp. Thompson Lin: Exactly. Next year, we are talking about more than $2 billion for 1.6T transceivers—much more than $1.6 billion we need to deliver next year. Timothy Savageaux: Thanks very much. Operator: This concludes our question and answer session. I would like to turn the conference back over to Dr. Thompson Lin, founder, president, and CEO, for any closing remarks. Thompson Lin: Again, thank you for joining us today. As always, we want to extend a thank you to our investors, customers, and employees for your continuous support. It is an exciting time for our industry and for Applied Optoelectronics, Inc. We continue to believe the fundamental drivers of long‑term demand for our business remain robust, and we are in a unique position to drive value from this opportunity. We look forward to seeing you at upcoming investor conferences. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. 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: 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.
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. 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: Thank you for standing by, and welcome to the ESAB Corporation First Quarter 2026 Earnings Release and Conference Call. [Operator Instructions] Thank you. I'd now like to turn the call over to Mark Barbalato, Vice President of Investor Relations. Mark, you may begin. Mark Barbalato: Thanks, operator. Welcome to ESAB's first quarter 2026 earnings call. This morning, I'm joined by our President and CEO, Shyam Kambeyanda; and CFO, Brent Jones. Please keep in mind that some of the statements we are making are forward-looking and are subject to risks, including those set forth in our SEC filings and today's earnings release. Actual results may differ, and we do not assume any obligation or intend to update these forward-looking statements, except as required by law. With respect to any non-GAAP financial measures mentioned during the call today, the accompanying reconciliation information related to those measures can be found in our earnings press release and today's slide presentation. With that, I'd like to turn the call over to our President and CEO, Shyam Kambeyanda. Shyam Kambeyanda: Thank you, Mark, and good morning, everyone. Thank you for joining us today. Turning to Slide 3 to discuss our first quarter highlights. We're pleased to report a strong start to the year headlined by record first quarter sales. Total core sales grew 10% year-over-year, a result that reflects both the effectiveness of our compounder strategy and the resilience of our diversified global footprint. Despite a more challenging environment, which included higher costs as a result of the conflict in Iran, we generated sales of $715 million and adjusted EBITDA of $136 million, an increase of 6% year-over-year. We delivered this performance while continuing to invest in the long-term drivers for the business. I am especially encouraged with the performance of our acquisitions. EWM and Aktiv both grew double digits year-over-year, and our sales synergy funnel across the portfolio improved meaningfully, reinforcing our confidence in the strategic value these businesses bring to ESAB and their potential to drive organic growth in the years to come. Looking ahead, we are accelerating our compounder journey through the previously announced acquisition of Eddyfi, which we expect to close midyear. This transaction strengthens our portfolio and extends our runway into profitable growth. Given our first quarter performance and our visibility to the remainder of the year in booked orders and additional price, we are reiterating our previously announced guidance, we are confident in the trajectory of the business while remaining mindful of the dynamic environment in which we operate. Moving to Slide 4. Before we turn to the quarter, I want to put the past 1.5 years into context. Throughout 2025 and into the start of '26, we have deliberately been reshaping ESAB, sharpening the portfolio and building new capabilities across the company. The ESAB you see today is meaningfully stronger. Our capital allocation strategy is the clearest place to see it. We have continued to build a premier industrial compounder by adding strength across every layer of the value chain. We have strengthened our position in gas control with DeltaP and Aktiv. We've created a best-in-class equipment portfolio with EWM and filled out every gap in our equipment product lineup. We added to our leadership position in proprietary filler metal with Bavaria and Eddyfi, which is expected to close midyear, extends our workflow solution into inspection and monitoring. Complementing these acquisitions, we now have more than 40 AI projects actively underway contributing both to near-term productivity and long-term growth. The new acquisitions coupled with AI initiatives will drive growth, reduce cyclicality, expand our gross margin profile making ESAB more durable through the cycle than it has ever been. Turning to Slide 5. This slide brings the story to life. Over the past decade, we have reshaped ESAB into a faster-growing, higher-margin enterprise and the shift is now plainly evident in both our mix and our margins. Three levers have driven the work. First, sustained R&D investment to refresh our product portfolio and fuel growth; second, EBXai, our operating system for productivity and operational excellence, third, a disciplined M&A program that has added growth and margin. Let's start with our mix. In 2016, equipment represented roughly 38% of our sales, a fully refreshed product portfolio and an optimized manufacturing footprint and 18 successful acquisitions have changed that picture. With the recent additions of EWM and Bavaria in Fabrication Technology and DeltaP and Aktiv in gas control equipment now accounts for roughly 44% of revenue. Upon closing Eddyfi midyear, that mix will rise to approximately 52%. The margin trajectory tells the same story. Our gross margin has moved from approximately 35% in 2016 to nearly 38% today. Eddyfi accelerates the next step. As I've shared with you before, our equipment product carries gross margins closer to 45%. And Eddyfi, as we shared before, is close to 65%. Together, these dynamics will push our consolidated gross margins to greater than 40% for 2027 and beyond. Moving to Slide 6. Momentum is building globally across our welding equipment portfolio, and 2 launches are leading the way, the Ruffian 270 engine-powered welder and the Aristo Edge. The Ruffian fills a critical gap in our offering and stands out as the most productive operator-friendly unit in its class. It is the only welder in its category to deliver full power simultaneously. 270 amps of welding output and 11,000 watts of generator power at the same time at a 100% duty cycle, an independent generator arc ensures that running power tools never causes a spike or drop in the welding arc. The Aristo Edge sets a new performance benchmark on both the advanced manual and robotic sides. Its ultrafast arc control manages the arc 10 to 20x faster than traditional equipment, clearing short circuits instantly and preventing defects and the advanced waveforms reduce spatter by up to 85%, producing a stable puddle that virtually eliminates post-weld cleanup. With 500 amps at a 60% duty cycle, the plug-and-play compatibility with all major robot and cobot brands, it is built for continuous industrial scale production. Customer response has been strong. We have secured preferred status with the yellow goods OEM on the Aristo Edge, and we're gaining channel share with the Ruffian. Together, these 2 product families add roughly $250 million to our servable market. Turning to Slide 7. When we acquired EWM, additive manufacturing was one of the capabilities we were most excited about. It is an advanced 3D metal printing process that uses electric arc as the heat source and metal wire as the feedstock to build large high-strength components layer by layer. And EWM is a clear leader in this space. EWM's React technology is now opening doors for the broader ESAB portfolio. We are gaining real traction with a major U.S. distributor and with defense OEMs. We have secured orders with integrators, engineering and construction firms and 2 German OEMs manufacturing in the U.S. today. In parallel, our teams are building a healthy cross-sell funnel, bringing ESAB filler metal to EWM customers and EWM equipment to ESAB customers. There is still work ahead, but Q1 was an encouraging start. The next product, Tetrix 350, adds a second growth lane, it is the best-in-class power source for TIG applications, including precision welding requirements needed for semiconductor wafer manufacturing and it pairs naturally with our AMI product where order activity continues to rise. Together, these 2 products give ESAB access to an additional $900 million of servable market across additive manufacturing and TIG and orbital TIG welding. They have our sales teams energized by the new workflow solutions we can now deliver to our most discerning customers. Moving to Slide 8. Let me reiterate what I shared when we announced the Eddyfi acquisition. This transaction extends ESAB workflow solutions into faster-growing, higher-margin inspection and monitoring space, a bit more detail on the asset itself, Eddyfi is a clear market leader in electromagnetic testing, ultrasonic testing and automated inspection. It serves mission-critical end markets with attractive secular tailwinds across aerospace, defense, nuclear and energy infrastructure. The business also brings meaningful North American exposure that pairs naturally with ESAB's global footprint, opening immediate geographic expansion opportunities for both companies. Financially, Eddyfi is a premier asset, high single-digit growth, gross margin is about 65%, and EBITDA margins around 30%. Strategically, the deal accelerates our shift towards equipment, strengthens our ability to deliver differentiated workflow solutions, expand margins, reduce cyclicality and ultimately improves the predictability and resilience of our earnings profile. Although the transaction is expected to close midyear, we're already in motion. Our integration team is in place sharpening the combined workflow solutions value proposition and beginning to share Eddyfi's capability with ESAB customers. Turning to Slide 9. What I love about this industry is that we enable extraordinary engineering every day. A few moments capture that better than what is happening right now with NASA's Artemis program. For the first time in more than 50 years, humanity returned to the moon and ESAB technology helped make that possible. A decade ago, we would not have been at the table. Today, we are a key contributor and that is a source of enormous pride across our company. You can see one example on this slide. Our friction-stir welding technology delivers the exact combination of strength, precision, reliability and weight optimization that the most demanding aerospace environments require. ESAB's technology enables aluminum alloy structures to be extraordinarily strong and remarkably light. Boeing's selection of our technology for the Space Launch System, fuel tank reinforces the thesis behind our portfolio, differentiated innovation applied to mission-critical manufacturing in the world's most demanding end markets. This is what we mean when we talk about being the fabrication technology provider of choice, and it is what gets our teams out of bed every morning. Before I go into more detail about the quarter, I'd like to take this opportunity to thank Kevin Johnson for his contributions to ESAB and wish him well in his new role. At the same time, I'm very excited to welcome Brent Jones to the ESAB family. Brent brings diverse and highly valuable expertise as we move into the next phase of our compounder journey. With that, let me hand it over to Brent to say a few words. Brent Jones: Thank you, Shyam, and good morning, everyone. I want to start by thanking Shyam and the entire ESAB team for the warm welcome. I'm thrilled to be joining ESAB and look forward to working closely with the team as we continue to advance ESAB's compounder journey. ESAB has a strong foundation a compelling strategy and a tremendous opportunity ahead, and I'm excited to be part of it. Let me hand it back to Shyam to go through the financials. Shyam Kambeyanda: Thanks, Brent. Moving to Slide 10. Turning to the quarter. We're pleased with how the business has performed overall. Strong execution by our global teams drove record first quarter total sales growth of 10% year-over-year, a clear demonstration of the power of our compounder strategy. Adjusted EBITDA was $136 million, up 6% year-over-year with an adjusted EBITDA margin of 19%. Margins in the quarter reflected an expected 40 basis points impact from EWM and an additional 30 basis points of headwind from the conflict in Iran. Important to note, EWM is already contributing strong growth this quarter. As I've shared before, EWM is accretive to gross margins but dilutive to EBITDA margins for the first 3 quarters in 2026. Our cost out and sales synergy efforts are running ahead of schedule, and we expect EWM to be EBITDA accretive as we exit the year. Turning to Slide 11 and talking about the Americas. The Americas delivered a steady first quarter. Total sales were $288 million, up 3% year-over-year and adjusted EBITDA was $56 million, also up 3% year-over-year, with margins flat at 19.4%. Within the segment, North America, excluding Mexico, grew mid-single digits and Mexico held stable. We're also seeing meaningful interest in EWM across the U.S., which is encouraging as we broaden the commercial reach of that business. At the same time, we're reshaping our manufacturing footprint and accelerating our EBXai initiatives, which are designed to strengthen competitiveness and expand margins. Moving to Slide 12 to talk about EMEA and APAC. We continue to gain share from competition across EMEA and APAC, a clear demonstration of our global footprint. Sales increased 16% to $426 million and adjusted EBITDA rose 9% to $80 million. Margins declined 130 basis points with 50 basis points of that reflecting the conflict in Iran and the additional 70 basis points coming from EWM. Europe and India performed in line with expectations, and the Middle East saw limited disruption. EWM and Aktiv both grew double digits with strong sales funnel momentum building across all 4 acquisitions. EWM integration is progressing ahead of schedule, and we're already seeing early benefits from the combination with ESAB. Moving to Slide 13. We continue to gain share in the Middle East, and that success starts with our local presence in the region. The resilience we have shown this quarter reflects both the local footprint and the way our teams have responded to changing conditions. The Middle East represents roughly 7% of our sales. And despite the conflict, the region saw limited disruption. Our teams reacted quickly to the disruption by rerouting inventory through ports of Jeddah and Salalah in Oman and implementing surcharges to offset higher costs. It is a clear example of the agility and discipline that define our operating model. Long-term fundamentals remain attractive. We've made investments on the ground, most notably in Saudi Arabia and that footprint positions us better than any of our peers to win with customers and support the rebuild once conditions stabilize. Turning to Slide 14. Our balance sheet and cash flow remain important enablers of our compounder journey, and we've made meaningful progress on both fronts. Adjusted free cash flow was $40 million and cash conversion improved to 49% up from 40% in the prior year quarter. The improvements reflect strong working capital management and continued EBXai-driven process gains in order-to-cash. We expect strong full year cash generation. We're also focused on deleveraging. We ended the first quarter at net leverage of 1.9. That figure will step up temporarily once the Eddyfi acquisition closes where we expect to be back below 3 by year-end. Moving to Slide 15. Given our first quarter performance and our visibility to the remainder of the year in booked orders and additional price, we are reiterating our previously announced guidance. We are confident in the trajectory of the business while remaining mindful of the dynamic environment in which we operate. On a core basis, our outlook assumes total sales growth of 6% to 9%, which consists of organic growth of 2% to 4%, 400 basis points from M&A and FX contributing approximately 1%. Our adjusted EBITDA range remains $575 million to $595 million, and our adjusted EPS range remains $5.70 to $5.90. Turning to Slide 16. In summary, our recent initiatives have fundamentally reshaped ESAB, accelerating our transformation into a premier industrial compounder. The 4 acquisitions we made last year, EWM, Bavaria, DeltaP and Aktiv and Eddyfi now to start 2026, have moved the company decisively towards higher growth, higher-margin, lower-cyclicality and a more predictable earnings profile. We have meaningfully increased our exposure to defense, nuclear and the fast-growing additive manufacturing space while positioning ourselves opportunistically to benefit from rising semiconductor capital spending. We are thrilled with these acquisitions and the way they have shaped our portfolio, strengthening our ability to compound value and generate stronger cash flow over the long term. Operationally, we're winning in the market, our acquisitions are performing. EBXai continues to power productivity across the company. The second quarter is tracking to plan with stable sales and orders, supporting our decision to reiterate full year guidance. Taken together, these actions position ESAB to compound long-term shareholder value at an accelerating pace. Our teams are energized, our strategy is working. The path ahead for ESAB is full of opportunity and our finest moments are still in front of us. With that, operator, let's open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Nathan Jones with Stifel. Nathan Jones: Again, at a fairly high level, volume in the first quarter was minus 3 and I would have thought that price should be fading from the plus 2 that we had in the first quarter, maybe not with all the renewed inflation. It does imply an inflection on volume to get to the 2% to 4% organic growth for the full year. So can you maybe talk about where you see the inflection in volumes as we go through the year from that negative 3 to something that's positive. Shyam Kambeyanda: Yes. I think, Nathan, we obviously were going against the comparable last year, if you remember, with the pull ahead with tariffs. So comparably, we knew Q1 would be just a bit softer as a result of the pull ahead that happened last year when the tariffs went into play. So we sort of landed in Q1 even a little stronger than what we thought based on when the conflict started. So very pleased with the top line number and how the teams performed. And as you go through the year, a couple of things happen. One, obviously, we go in with some additional price into Q2. Second, in the back half of the year, as you know, some of the acquisitions that today show up, the acquisitions that show up today on a different line become organic as we go into the third and the fourth quarter driving up organic sales as we finish out the year. So the thoughtful way to look at it is down slightly neutral, a little bit more positive in Q3. And then when the acquisitions become part of the base, you really see that organic driver kick in. Clearly, for us, the teams have done, in my view, a phenomenal job navigating through the first quarter even though the war came upon us as we finished out February, the team sort of really rallied, figured things out quickly in terms of supply chain, handled the quarter strong and we finished well, and we set us up nicely for Q2 and beyond. Nathan Jones: I guess I'll ask my follow-up about the Middle East. We have heard from companies about lack of side access and things like that, that are impeding, I guess, work being done in the Middle East, can you talk about the impact that's having on your business? We were only at it for 1 month out of the quarter in the first quarter. Should we expect a little bit more impact than I think you called out 50 basis points of margin in EMEA and APAC. Does that get a little bit worse in the second quarter? Or maybe talk about the mitigation activities that you've deployed to help offset that? Shyam Kambeyanda: Yes. So the way to think about it, at least in the first quarter was when it came upon us, I think we drove to get supplies into the Middle East so that we had the right inventory in place for the business. And so think of it as some additional costs that came at us in Q1 that we thoughtfully engaged with to make sure that the business was in a good spot. We've gone out for price as the month went on. And so think about that margin gap actually reducing. That being said, we are going out for price to match costs so we don't have any additional price there. So we expect to be price cost neutral. So it's an improving scenario. And as the year goes along, we'll continue to work the price piece to continue our journey forward like we've done in the past. So that's the way to think about it. So a little additional hit in Q1, getting better as we get into Q2 with the additional price that we've gone out with and then getting slightly positive as we finish out the year in the third and fourth quarter. Operator: Your next question comes from the line of Tami Zakaria with JPMorgan. Tami Zakaria: Good morning. Thank you so much. I heard you talk about acquisitions growing double-digit percent. Did those acquisitions have unusually easy compares? Or that's a good gauge for the rest of the year. And within that double-digit percent, how much was price versus volume? Shyam Kambeyanda: All right. So let me start with the first piece. The 2 businesses that I highlighted were EWM and Aktiv. The short answer is, year-over-year, it wasn't about easy comparables. It was the actions that the team were taking, engaging with new customers, getting new orders especially in Europe, the Middle East and some extent also in North America for the EWM business. And so we feel really good one about the acquisition, two, about the funnel that we've created that's now creating momentum in the equipment business. There was some price in it, but most of it was volume, which is what's exciting for us as we go through the year. So I hope that sort of answers that question. The other piece that I think I want to reiterate as we look at the second half of the year as well, we have some automation orders that we booked several of them that stack up quite nicely adding to that organic growth number that we expect to see in the second half of the year in Q3 and Q4. So additional price, additional orders in automation, these businesses that we've acquired that are really matching the strategic fit that we saw are today outperforming our plan, creating additional tailwind for volume as we finish out the year. Tami Zakaria: That is excellent color. And regarding the 30 basis points headwind you saw in the quarter to EBITDA from the Iran conflict. Do you expect a similar 30 bps headwind in 2Q or that steps down? Shyam Kambeyanda: I think the way to think about it is, we'll obviously see, but let's start with the positive. The war could settle in a week and maybe we're talking about something different. But on the side, if the war were to continue, we would see 2 additional months of volume that would then get offset by some additional price that we've gone in. So the way to think about it is that it's not going to get worse, could get slightly better as the quarter goes on. Operator: Your next question comes from the line of Mig Dobre with Baird. Mircea Dobre: Thank you, and good morning, everyone. I want to talk a little bit about the Americas segment. And I guess the moving pieces here, I'm trying to think through them. You had the negative one organic in the quarter, but you kind of call out here that excluding Mexico, North America is up mid-single digits. Mexico, it's stable. Obviously, something else acted as a drag here. Can you comment at all on that? Shyam Kambeyanda: Yes. We were actually very pleased with our U.S. and Canadian businesses for the quarter, Mig. We felt that both on price and on what I would call created volume, we were very happy with how the business performed. And I would also say that in April, we did better than how we finished out in Q1. So really happy about how that business is performing. The traction that we're getting with customers and the channel. I was actually out with some of the distributors. Our team had an EDAC, our distributor meeting out in Albuquerque. That went really well. I've done some gemba with the North American team down in Texas and also down in Mexico. And we feel really good about the traction, the funnel, the growth bridges that the teams have that are now driving results in U.S. and Canada. When it comes to Mexico, as you remember, this was the last quarter in those comparables that we spoke about and so what I meant by stable is that the business continues to be at the levels that it was in Q4. As I visited with the team last week, there are shoots of improvement as we go through the year. So optimistic about how the year sort of shapes up, also with Mexico kind of lapping itself in Q2. To give you some additional color on the volume, obviously, the rest is South America where they also had some tariff-related volume bump last year that sort of goes away and neutralizes now and puts us in a better spot for Q2. Mircea Dobre: I see. And given the way the comparisons are looking here from a volume standpoint for the rest of the year, I mean, we started with negative 4, but then your comps are getting easier. At what point in time do you -- so I guess 2 questions. At what point in time do you see volume inflection here? When can we expect some growth? And how do you think about the full year from a volume perspective? So what's embedded in the 2026 guide for America's volume specifically? Shyam Kambeyanda: Well, America's volume, we expect to be -- so let me just sort of thoughtfully walk you through that. When you look at U.S. and Canada, we feel that we're going to be volume positive. And when it comes to Mexico as well, we think as the year goes on, we're going to be volume positive, slightly positive on volume also in Mexico. South America, in my view, will stay slightly volume positive. They were a bit volume negative in the first quarter just on the back of year-over-year comparables with the tariff year. They also go positive. So the way to think about the year as it plays out is you saw Q1 be slightly negative. You'll see Q2 be neutral, Q3 getting positive. And then Q4, in my view, will be nicely positive because some of the acquisitions that today are not considered part of our base, become part of our base. In addition to that, obviously, we're really excited about the Eddyfi acquisition that will close here in midyear. That then allows us additional opportunities for growth for our base business and to be able to pull to Eddyfi with our customers. Yes. And Mig, the other thing I'd say to you is that in the second half of the year, I made the comment earlier, we've got additional price going in, in Q2. We've also got additional automation orders that we have booked for the third and the fourth quarter. So as you look at it, one, obviously, you're lapping a tariff quarter in Q1, you're getting to a spot where Mexico becomes -- laps itself in Q2. You've got additional price Q3, you've got these automation orders plus additional price. In Q4, you've got these businesses that today drove double-digit growth in Q1, becoming part of the base in Q4. And so as you sort of look at it, my thoughts here are very realistic and maybe slightly conservative is how you think about the volume numbers as you finish out the year. Operator: Your next question comes from the line of Neal Burk with UBS. Neal Burk: I just wanted to go back to the Middle East question. Just to clarify, this 50 basis point drag that was on segment EBITDA margin. Was there any impact on volumes and is there any sense that more broadly, higher commodity prices are in any sense, weighing on overall demand? Shyam Kambeyanda: Yes. The short answer is we did not see it, and we have not seen it yet. But we have seen cost impact, specifically some like tungsten, we've seen nickel move a little bit. We've seen steel move a little bit. So yes, the war has created a little bit more cost in some of the steel and components that we buy. The other piece that we've really seen is around freight. Freight costs have gone up and partially, that's likely because of fuel costs. And so those are the 2 aspects. We're moving price to the market to sort of overcome and offset all of it. We expect price/cost to be neutral for at least the second quarter, and then we'll continue to sort of work to be price/cost positive as the year plays on. Neal Burk: Okay. And then just another question on margins. I think incremental margin in the quarter was about 12% for the total company and the guide seems to embed something around 20%. So can you just kind of walk through the progression through the rest of the year of how incremental margins should improve? Shyam Kambeyanda: Yes. I think the first one, obviously, is we expect better price from Q1 to Q2. So that's assumption number one. Things came at us a bit fast in March. We went out with some price. We didn't get all of it in Q1. We get price in Q2. The second piece is that we are seeing good momentum in the North American market. And those margins for us are also accretive. We see really nice activity in Europe. One of the things that we have not talked about is how well Europe performed for us to offset some of the issues that we had in the Middle East. So those are basically the 2 aspects of it. And then we continue to make improvements in the acquisitions. We talked about EWM being ahead of schedule. In terms of its integration plan and the plans that we had to continue to improve EBITDA percentage in that business. So Q1 will be sort of the -- in terms of EBITDA, the lowest quarter for EWM. And every quarter, sequentially, the EBITDA percentage for EWM improves becoming accretive in Q4. Operator: [Operator Instructions] Your next question comes from Steve Volkmann with Jefferies. Stephen Volkmann: Shyam, you mentioned Europe's strength a couple of times. Can you just delve into that a little bit and sort of share versus kind of what you're seeing from an end market perspective? I think you might have mentioned some stimulus benefits over there in past calls or something? Just an update on what's happening there? Shyam Kambeyanda: Yes. There's a couple of pieces playing in our favor. One, obviously, we have a phenomenal footprint and now with the 2 acquisitions that we've made in the Germanic region, we really have a position of strength in Europe. We are local. We are able to supply and serve our customers locally, giving us a significant advantage in the region. In the moments of conflict and the moments of uncertainty, what we find is customers begin to realize that they can rely on ESAB. The second thing that's driving it to some extent is the defense spending that's happening in Europe, we're seeing quite a bit of orders associated with that come to us. We're also seeing a lot of momentum on the equipment side, especially with EWM that's benefiting our business. And there's a couple of actions underway in Europe that could also benefit us. One is this carbon tax piece that is expected to land in 2027. That's giving us a little bit of an advantage and then there are some additional tariffs and quotas that the European Union is expected to put in midyear that would advantage local companies in Europe. So those are the aspects that are giving us a benefit, really pleased with how our European business did. Obviously, if the Middle East conflict resolves, there's some additional significant tailwind for us in Europe and Asia Pac. Stephen Volkmann: Okay. Great. And I think you may have almost segued to my follow-up, which is I know it's early days, but has your team been able to think about what type of sort of rebuilding and upgrades might be required in the Middle East and how that -- you might participate in that? Shyam Kambeyanda: Yes. We actually have -- we met with our leader in the Middle East this week to look through what the opportunities will be once peace finds its way into that conflict. We feel that with the damage that has occurred in the conflict and the repair that would be needed, ESAB could have a position to take advantage of that rebuild because most of our filler metal is specced into most of the damaged sites. As a result, we find ourselves in a position of advantage. Operator: And that concludes our question-and-answer session. I would now like to turn the conference back over to Mark Barbalato for closing comments. Mark Barbalato: Thank you for joining us today, and we look forward to speaking to you next quarter. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.