加载中...
共找到 16,488 条相关资讯
Operator: Greetings, and welcome to the Full House Resorts, Inc. First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Adam Campbell, Corporate Controller. You may begin. Adam Campbell: Thank you, and good afternoon, everyone. Welcome to our first-quarter earnings call. As always, before we begin, we remind you that today's conference call may contain forward-looking statements that we are making under the Safe Harbor provision of federal securities laws. I would also like to remind you that the company's actual results could differ materially from anticipated results in these forward-looking statements. Please see today's press release under the caption “Forward-Looking Statements” for a discussion of risks that may affect our results. Also, we may reference non-GAAP measures such as adjusted EBITDA. For reconciliations of these measures, please see our website as well as various press releases that we issue. Lastly, we are also broadcasting this conference call at fullhouseresorts.com, where you can find today's earnings release as well as all of our SEC filings. With that said, we are ready to go, Lewis. Lewis A. Fanger: Good afternoon, everyone. We will be quick with our prepared remarks today since I know there is another call about to start. We had a solid first quarter. Revenues were $74.4 million in 2026, which compares to $75.1 million in last year's first quarter. Within this, American Place was up about 7%. Also, keep in mind that last year's number included $1.3 million of revenue from Stockman's, which we sold in April 2025. So on an apples-to-apples basis, revenues grew by 0.9% in the first quarter. Adjusted EBITDA in 2026 rose to $13.2 million. That is almost 15% higher than our adjusted EBITDA in last year's first quarter, which was $11.5 million. We had growth at almost all of our properties: American Place, Chamonix and Bronco Billy's, Silver Slipper, and Rising Star all had large percentage increases in EBITDA. At Grand Lodge, which is our smallest property, we continue to be impacted by refurbishment work that, when it is done, should meaningfully upgrade the overall experience. Regarding our sports skins, last year we had an additional active skin. So the decline in 2026 reflects that fact. At American Place, our temporary casino continues to show significant growth. Revenues increased by 7% to $31.8 million in 2026. Adjusted property EBITDA rose 8% to $8.3 million in 2026. Our table games hold was 1.2 percentage points lower than in last year's first quarter. For April 2026, the state's gaming revenues just came out. We had a very good April, which you probably already saw yesterday, with total gaming revenues up almost 6% versus April 2025. Our table hold percentage was off again in April 2026. If we held as expected, our total gaming revenues would have been up almost 16% versus April 2025. Turning to Chamonix and Bronco Billy's, our revenues were down slightly to between $11.3 million and $11.6 million. Revenues were affected by several things. First, the Bronco Billy's casino was pretty torn up in January and February as we replaced carpets and installed new ceilings. The Bronco Billy's side now feels quite complementary to the Chamonix experience. Second, the unseasonably warm weather resulted in less cash business in the quarter. Two of Cripple Creek's biggest events both occur in the winter—Ice Fest and Ice Castles—both great experiences, and each one brings more than 100 thousand people to town. But warm weather hindered those experiences and adversely affected city visitation. Third, we had some unprofitable promotional activity in the prior-year period. We have an entirely new management team that joined us beginning in April, and they are working to make sure that our marketing spend is much more efficient. We had a good quarter in Colorado despite those factors. In last year's first quarter, adjusted property EBITDA was minus $2.3 million. In this year's first quarter, it was minus $1.3 million, an improvement of 42%. It is a seasonal market strongly favoring the upcoming summer months. With the new property team, we have spent a lot of time focusing not just on efficiency and cost, but also on our overall marketing efforts. That analysis continues to show a huge opportunity for us. Awareness and penetration in Colorado Springs remains extremely low. As guests visit us for the first time, they realize that we did not build a commodity product of more slot machines. They realize that we created a very unique experience. We often compare Chamonix to Monarch in Black Hawk, as both have similar levels of quality and are targeting a similar type of guest. The total Black Hawk gaming market, not including the neighboring casino town of Central City, was about $875 million over the last 12 months. Monarch has a third of the hotel product in Black Hawk, so it is reasonable to think that they have at least a third of the gaming revenue. The reality is they could be higher than that given their skew toward a higher-end guest. Using those numbers as a basis, our slot win per day at Chamonix and Bronco Billy's was about one-fourth of Monarch's slot win per day. Our table win per day was about 16% of Monarch's. Therein lies the opportunity. The numbers that Monarch is generating are not unusual when an underserved gaming market is presented with a high-quality destination. If we can improve our win-per-day figures so they are just 45% of Monarch's, then we will have earned a very good return on our investment in Chamonix. Part of that improvement will involve ramping our hotel occupancy from 41% today to the 80%+ that Monarch achieves. And so the marketing team is laser-focused on awareness. There are about 1 million people in the broader Colorado Springs area. There are another 400 thousand people that live in the southern suburbs of Denver. That is about 1.4 million people for our 300 guest rooms and 700 gaming positions. Within that geographic spread, there are several specific ZIP codes that can meaningfully move the needle, and those ZIP codes are receiving a lot of our attention in a new digital campaign that we are rolling out. Preliminarily, April had good numbers with an estimated 9% increase in net slot win and a 20% increase in net table win. On the balance sheet side, we had about $41 million of liquidity at the end of the quarter, including the undrawn portion of our revolver. The summer season tends to be our strong season. That, combined with a lack of any major construction spend right now, should benefit overall cash flow in the near term. We have been very transparent about our efforts to fund the permanent American Place casino as well as refinance our existing debt. If you recall, we mentioned on our last earnings call that we have been working with a funding source that is prepared to fully fund construction of the permanent American Place casino. We have funded the gaming license, land, slot machines, temporary casino, assembly of the workforce, and the mailing list—all at a total investment today of about $170 million. The new financing will provide the approximately $300 million needed to move into the permanent facility. That solution requires a lot of legal paperwork, which the team is diligently making its way through. We continue to feel very good about that solution and look forward to giving you more details once we can, potentially in the next few weeks. We are confident enough on that financing that we expect to commence construction within the next few weeks. The early stages of construction take time but not much capital. By starting now, we hope to open the permanent American Place about two years from now. Our earthmoving drawings were approved a couple of weeks ago by the City of Waukegan, and we are working to obtain the other government approvals needed to begin construction. We have put together a good construction team that is well-versed in building regional as well as destination casinos. They include Power Construction, which is currently building the new Hollywood Casino in Aurora, Illinois—one of the largest builders in the Chicagoland area. We have W.A. Richardson Builders, who will act in an oversight role—one of the largest construction firms here in Las Vegas with great experience developing casinos from their days at Mandalay Resort Group, including the Grand Victoria Casino in Elgin, Illinois. They also recently built the Fontainebleau and Durango resorts here in Las Vegas. And then we have WATG as architects. Their team has a long list of hospitality projects under their belts, including The Venetian in Las Vegas and the Hard Rock in Rockford, Illinois. Lastly, we are concurrently allowed to operate our temporary until August 2027. In conjunction with our anticipated financing, a bill was introduced in the Illinois legislature to extend that date by 18 months. That would ensure a smooth transition from the temporary to the permanent, including continuation of the approximately $30 million per year in gaming and other state taxes that we currently pay. Typically, items like this in the legislature are voted on late in the session, which ends on May 31. That is everything I had, Dan. What did I miss? Daniel R. Lee: I do not think you missed it. Lewis A. Fanger: Let us go to questions. We will now open the call for questions. Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. Our first question comes from the line of Jordan Bender with Citizens Bank. Please proceed with your question. Jordan Bender: Hi, everyone. Good afternoon, and thanks for the question. Maybe not the quarter that you wanted necessarily in Colorado, but on the expense side, that continues to look better. I see my math gets me to expenses down about 10% in the quarter. How much more do you think you have left to take out if we do not get any material revenue uplift from here? Daniel R. Lee: There is a lot of blocking and tackling that has happened, and we will continue to control costs. But there is stuff like we have an outsourced housekeeping service, which only cleans about nine rooms a day, and we end up paying for that. Down at the Silver Slipper, we clean 14 rooms a day. So we are looking to bring that in-house, and we have to hire about 30 housekeepers to do that. Our laundry service—we think we can get more efficient. We hired an AGM in the first quarter who has a background in hospitality and food and beverage, and he was in a similar role at the Ameristar in Council Bluffs, and before that the Ameristar in East Chicago. He is a really good guy, and he is working on that sort of thing. We also hired a finance director in the first quarter. Frankly, we are getting much better reporting out of it, and that is helpful. But to really get to where we want to be, we need to improve the revenues. We have a lot of new marketing people working on that, and it is much more sophisticated than it was a year ago. It is a constant process to try to make the marketing spend more efficient and targeted—like Lewis mentioned, digitally approaching certain ZIP codes. That is a more efficient way to do it. Of the other things we are looking at doing, the business there is very—like most casinos—slanted towards the weekend. You are trying to hire people in a somewhat difficult place to hire them up in the mountains. So we are looking at going out and offering people a $5-an-hour premium if somebody only wants to work on weekends. The backstory on that is if somebody is willing to go on our payroll working only, say, Friday and Saturday, they will not qualify for the health plan because it is less than 32 hours a week. The health plan costs us more than $5 an hour per employee. You might find somebody who is already gainfully employed, or maybe they are retired non-Medicare, but they like the idea of being a barista in our coffee place on Saturday mornings—it gets them out of the house. We would love to have that employee. We are looking at all sorts of ways to be more thoughtful, efficient, and effective. It does not happen overnight, but it is happening. Frankly, the April numbers are pretty encouraging because I feel like we have our footing on the marketing stuff, and we are starting to show really strong numbers. April was a good month. May looks pretty good so far. Hopefully we continue to build on that going into the summer. We are controlling costs, but ultimately it is about growing the revenues. Lewis A. Fanger: And those incremental revenues—you have probably heard me say this before—at this point the cost structure is pretty fully baked, so the flow-through from those incremental revenues should be pretty steep. We did just reopen a Mexican restaurant that had been closed for a while. We revamped it, promoted from within a new food and beverage manager who is a very talented chef, and he did a phenomenal job on new menus and recipes. I would argue we probably have the best Mexican restaurant in Colorado at this point. We renamed it Don Juan's—it is a fun name—and we also tied it into the elevator to get to it. We are going to start offering brunch on Saturdays and Sundays in 980 Prime, which is a wonderful venue for a brunch. We are doing it in ways where we know on Fridays, Saturdays, and Sundays there is demand for that brunch, and we are not doing it every day of the week. Jordan Bender: Great. And on the follow-up, good to hear in Waukegan that is going to get going here in the next couple of weeks. Just curious your view on the casino proposal up in Kenosha and kind of where that stands, and how you underwrite that property in relation to yours. Daniel R. Lee: First off, our customers primarily come from Lake County, and to the extent they come from outside of Lake County, it tilts towards the south. If you drive north from us to Kenosha, there is some farmland out there, so there is kind of a gap. They would have a much bigger impact on the Pottawatomis in downtown Milwaukee than they would on us. That tribe is pretty powerful. Which brings up the second question: do they ever get there? They have been working on this for 20 years. This is not an Indian tribe from Kenosha. This is the Ho-Chunk Nation. They have a small casino a couple hundred miles away in the middle of Wisconsin. They are trying to create a whole new piece of land and reservation trust strictly for commercial purposes to cut into the Pottawatomie business. So it is more of a tribal war than it is an issue for us, and I do not think it would have much impact on us. If they get there, it is going to take them a long time. If everything went smoothly for them, it would be a few years before they got open. Even when they did get open, I do not think it has much impact on us. My first guess is they never get there, because what they are trying to do is not easy. It is one thing if you are a poor Indian tribe trying to get a casino on your reservation—you are somebody that deserves empathy, if you will. This is not a poor Indian tribe trying to get a casino on their reservation. This is reservation shopping and trying to get in a commercially better spot than where their existing casino is. It takes a lot of different regulatory approvals and state approvals, and they are a long way from having it. Lewis A. Fanger: I will tell you that the legal hurdles preventing that are still a very, very long list. Daniel R. Lee: Where this really gets us is there is an analyst out there who is negative on us. He brings this up every time. If he did not have this, he would have something else. I heard yesterday that six months ago he was telling everybody to invest in the Affinity bonds instead of us, and it was with great pleasure to tell you that Affinity is shutting everything down they have in Primm. So he has some mud on his face, and that mud is getting thicker by the day. Jordan Bender: Thanks, everyone. Daniel R. Lee: Thanks. Operator: Thank you. Our next question comes from the line of Ryan Sigdahl with Craig-Hallum Capital Group. Please proceed with your question. Ryan Sigdahl: Hey, guys. Good afternoon. On the financing for American Place, good to hear the progress—should hear something in the next couple weeks—is fantastic. On the last call, Dan referred to it as acceptable terms. Lewis, you referred to it as attractive terms. Curious if you could give an update on how it is trending at the moment. Daniel R. Lee: We are not a AAA credit, and we are not borrowing money at 5%. But it is also not 15%. We think we can get our existing debt refinanced and the incremental money, and all be not a little bit higher than where our debt is today, but not much. Lewis A. Fanger: I do not have anything to add other than what we have said. I do not think you are going to have to wait too much longer. The amount of work that has happened behind the scenes has been extensive, and we continue to push forward and certainly feel better about where we are today than we did at the last earnings call. Daniel R. Lee: It is understandable. The firm on the other side of this does not want us to disclose their name or details until we have the final docs signed. We are working to do that, and that is understandable. I will look on the positive side. The world has been such a mess lately with everything going on in the Middle East, and the high-yield market has hung in there. It has been pretty stable through all this, which is somewhat remarkable and encouraging. Lewis A. Fanger: The high-yield markets have held up. Daniel R. Lee: American Place has continued to display pretty strong numbers. Chamonix is starting to hit its stride. There is a lot of good happening, so all in, I think we are sitting in a good spot. Ryan Sigdahl: Good. Chamonix is a good transition. It is good to see the scrappy nature of spending and cost efficiencies across that entire property. But ultimately, to go from losing a couple million in EBITDA to making a couple million—we want to get to tens of millions—you probably have to really start to ramp the revenue as well. Have you had any renewed thoughts around how to drive that new customer to try the property and really start to build the base of business there on the revenue side? Daniel R. Lee: We are firing on all cylinders here. We now have a four-person sales force, and we are looking for another person, focused on meetings and conventions. They are putting quite a bit on the books, but that stuff is ahead of time, so it really starts to bear fruit in 2027 and 2028. We have a new advertising agency. We have a chief marketing officer here. We have a new director of marketing at the property. We have an advertising person here that we have added. We have subscribed to some third-party research firms who are giving us much more detail on not only who our customers are, but who is out there. We are getting a lot more sophisticated in our targeting. April was the first month where we said, “Okay, this is starting to bear fruit.” Hopefully we will continue to show good results every month going forward. Some months you are going to have off win percentage or something, but I think we have a base to build on. We lost only a little bit of money through the worst part of the year seasonally, so we will end up making money this year—not as much as we would like given our investment—but I think it forms a good base this year and then better results next year. We have also been working with the City of Cripple Creek to get them more focused on how to build it as a destination. If you pull up Telluride, Colorado—believe it or not, its population is not that much more than Cripple Creek. Of course, they have a famous ski area, but they are four-and-a-half hours from any metropolitan area. They have a festival every weekend all year long—everything from a country music festival to a film festival. Our single biggest weekend of the year is Ice Festival, where the city buys blocks of ice, puts them on the street, and people carve them with chainsaws. It sounds kind of hokey, but it gives people the excuse to come up, and our biggest weekend of the year is in the middle of the winter when normally we are summer seasonal. We are now working with the city, which has hired a new director of marketing, to have more of these festivals. We just celebrated Cinco de Mayo. How do we do more of that? The city is starting to get smarter about it. This little town has the potential of being a pretty significant destination for people from Colorado Springs and Denver, but you have to get them up there. Lewis A. Fanger: People do forget sometimes—and not to make myself sound old—but if you go back to when Ameristar took over their property in Black Hawk, they relaunched a rebranded and expanded, much nicer Black Hawk casino in 2006, and opened their hotel tower in 2009. It was a multiyear process—they took over a failed Hyatt casino 100%. If you compare their revenues from 2005 to 2010, the five-year CAGR of gaming revenues was about 24%. That is phenomenal. They were the ones that reinvented that market and said, “Look, there is actually something nice in Colorado to go and gamble at.” What Monarch benefited from was that, 20 years ago, someone changed the mentality in Denver and said, “There is something nice.” When Monarch opened, people were already accustomed to a nicer building in Black Hawk. We did not have that. We are only starting to get that. When we look at penetration—when I say it is massively low, in the ZIP codes I mentioned, we have like 8% penetration. There is no reason why it should be that low. That is exactly why we are focusing the digital efforts. We are not talking about finding hundreds of thousands of new people; we are talking about finding 20,000 new people to bring into the building on a regular basis. That is what moves the needle to a very good investment. We feel very good about where the marketing sits right now. The new ad agency started late in the fourth quarter; it took a few months to get their hands around things, so their true efforts did not really launch until March. We are showing very good signs in April; May is off to a good start. Looking at the penetration stats and the win-per-day stats I mentioned earlier, I think it is harder to think that we cannot achieve those than that we can. Daniel R. Lee: Sometimes we are so used to the numbers. The American Gaming Association has a survey that shows that 30% of American adults visited a casino within the past 12 months. That is the U.S. average. Colorado Springs is less than a third of that. Ryan Sigdahl: Very good. Dan, well done—you never fail to have me learn something new, and “mushroom festival” is one. Well done, and I look forward to a 24% CAGR over the next five years, Lewis. Good luck, guys. Daniel R. Lee: Thank you. Operator: Thank you. Our next question comes from the line of John DeCree with CBRE. Please proceed with your question. Maxwell Marsh: Hey, guys. This is Max Marsh on for John. Still clearly in the early innings of GGR penetration in Colorado, but is there any difference in what you are seeing on the database side? Any insight into the database sign-up trends would be helpful. Thanks. Lewis A. Fanger: The database trends are good. If you look in the month of April as an example, new sign-ups were up 12%, rated visits were up 19%, and win per rated visit was up about 14%. Short answer: the trends are good. We continue to grow the database pretty meaningfully, and we are also bringing in a higher volume of higher-rated guests through the doors. Daniel R. Lee: By the way, I am smiling because he is reading that off a daily operating report. We hired a new finance director from outside of the casino business with a lot of experience in the hotel business, and he has gotten it organized pretty fast. A year ago, we would not have had those numbers by this point in May, and if we had them, they probably were not reliable. Now we are getting them on a daily basis, and they are quite reliable. That is one of the first steps in getting this thing going well. Maxwell Marsh: Great. Thanks for that. And could you give us a little bit more detail about what is driving the growth at Silver Slipper? I know we have a new management team there as well. Is that coming from better OpEx management, or could there be some broader tailwinds there? Lewis A. Fanger: It is a little bit of both. It is probably a little more on the OpEx side versus the revenue side, but it is a little of both. On the OpEx side, we have a new GM there. She is looking at things differently than the prior GM and is finding more efficient ways to do some of what we are doing. A big part has been on the marketing side—being smarter about the marketing dollars that go out the door. As an example, we used to have a weekly seniors day where we would give you a breakfast buffet for $0.99. We found out that a nearby senior center was bringing people in for their weekly nearly free breakfast. When we ran the numbers as to how many of those people were actually in the database and gambling in the casino, the answer was very, very few. It is about taking a fresh look at different marketing ideas and making sure there is a return there. Maxwell Marsh: Gotcha. Thank you, guys. Lewis A. Fanger: Thanks, Max. Operator: Thank you. Our next question comes from the line of Chad Beynon with Macquarie. Please proceed with your question. Sam: Hi. This is Sam on for Chad. Thank you for taking our questions. Switching over to Waukegan, now that you have made more progress toward the permanent construction of that property, any updated thoughts on the earnings power of that property? I know in the past, $90 million of EBITDA was put out there. Any update or color on the timeline to get to that point and what is needed to get to that level? Daniel R. Lee: Even the temporary continues to progress. The run rate today is in the ballpark of $40 million per year of EBITDA. If you start thinking about it, we have indicated it takes about $300 million to build the permanent, and the cost of that money is probably a little higher than our existing bonds—but use 10% for a big round number. Ten percent on $300 million is $30 million a year. The permanent casino is roughly twice the size of the temporary in terms of square footage. It has more restaurants, a much better street appeal, much better decor. In terms of slots and tables, it is not quite double, but it is up significantly. We expect the permanent to do much more business than the temporary. There are a lot of examples, like the Hard Rock in Rockford, which also went from a temporary to a permanent—their revenues doubled. You see it in the Hollywood in Joliet that moved from an old boat to a permanent building. You see it in New Orleans at Treasure Chest, and others, where people went from temporary to permanent, and in every case it has shown a big increase in revenues and profitability. So we do think it gets to $100 million—you said $90 million; I actually think it is $100 million. It does not happen overnight. It might take three years or something. If it takes us two years to build and we open two years from now, then five years from now it is doing $100 million. Lewis A. Fanger: We say it does not happen overnight—although in all the examples we threw out, it did happen overnight—but nonetheless, we assume that it does not and builds over time. Daniel R. Lee: I think even in the temporary, it continues to grow. At some point, you start to max out on weekends—our win per slot machine per day is pretty high in the temporary. We will continue to show growth even before we build the permanent, and then you will have a step to a new plateau in the permanent and then it will grow from there. Sam: Thank you. Appreciate that. And then switching over to your sports skins, wondering on the outlook for those—if you see upside or downside to the current run-rate EBITDA related to those sports contracts over the next few years. Daniel R. Lee: At this point, we only have two. In that industry, we used to have agreements with Wynn and Churchill Downs in markets, but DraftKings and FanDuel—and to a lesser extent, BetMGM—have moved in and dominated the market. A lot of these other guys have pulled away. In Indiana, we have one. They paid us in advance because for a while they had not been paying us, and we said if you want to extend the contract, fine, but you have to pay us in advance. The accountants do not let us book it all at once, but we already have the money. We are going to recognize that income over time. Lewis A. Fanger: It is the initial access fee, recognized over the life of the agreement. Daniel R. Lee: The other one is with Circa, who is a niche player. Their sportsbook here in Las Vegas is probably the biggest single sportsbook in the country, and they have a good forte with that. In Illinois, you only get one license. We had three skins for our license in Indiana, and we also had three skins in Colorado. We only have one in Illinois. The population of Illinois is much bigger, and that is by far the most valuable skin. That is with Circa, and I think they are doing okay. They know that business probably better than anybody, and they are good at it. We will have a beautiful permanent sportsbook in our new facility, which I think they are quite excited for. We continue to look for people who want to get into the sports business, but frankly, at this point there are not a lot of new companies looking to get in—it is so dominated by DraftKings and FanDuel. Lewis A. Fanger: On the flip side—not that I expect this to happen anytime soon—our agreements only include sports betting. They do not include anything for true online casinos. To the extent that were ever to happen, there is the potential for more upside as we would monetize that bit. Daniel R. Lee: I had forgotten—at Tahoe, we had a tiny sportsbook that had been run for a long time by William Hill. A former CEO of William Hill started a new company called Boomers. He came to us and made us an offer, and he is paying us significantly more in rent than we were getting. It is still not a big number, but it is roughly two times what it used to be, and he is promoting it much more than William Hill was. The sports betting companies are also having to deal with competition from prediction markets. They have started branches where they are going into prediction markets under the auspices of being commodities trading firms, offering sports betting in places like Texas and California where it is not been legal, and doing it without paying any state gaming taxes. From DraftKings and FanDuel, that is like, “If they can do it, why cannot we?” Nevada came out and said if you do that, then you cannot operate in Nevada, so they both backed away from operating in Nevada. That opened the opportunity for Boomers, who is not going to try to operate elsewhere. There is a little turmoil there, and we will see where it goes because from the gaming industry's perspective, the idea that somebody can start taking bets on the Super Bowl in Texas without any approval of the Texas legislature—given that the Texas constitution forbids gambling—is problematic. These people are offering Super Bowl bets in places like Texas—unregulated and untaxed—and not surprisingly, they are probably making pretty good money with it. Operator: Thank you. There are no further questions at this time. I would like to turn the floor back over to Full House Resorts, Inc. CEO, Daniel R. Lee, for any closing remarks. Daniel R. Lee: We are making good progress, and I think it is going to be an exciting quarter because we are going to get under construction and get this financing done. By the way, we do not take this lightly, but starting construction will cost us a couple million dollars, and you do not normally want to do that unless you are certain you have the money to finish. We are confident enough that this financing is going to come through that we are going to start, because otherwise the opening day keeps sliding. The initial stages of construction are guys driving bulldozers around—it is not a lot of money—so we are going to go ahead and start because we are pretty confident that it is all going to come together here. Lewis A. Fanger: Thank you. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Hello, and thank you for standing by. I will be your conference operator today. At this time, I would like to welcome everyone to the AerSale Corporation Q1 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to withdraw your question, press 1 again. I would like to now turn the call over to Christine Padron, Vice President, Global Trade and Compliance. Christine, please go ahead. Good afternoon. Christine Padron: I would like to welcome everyone to AerSale Corporation’s first quarter 2026 earnings call. Conducting the call today are Nicolas Finazzo, Chief Executive Officer, and Martin Garmendia, Chief Financial Officer. Before we discuss this quarter’s results, we want to remind you that all statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements within the meaning of the federal securities laws, including statements regarding our current expectations for the business and our financial performance. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results. Important factors that could cause actual results to differ materially from forward-looking statements are discussed in the Risk Factors section of the company’s Annual Report on Form 10-K for the year ended 12/31/2025 filed with the Securities and Exchange Commission, SEC, on 03/10/2026, and its other filings with the SEC. These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those indicated by the forward-looking statements on this call. We will also refer to non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of those non-GAAP metrics to the nearest GAAP metric can be found in the earnings presentation material made available on the Investors section of AerSale Corporation’s website at investors.aersale.com. After our prepared remarks, we will open the call for questions. With that, I will turn the call over to Nicolas Finazzo. Nicolas Finazzo: Thank you, Christine, and good afternoon, everyone. Thank you for joining us today. I will begin with an overview of our first quarter performance and key operational developments, and then discuss how we are progressing against our strategic priorities for 2026. I will then turn the call over to Martin to walk through the financials in more detail. This quarter, our team stayed focused on executing our strategy across Asset Management and TechOps: prioritizing (1) disciplined acquisition and monetization of flight equipment and used serviceable material—you will hear me say USM; (2) expanding and optimizing our MRO capabilities; and (3) building a recurring and more predictable revenue base through MRO services and leasing while maintaining our high standards for safety, quality, and on-time performance. First quarter revenue was $70.6 million, an increase of 7.4% from the prior-year period. Adjusted EBITDA also increased by $4.2 million, or 131.9%, to $7.4 million from the prior-year period. Excluding flight equipment sales, which tend to be volatile quarter to quarter, revenue increased 2.2% year-over-year, reflecting growth in leasing and increased demand across our [inaudible] compared to the prior-year period. We placed an additional Boeing 757 freighter aircraft into service, ending the quarter with three aircraft on lease and one additional aircraft under a letter of intent for lease. We continue to engage in discussions with potential customers, as increased demand for cargo continues to make us bullish on deploying the remaining four 757 freighters reconverted in 2026. We also expanded our engine lease portfolio, ending the quarter with 18 engines on lease compared to 16 engines in the prior-year period. Higher average lease rates and improved utilization contributed to stronger asset yields across both aircraft and engines, and reflect our continued progress toward building a larger and more consistent recurring revenue base. Partially offsetting the increased leasing revenue was a decrease in USM sales resulting from the internal consumption of engine material for our own engine builds. At present, we have multiple engines in work where most of the material required has come from our own inventory, and our decision to utilize this USM results from our determination that we will achieve a higher value and total dollar margin consuming this material rather than selling USM piece parts to third parties. Across our TechOps platform, we continue to make progress on several strategic growth initiatives. At our on-airport MRO facility in Millington, Tennessee, we commenced work under a recently awarded long-term, multi-line aircraft maintenance agreement for a fleet of CRJ700 and CRJ900 regional jets. In addition, operations began at our expanded facility located in Hialeah Gardens, Florida. Both initiatives contributed to higher TechOps revenue in the quarter. As expected when ramping up operations at new facilities, we incurred incremental training costs and early-stage operating inefficiencies that created margin pressure during the quarter. We view these impacts as temporary and expect margins and throughput to improve as volumes continue to increase and operations stabilize. TechOps was also impacted by lower MRO parts sales in the quarter. Lastly, our Roswell facility experienced revenue and gross profit declines due to fewer aircraft in storage during the quarter. Related to our Engineered Solutions products, AirSafe continues to remain strong in advance of a Federal Aviation Administration November 2026 compliance deadline for the Fuel Quantity Indication System airworthiness directive related to fuel tank safety systems. We closed the quarter with a backlog of $15.3 million, of which the majority will close in 2026. In addition, we continue to market our revolutionary enhanced flight vision system, AeroWare, to select interested customers. We are also continuing our efforts to educate our U.S. regulators and the agencies responsible for the safety of our air transportation system on how the unique features of AeroWare can improve safety and provide economic efficiency to the industry. During the quarter, we deployed $25.1 million in feedstock acquisitions to support future leasing and monetization opportunities. We remain disciplined in our acquisition approach and continue to focus on assets where we see strong long-term demand and attractive risk-adjusted returns. Our win rate in the quarter was 6.3% compared to 10.4% in 2025, which shows our commitment to discipline on pricing as we continue to evaluate opportunities to redeploy and monetize inventory in ways that improve velocity and cash conversion without compromising value. Looking ahead, our priorities for the remainder of 2026 remain consistent with those we have previously outlined. These include increasing the number of assets deployed in our lease pool, including the placement of the remaining four 757 freighters during this year; continuing to monetize our inventory through USM sales; filling available capacity across our MRO network; and improving overall operational profitability as recent expansion initiatives continue to gain scale. Despite the expected start-up costs incurred in the first quarter, we remain confident in our ability to deliver improved financial performance as we progress throughout the year. With a strong inventory position, an active leasing pipeline, and expanded operational capabilities, we believe AerSale Corporation is well-positioned to deliver more consistent and growing earnings. With that, I will turn the call over to our Chief Financial Officer, Martin Garmendia. Thanks, and good afternoon, everyone. Martin Garmendia: I will walk through additional details on our first quarter financial performance, then touch on cash flow, liquidity, and our outlook for the remainder of 2026. Revenue for the first quarter of 2026 was $70.6 million compared to $65.8 million in the prior-year period. Flight equipment sales totaled $5.2 million and consisted of one engine sale compared to $1.8 million from one engine sold in 2025. Excluding flight equipment sales, revenue increased 2.2% year-over-year, driven by growth in leasing activity, partially offset by lower USM and MRO parts sales. As we note each quarter, flight equipment sales can vary meaningfully from period to period. As a result, we believe performance is best assessed over time with a focus on feedstock acquisition, monetization of those investments, and profitability trends. Adjusted EBITDA for the quarter was $7.4 million, or 10.4% of revenue, compared to $3.2 million, or 4.8% of revenue, in the prior-year period. The EBITDA dollar and margin increase was primarily driven by higher leasing revenue and flight equipment sales during the quarter. Asset Management Solutions revenue increased 10% year-over-year to $43.1 million in the first quarter. Excluding flight equipment sales, revenue grew modestly, supported by an expanded lease pool and favorable engine mix, but partially offset by lower USM volumes. We ended the quarter with 18 engines and three Boeing 757 freighters on lease compared to 16 engines and one freighter on lease in the prior-year period. Technical Operations revenue increased 3.4% year-over-year to $27.5 million, driven primarily by higher on-airport MRO activity. Growth was led by increased activity at our Goodyear and Millington facilities, including the initial ramp-up of CRJ work at Millington. These gains were partially offset by lower MRO parts sales during the quarter. Gross margin for the quarter was 26.7% compared to 27.3% in the same period last year. The modest and temporary decline reflects start-up and training costs related to the CRJ line in Millington and the Aerostructures expansion, as well as higher labor costs at Goodyear as we maintained elevated staffing levels in anticipation of increased demand expected later in the year. We expect these margins to normalize and begin to improve as we increase labor and facility utilization. Selling, general, and administrative expenses were $22.2 million in the first quarter, down from $24.6 million in the prior-year period. The decrease reflects the benefits of our ongoing efficiency initiatives and the absence of one-time severance costs incurred last year. Current-year expenses included $1.8 million of share-based compensation expense compared to $1.2 million in the prior year. Net loss for the first quarter was $3.5 million compared to a net loss of $5.3 million in the prior-year period. Adjusted net income was approximately breakeven compared to an adjusted net loss of $2.7 million last year. Adjusted EBITDA for the quarter was $7.4 million compared to $3.2 million in the prior-year period, benefiting from a higher-margin product mix and lower expenses. Year-to-date cash used in operating activities was $26.7 million, primarily related to feedstock acquisitions of $25.1 million as we continue to make disciplined investments to grow the Asset Management segment. We ended the quarter with inventory of $369.5 million and aircraft and engines held for lease of $121.5 million. Available liquidity at the end of the quarter was $41.8 million, which included $2.1 million in cash and $39.7 million of availability in our $180 million asset-backed revolver, which can be expanded to $200 million. This available liquidity, growing performance, and our strong inventory position provide us with the tools needed to continue to grow our business through the remainder of 2026 and beyond. In conclusion, we remain focused on monetizing the investments that we have made. In a competitive market, we have built a strong inventory position that will allow us to continue to grow our leasing and USM activities. The commencement of a multi-line maintenance program at our Millington facility and new work commencing at our expanded Aerostructure facility put us on a positive trajectory to exceed the incremental $50 million revenue expectations for our expansion initiatives, with the expectation that margins will improve as we increase utilization of our additional capacity and start-up initiatives mature. All of this will allow us to continue to grow both our revenue and profitability in a more predictable and recurring manner quarter over quarter. With that, operator, we are ready to take questions. Operator: We will now open the call for questions. Thank you. At this time, I would like to remind everybody that in order to ask a question, please press star followed by the number 1 on your telephone keypad. Our first question comes from the line of Kevin Liu with RBC Capital Markets. Your line is open. Analyst: Hey, good afternoon, Nicolas and Martin. Thanks for taking the question. Could you talk about what you are hearing from customers in light of the ongoing conflict in the Middle East as it relates to your business, whether that is in USM, spare parts, or lease rates? Nicolas Finazzo: Hi, Kevin. Thanks for the question. We are not really hearing much from our customers at this point, and that is something we ask internally: how is the Middle East situation going to affect us in the short run? We are not seeing it yet. What do we expect? We expect that if this continues for a prolonged period of time and we see airlines park more aircraft, the result will be more aircraft in storage, which would benefit us, and there may eventually be a downturn in the demand for used serviceable material parts. However, as I have said, every quarter this question gets asked: is there enough USM out there to support demand? And the answer is, for the proper amount of USM—I do not mean every part from every engine, but the parts that sell from an airframe or engine—there continues to be more demand than available inventory. Until that eventually equalizes, if a number of airplanes are grounded—certainly during the COVID environment there were enough airplanes on the ground that there was very little requirement for USM because aircraft could be cannibalized for parts, and engines were not going into the shop because engines on wing were being cannibalized to keep other aircraft flying. Over time, if this prolongs, if fuel costs stay high, and that results in a substantial grounding of the fleet, then we expect that will have an impact. But I do not know when that would be. I believe that impact would still be years off unless you had a COVID-type event where a substantial amount of the fleet is grounded. So the short answer is we are not seeing an effect at this point, and based on the type of USM that we sell, we do not expect there to be an effect, certainly not in the short run. Analyst: Okay. Got it. Thank you. That is helpful. And then on a separate note, could you give us an update on your current capacity additions in MRO and talk about the potential impact to revenues in your business, both this year as well as in 2027? Martin Garmendia: Sure. As stated in the prepared remarks, Millington has come online and we have started a CRJ line there. We have gone through some start-up costs and a learning curve, but right now that is potentially going to expand to three aircraft that will be at full capacity at the Millington location, under a very profitable contract with a very good customer to whom we can provide multiple services. At our Goodyear facility, we continue to ramp up work, especially from the lows incurred last year after a long-term contract had finalized, and we continue to be bullish there. We continue to serve multiple operators, including Spirit, and we are seeing a ramp-up of return-to-service work for them with some of those overall aircraft. Based on the recent news, we expect that to accelerate during the remainder of the year. At our Roswell facility, we primarily do storage work. We have seen a decline in aircraft being stored, but if, for some reason, the war in the Middle East continues and there is an overall reduction in aircraft operating, we could potentially see aircraft being returned into that location from a storage perspective. On our component MRO side, our Aerostructures facility came online during the first quarter, and we are ramping up there. That is a 90 thousand-square-foot facility. We have a lot of capacity to fill. We have made a lot of inroads with customers, getting that process finalized, so we expect to quickly start ramping up demand there. Our landing gear shop has also been doing extremely well. We are starting two agreements—one with an OEM and one with an international carrier—that are expected to significantly increase our volume at that facility as we progress through the quarter. And our component shop has also seen increased demand, and we continue to pursue additional initiatives to fill that capacity because we have a good amount of available capacity there. As the market continues and there is overall demand, we are poised to grow and to fulfill some of those leads. Analyst: Got it. And just one last follow-up. As you are selling this capacity today, could you give us more color on what kind of margins you are getting on this new capacity and how we should think about the potential EBITDA contribution? Martin Garmendia: On the on-airport MRO side, there is still a need and a limited supply of available slots, so we have been seeing margin improvement in that area. Overall, as I mentioned, in the quarter margins were temporarily impacted by the Millington start-up, but as Millington comes fully online, we expect gross profit margins to be in excess of 20%. And at our Goodyear facility, as we increase return-to-service work—depending on the type of work—we definitely expect margins to be better than they have been historically. Operator: There are no further questions at this time. I would like to turn the call back over to Nicolas Finazzo, Chief Executive Officer, for closing remarks. Nicolas Finazzo: Thanks. Despite nonrecurring start-up costs from our facilities expansion projects in the first quarter, our operating business has continued to improve. These results validate our unique multidimensional and fully integrated business model, and as these units continue to develop and mature, we will be in an excellent position to achieve substantial growth in the years ahead. I want to thank Kevin for his insightful questions today, which I think provide good insight into our business model and will help our investors better understand how we are performing. To all the rest of you, I very much appreciate your interest in listening to our call today and look forward to bringing you up to date during our next earnings call. I wish you all a good evening, and thank you.
Operator: Hello, everyone. Thank you for joining us, and welcome to Blend Labs, Inc.'s first quarter 2026 earnings call. After today's prepared remarks, we will hold a question and answer session. To withdraw your question, press 1 again. I would now like to hand the conference over to management for prepared remarks. Please go ahead. Meg Nunnally: Good afternoon, and welcome to Blend Labs, Inc.'s financial results conference call for 2026 Q1. I am Meg Nunnally, Blend Labs, Inc.'s head of investor relations. Joining me today is Nima Ghamsari, our cofounder and head of Blend Labs, Inc., and Jason Ream, our head of finance and administration. Before we start today's call, I would like to note that we refer to certain non-GAAP measures which are reconciled to GAAP measures in today's earnings release and in the appendix of our supplemental slides. Non-GAAP measures are not intended to be a substitute for GAAP results. Unless otherwise stated, all financial measures we will discuss today, including our profitability, refer to non-GAAP. Also, certain statements made during today's conference call regarding Blend Labs, Inc. and its operations, in particular, our guidance for 2026, other commentary regarding 2026, and our expectations about markets, our strategic investments, product development plans, and operational targets may be considered forward-looking statements under federal securities laws. We caution you that forward-looking statements involve substantial risks and uncertainties, and a number of factors, many of which are beyond the company's control, could cause actual results, events, or circumstances to differ materially from those described in these statements. Please see the risk factors we have identified in our most recent 10-K for fiscal year 2025 and our other SEC filings. We are not undertaking any commitment to update these statements if conditions change except as required by law. The financial information presented on this call is based on continuing operations, and prior periods have been recast to operations that are now discontinued. Lastly, we will be providing a copy of our prepared remarks on our website by the conclusion of today's call, and an audio replay will also be available soon after the call. I will now turn the call over to Nima. Nima Ghamsari: Thanks, Meg, and welcome, everyone. It has been a whirlwind two months since our last call. We reported our Q1 numbers today, which Jason will spend time on, but they came in higher on revenue and non-GAAP operating income than expected. We also signed 15 new deals and expansions in the quarter, including an eClose deal with a top 20 bank along with a new mortgage deal with another top 100 bank. Our pipeline as of March 31, 2026 is up more than 40% year over year, and that does not include Autopilot pipeline, which I will cover in a minute. But the world has shifted underneath us in those two months. Increased global conflict, inflation, and rising mortgage rates, and that leads me to be a little conservative in the short-term numbers. But I am incredibly optimistic about the future. My optimism comes from two things, and they are both tied to artificial intelligence. The first is Autopilot, which is our AI agent and orchestration layer that we put right alongside our customers' work as they work with consumers. The second is the agents we are building inside Blend Labs, Inc., which are starting to do our own work. Together, I believe these two pillars give us a path to see 10% to 15% incremental growth already for us in 2027, on the top line, and more efficiency and speed as a company internally. Let us start with Autopilot. For those new to the story, Autopilot is our flagship AI agent. We unveiled it and rolled it out in beta almost exactly two months ago, telling our customers they could use it for free and try it out for all of Q2 to see it in action and help their business. As of Monday, May 4, 2026, 65 lenders have activated Autopilot, 22 are running it live in production, and over 7 thousand applications have already been touched by Autopilot since we moved it to live production. And we are seeing that early results are improving, both in cycle time and in conversion rate. Two of our largest lenders are actively implementing Autopilot right now with go-lives planned for Q2, and we have three more top 20 logos in our net new pipeline that we expect Autopilot to be a meaningful catalyst for closing. In total, Autopilot is already sitting on $10 million in pipeline because it solves a real problem for our customers and the consumers they serve. But the more important story for me and for our company, for our customers and our shareholders, is how quickly that product is evolving. We have been publishing details on our blog every week, and there are two that I want to call out. The first is Autopilot Chat that was rolled out about a month ago, a conversational interface where the borrower can ask Autopilot questions about their loan in plain language as they are going through the process. What documents are still needed? Why did you ask me for this specific thing? Why does it matter to my situation? What happens next? Instead of a static task list or making a phone call, the borrower can have a real contextual understanding of what is going on to help them through the process. This is the kind of interaction that consumers are starting to expect, and we are right on top of it. The second is something I am even more excited about, which is Autopilot MCP. That opens up the Blend Labs, Inc. platform so that our customers can build their own agents on top of Blend Labs, Inc. or use Blend Labs, Inc. in a headless way in their existing workflows and still get the benefit of all the compliance, all the data model, the workflows, all the native integrations we built, and the intelligence layer of Autopilot. One of our large mortgage company customers has already built a voice agent using it, and I am seeing this as really important and really promising for our customers who want to own more and more things they can do but move really fast. And that pattern, customers innovating with us and around us rather than instead of us, is exactly what we want and exactly what we expect to see more of going forward. What this all adds up to is something I think is really powerful. Our customers can now see a path from initial borrower touch all the way to clear to close without a team member ever having to touch a file. Now they still can work on the file, but they will not have to. That is fundamentally different value than we could ever offer before or the industry could ever offer, and something that I dreamed of being able to offer when I started the company in 2012, and now agentic AI has made that dream possible. And on top of that, eight weeks in, we are shipping at a cadence that Blend Labs, Inc. of years ago and most enterprise software companies would measure in quarters. And every one of those updates is grounded on what our customers need, what they are telling us they want, and how we can help impact and improve their business. With adoption well underway, let me give you an update on how we are going to monetize this. Autopilot has been in preview to date, and our priority has been getting real customers live and proving the value. Starting in June, we are going to move to paid tiers. Now just like any modern software company, there is going to be some base capabilities built into our workflow that are going to provide intelligence, like, did you upload the right document? And that is useful. That is going to lower some friction for consumers to get started and understand AI. But the paid tiers are where the full product lives, what we call underwriting intelligence, where Autopilot is reading the documents, taking real actions on the loan file, running calculations, reconciling against guidelines, and driving the work forward. Over time, our intent is to move the paid tiers of Autopilot to a per funded loan model, just like the rest of our mortgage suite. It is the right long-term structure, and our customers like that because it allows them to see and track the value on a per-loan basis, and we get paid when they make a successful loan. That is a great product for us, it is great alignment with our customers, and it incentivizes us to make sure this is providing real loan-level funded value improvements. When Autopilot helps a lender fund more loans with the same number of people, our revenue scales with their success, not with their headcount. And that is how we have always built Blend Labs, Inc., and that is even more important today in an agent-first world. We are going to continue to provide updates on Autopilot as more customers sign on, but I want investors to understand this is not a small incremental line item for us. Autopilot is a whole new leg of growth for the company on top of the great mortgage and consumer banking suites that are already growing, and we plan to keep growing it. Before we move off Autopilot, I want to spend a minute on something that I think is really important and I keep getting asked about from investors. The billion-dollar question is, where does the durable value in enterprise AI actually accrue? This is an ongoing debate, and it is important to understand where Blend Labs, Inc. fits and how I see this. For the last couple of years, the focus of the industry and the world broadly has been on the foundation models: which model is the fastest, the smartest, the best in benchmarks, the cheapest, and that focus is understandable. But as models converge in capability and keep innovating, the durable value is shifting up the stack to the orchestration layer between the model and the workflow, to the area that people call the harness, and the thing that is driving actual end-business outcomes. The harness, to put it clearly, is a system that channels the engine and all the tools around it into a reliable, controlled outcome, which is so important for an industry like ours, like financial services. And the data and the documents and the specific context of any moment is the fuel that makes any of that work actually useful. And Autopilot is exactly that. It is not a model. In Autopilot, we use the best available models underneath; instead, it is the orchestration layer that decides what to do given that exact moment in a loan. It retrieves the specific guidelines, gets the full context of the loan, runs the right calculations, validates the outputs against investor and regulatory requirements, updates the loan file, and triggers the native Blend Labs, Inc. workflows that move the file forward. That logic is specific to that exact loan, the exact consumer in front of it, and it is the kind of work that generic AI is not built to do. It needs a system around it. And that is where Autopilot fits in. And Autopilot MCP just takes that to the next level. It allows the Blend Labs, Inc. platform users to build their own agents or even work with Blend Labs, Inc. in a completely headless way, which means the harness becomes a platform for them to move really fast because they get all the regulation, the compliance, the integrations, and the Autopilot intelligence out of the box, and they can build their own experiences and their own agents around that. That is a meaningfully different level of importance because now you become more of the engine, the “powered by,” instead of the interface. And that is where agents can be really powerful. And that compounds more as we open up more capabilities for our customers to build faster and on top of us. And that is why I get more confident every quarter about where Blend Labs, Inc. sits in the AI landscape. We are the vertical industry harness for origination. We have the proprietary data to make that harness work. We have the business model already to help capture the benefit of automation and still give most of the benefit to the customer and, hopefully, the consumer. That is the durable place to be. That is why I am excited; that is where Autopilot is. We are bullish on our first pillar, which is agents for our customers. But I am even more bullish on how we are using agents internally. Over the last few months, we have been building something we are boringly calling Blend Labs, Inc. background agents. It is not a new idea, but it is a simple idea. Anytime we get an input from the outside world — it could be a ticket, a customer issue, a feature request — before that reaches a team member, we want an agent to take the first pass of that work and take action on it, and then the team member reviews and approves it. In practice, that could be something like: a ticket comes in outlining a bug in our system. An agent immediately picks it up from our support queue, looks at it, identifies the bug, writes the code to fix the bug, tests the code to make sure the bug is now fixed, and then sends it to a human and says, “I have to change these 10 lines or 50 lines of code. Can you approve this?” That moves our team from manually driving the car and making the turns and figuring out how to get from A to B to playing air traffic control with, hopefully, dozens of cars. To support that, we have given our agents access to our internal tools, our entire code base, the ability to stand up environments, and they will now take a first pass before our engineers or our support team ever see that issue. When I look at the numbers, the new process of how we are adopting AI at Blend Labs, Inc. has already resulted in more than 1.5x productivity in 2026 versus 2025, based on the number of pull requests our engineering team is doing, and we are just getting started. Prospects and customers are already taking notice of how fast we are moving. I get notes from customers all the time. I have been on-site with our biggest customers in the last month, and I can tell you that momentum is palpable. Our customers have noticed a change in our quality and speed. I want to be clear. This is not a one-team experiment. This exact same pattern of agents doing the first pass of work should apply to every role in every company, and specifically in Blend Labs, Inc., it will apply to roles here. That could be something like onboarding a new customer, preparing a cut for a customer business review when we are going on-site with them, or even something as esoteric as getting a manual Excel worksheet that outlines what loans have been funded and doing that work before our accounting team even has to pick it up. I said on the last call that we aim to be in the top 1% of all companies in terms of agentic AI adoption, and I really meant it. We are going to do it. It is something I am very passionate about, and we are going to keep driving for that. When done, I believe this effort, combined with Autopilot, has created the path to 10% to 15% more top-line growth and a lot more efficiency and speed for us. And that speed is probably the most important thing for any business, and especially for a company like Blend Labs, Inc. It means more customer issues fixed, more great features developed, more things like we have done with Autopilot, continuing to grow Autopilot, faster time closing a quarter, better preparedness for customer business reviews; these will be the new Blend Labs, Inc. To wrap up, transforming a company of our size into an agent-first company is definitely more work and more complicated than the world understands. But it is worth it. We have a really important mission. Our customers serve millions of consumers across the country every single year, so this change cannot come fast enough. We are taking it as fast as we can, and we feel like, to be quite candid from my perspective, we are the best-positioned company in the space. It is something that I spend a lot of my time on, and the team is even more passionate about. So, while the war and tariffs and oil and all those things might create some conservatism around short-term mortgage market numbers, because the macro and the rollout time for what we are building also take some time, I have never been more energized about the medium term and, hopefully, even the long term for our customers, our team, and our investors. And with that, I will turn it over to Jason to walk through the financials. Jason Ream: Thanks, Nima, and thank you to everyone else joining us on the call. We delivered a strong start to 2026, with both revenue and non-GAAP operating income above the high end of our guidance ranges. Revenue grew 15% year over year, and our non-GAAP operating margin expanded to 13%, reflecting growth across the business and reflecting the operating leverage we have continued to build into the model. Total revenue in 2026 Q1 was $30.8 million, above the high end of our guidance range, driven by growth in mortgage and consumer banking alike. Mortgage Suite revenue was $17.2 million, up 18% year over year. Funded loans on our platform were approximately 187 thousand in Q1, up 29% year over year and slightly better than we had assumed coming into the quarter. That strong volume growth was partially offset by a lower year-over-year economic value per funded loan, which came in at $84 in Q1, within the $84 to $85 range we discussed on our last call. We were at the lower end of our range primarily because of higher mortgage volumes, which lowers the per-loan economics calculation given some of the fixed-fee arrangements that we have within our customer base. Consumer Banking Suite revenue for the first quarter was $10.8 million, up 12% year over year and consistent with the color we shared on our last call. Professional services revenue for the first quarter was $2.9 million, up sequentially from $2.1 million in Q4. Of the $2.9 million in professional services revenue, approximately $600 thousand related to work completed in prior periods that was recognized this quarter under our revenue recognition policies. We would not expect a similar catch-up amount in future quarters. Turning to profitability. Non-GAAP gross profit was $24.8 million, and our non-GAAP gross margin was 80.3%, up from 72.9% in 2025. I would note that gross profit in the quarter benefited from the PS catch-up that I just mentioned, as well as some one-time cost of revenue benefit that together brought gross margin for the quarter up by about two to three points. Please keep that in mind as you think about modeling gross margin going forward. Non-GAAP operating expenses were $20.7 million in Q1, up 10% year over year. As a reminder, the year-over-year comparison reflects the change in our internally developed software capitalization methodology that we discussed last quarter, where we are capitalizing less of our R&D personnel cost than we did in 2025. This is an accounting treatment change rather than a change in the nature of our R&D investment. As a result, reported R&D looks elevated on a year-over-year basis, an effect that will persist to some extent in 2026 until we lap prior-year periods. Non-GAAP operating income was $4.1 million, above the high end of our $2 million to $3 million guidance range, and representing a non-GAAP operating margin of nearly 13%, an improvement of approximately 10 points compared with 2025. Free cash flow for the quarter was $7 million compared to $15.5 million in the prior year. We are pleased with the strong cash flow generation and want to remind you of our seasonal patterns, where Q1 is typically a strong collections quarter in our business. And our balance sheet remains strong. We ended the quarter with $59 million in cash, cash equivalents, and marketable securities and zero debt. Putting our cash to work, we repurchased 11.2 million shares during the quarter at an average price of $1.66 per share under our share repurchase program, deploying $18.6 million of the $50 million authorization we announced on our last call. As we said last quarter, this program reflects our conviction in the long-term value of the business and our commitment to disciplined capital allocation. With zero debt and a solid liquidity position, we have the balance sheet to invest in both the business and in our shareholders simultaneously. Before I turn to outlook, I want to spend a moment on market share and on the macro environment. On market share, the initial release of 2025 HMDA data in early April showed approximately 4.4 million originations for the year, which puts our 2025 mortgage market share at approximately 17%, squarely in the middle of the 16% to 18% range we guided to back in November. The HMDA data will continue to settle as late filings come in, but we do not expect that figure to move meaningfully. As we look into 2026, we expect a market share headwind of 100 basis points, primarily reflecting the volume roll-off of one large customer that we have discussed previously. At this time, we do not see any other significant headwinds to our market share. On the macro side, the spring housing market started on stronger footing than many had expected, supported by improving affordability and slowly rebuilding inventory. That said, the recent rise in mortgage interest rates adds uncertainty to the outlook. Fannie Mae's most recent forecast calls for total mortgage market growth of approximately 19% year over year in 2026. But Fannie reduced both its second quarter and full-year 2026 outlooks earlier this month as rates have moved higher. Our own 2026 view is anchored to that updated Fannie outlook. We will remain cautious in our outlook until rates come down meaningfully and refi activity picks up. We have the platform and the customer base in place to capture the upside when conditions improve. Now let us turn to guidance. For 2026 Q2, we expect total revenue to be between $32 million and $34 million, representing approximately 1% to 7% year-over-year growth. Underneath those headline numbers, we expect Mortgage Suite revenue to grow 4% to 10% year over year, driven by mortgage market volume growth and partially offset by a year-over-year decline in value per funded loan, which we expect to be in the $79 to $80 range in Q2. The decline in EVPFL from Q1 to Q2 is primarily driven by increased volume, which, as I mentioned earlier, mechanically lowers EVPFL. We expect year-over-year Consumer Banking Suite revenue growth to be between negative 2% to positive 4% in Q2. We expect Q2 non-GAAP operating income to be between $5 million and $6.5 million, implying a non-GAAP operating margin at the midpoint of approximately 18%. A few additional notes on what is embedded in our expectations. Our Mortgage Suite business continues to be subject to macro volume fluctuations, and depending on the trajectory of mortgage rates and the broader housing market from here, Mortgage Suite revenue could moderate or even flatten out in 2026, particularly if refi activity remains soft. On per-loan economics, Q1 is typically the high-water mark due to seasonality, which is why we are guiding to a Q1 to Q2 step down from $84 in Q1 to $79 to $80 in Q2. In the absence of an uplift from Autopilot, which is too early to quantify and is not baked into any of our expectations, we would expect EVPFL in the second half of 2026 to fluctuate with seasonality but still stay below Q1 levels. On consumer banking, growth is moderating based on the headwinds we discussed on our last earnings call. In addition, we have also seen softer macro-driven volumes on home equity as rates have moved higher. Combining these two factors, we expect single-digit year-over-year growth in consumer banking in the back half of 2026, with Q3 growth likely lower than Q4 given the year-over-year compares. And there is macro sensitivity in the home equity portion of our consumer banking business. If rates rise from here, our expectation would be to see additional pressure on those growth rates. Finally, I would like to touch specifically on Autopilot. While we are incredibly excited about the potential for Autopilot to generate revenue upside, we would encourage investors to be cautious about incorporating this into models at this juncture. We hope and plan to provide additional information on potential impact to the outlook as we get past the free trial period and have a little bit more time under our belt. In summary, we feel very good about the shape of the business heading into the rest of 2026. Q1 marked our second consecutive quarter of year-over-year growth in mortgage. With churn now stabilized and the partnership model transition behind us, we expect most of the variability in mortgage revenue from here to be macro driven. Cost discipline remains intact. We expect to continue to drive additional productivity and efficiency over the year as AI-enabled workflows compound across our internal processes, an effort that, as Nima discussed, is now well underway across the company. This is indeed an exciting time for Blend Labs, Inc. We hope that you are excited to be part of it too. And with that, let us open up the call to your questions. Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. 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 now while we compile the Q&A roster. Your first question comes from the line of Ryan Tomasello with KBW. Your line is open. Please go ahead. Ryan Tomasello: Thanks, everyone. Nima, in your prepared remarks, you mentioned that Autopilot and your AI initiatives present a path, I think, to what you said was 10% to 15% more top-line growth. Can you just put a finer point on what you mean by that, and what underpins your confidence in quantifying the benefits at this stage? And then maybe just turning to consumer banking: given the noise in that segment from the large customer churn, can you help us understand where the underlying revenue growth is running in that business for Q1? And then at a higher level, based on the data points you have given previously about, I think, a $2.5 million impact from that large client in consumer banking, it just seems like the growth profile there is coming in a bit weaker than what was initially hoped for. So, Nima, your broader commentary around how you feel about the strength of that business going forward. Thanks. Nima Ghamsari: Yeah, great to hear from you, Ryan. I would start with our current pipeline. Our current Autopilot pipeline is about $10 million. We have only been in the market for just over a month now with pricing, and we have a lot of customers who have turned it on with really positive feedback. I mentioned two very large go-lives with customers. If we can keep up that momentum, think of it as 10% to 15% incremental on top of whatever other growth you may be forecasting, coming from Autopilot, which is what we see a path to right now. We obviously have to keep executing and have a lot of work in front of us, but the product is awesome and our customers love it. On consumer banking, the biggest headwind is from that large customer you called out, and they had a pretty big consumer banking line item. On the positive side, we have some good-sized financial institutions going live with our wall-to-wall suite this year. Those rollouts are in progress, and we are excited about that. Once that hits, I think that will be a positive benefit. We also have great customers rolling out our Rapid home equity product as we speak, which will be another positive catalyst. The home equity market has macro factors as well, but there are enough new things happening on the consumer banking side broadly that make me feel really good about the consumer banking business. Operator: Your next question comes from the line of Dylan Becker with William Blair. Your line is open. Please go ahead. Dylan Becker: Hey, appreciate it. Nima, I appreciate all the color on Autopilot and Autopilot MCP. It sounds like a lot of customers are interested in piloting. I think you called out some of the early proof points around improved cycle times and conversion rates. Could you provide a little bit more color on what that looks like relative to a non-automated process to try to tangibly put some value on what customers are seeing and learning? And then how you are thinking about the deployment or utilization of the first-party agents versus some of the MCP-enabled agents, and maybe the economic variability between those? And then, as a follow-up for Jason, you called out the per-funded-loan dynamics and market share dynamics. It sounds like you are increasing market share with the customers that are coming online or being onboarded, but that is kind of working inversely upfront against per-funded-loan economics. Can you remind us of the mechanics there, as well as when we would expect that to flip so those tailwinds work in tandem — market share growth inflecting alongside per-funded-loan expansion over time? Nima Ghamsari: Yeah. On the impact, there are two anecdotes I will share for two of the customers who have been some of the biggest users. We help them track the cycle time and the conversion. The conversion drivers are less obvious, so I actually talked to one of our customers about this; I will get to that in a second. On cycle time, for one customer, for example, from application complete in Blend Labs, Inc. to closing disclosures being sent to the customer, it went from 29 to 21 days. That is a pretty meaningful improvement. It makes sense because customers have a lot of back and forth with consumers, and what Autopilot does in real time as the consumer is in the flow is find those things that will be the gotchas down the line. It shows the consumer, “We noticed that this account is in the name of a trust. We need to get your trust documentation right now,” versus asking for it a few days later once an underwriter reviews it and sends it to a processor, which sends it back to the loan officer. It short-circuits the process in a positive way. Our hope with Autopilot plus some of the Rapid products — put those two things together, call it Rapid Pilot — is you can get an application started and approved, because Rapid gives you an approval and an offer up front, and then once that customer is ready to go, get them clear to close in a matter of minutes, or conditionally clear to close on an appraisal if one is necessary. Where I have been more surprised is why the conversion is so much better, but it makes sense: when you give people more certainty faster, we are seeing good conversion uplift too. It is early, but that is even more valuable to our customers, because those are consumers who would be walking out the door that they had spent time and money on as a lender — not just credit pulls and other data pulls, but also their teams' time and energy. As we can shorten these cycles and make the process of lending more real time, it fundamentally transforms the industry. On consumer banking, we are building out the integrations to all the consumer banking products for Autopilot. There is opportunity there now. There are fewer manual tasks in consumer banking, but there is a lot more volume of those tasks. While it may not be worth thousands of dollars per loan in consumer banking, the scale matters, and they have very big operations teams managing these processes. Autopilot enables those teams to do a lot more volume. One other thing: rates really drive refi activity. If you are a mortgage servicer with a lot of refi volume, your only way to handle large volumes historically has been to scale up and scale down teams, and you cannot really predict when rates go down. The ability to create elasticity of workforce — with agents that a lender can spin up and spin down alongside their team, with agents taking a first pass — changes the economic profile of servicing and recapture. For our large servicing customers, I think it will change the way they do business because it will allow them to handle market fluctuations even better than on the purchase side. Jason Ream: Yeah, good question, Dylan. We are seeing volume growth. As I mentioned, we had better volume in Q1 than we had expected coming into the quarter. Part of that is our customers doing better; part of that was the market being a little better than we expected in the quarter. Of course, we are always trying to add share and bring new customers onto the platform. As far as per-funded-loan economics — putting aside the seasonal variability that comes from the mechanics I talked about — we are doing a much more concerted effort now to drive growth year over year with existing customers. Things like Autopilot give us better pricing leverage coming into new customer situations. Obviously, Autopilot drives its own revenue stream, but it also gives us leverage in the core platform as well. Rapid remains a driver as well on the refi side in particular. As Nima mentioned, refi is even more sensitive to rates than purchase, and we do not have a Rapid purchase product; we have a Rapid refi product. As rates come down, we should see a benefit in volume and revenue in that sense, but also, as we get more customers up on Rapid refi, we should see a benefit in PFL as well. Operator: Your next question comes from the line of Joseph Vafi with Canaccord Genuity. Your line is open. Please go ahead. Joseph Vafi: Hey, guys. Good afternoon. Thanks for taking my questions. Nima, just the most recent update on the Rapid product uptake — how you are seeing market reaction to them? Obviously, the market backdrop is not as strong as we would like, but any feedback you are getting? Nima Ghamsari: I would reiterate what I said about this Rapid Pilot. Rapid plus Autopilot together is getting momentum and focus from our customers. It is a lot of what I spend my time on. I have had two on-sites with two very large banks and lenders in the last two weeks about this specific thing that they want to get live in Q2. In practice, our customers — especially for refis and home equity — want to be able to make an offer in real time and then fulfill the work they need to get done on that offer in real time. The combination of those two things has been incredibly powerful. On top of that, we have some very, very large customers going live with Rapid home equity — some of the top home equity originators in the country. It is definitely a good time in the industry. If I had one criticism of myself here, it would be: how do I make this so easy to adopt that they flip a switch and turn it on, and now they have Rapid refi enabled in their environment? That is a challenge for us that we are thinking about going into the next couple of months, and we intend to make that happen. As we make that happen, our customers will be able to adopt it much more easily. That is a key learning for us from the Autopilot rollout: we made it truly self-serve for a customer to turn on, and we are seeing the adoption. The numbers we shared in terms of the number of lenders that have turned this on — think about large financial institutions turning on a new AI agent for their organization with the flip of a switch, even without calling us. The most surprising part was we had fairly large banks turning this on in beta and production without us even knowing about it. Then we saw it start to stream through our logs and reached out to them. We are a product-led growth company. We like to talk to our customers to help them get the most out of our product, but making things easy to adopt is going to be very good for Blend Labs, Inc. Everything comes back to speed — speed of adoption, speed of iteration for our team. We showed that with Autopilot, and I am very confident we can take that micro-culture and those concepts to the rest of what we do at Blend Labs, Inc. I will end with one last anecdote. Autopilot MCP has unlocked a lot of doors for us. I was on-site with one fairly large customer last week, and their head of engineering was in the room. The first thing he asked was, “We want to build this into our mobile app.” I said, great — you now have a way to do that. It is called Autopilot MCP. You can get all the capabilities of Blend Labs, Inc., and the intelligence layer of Autopilot, entirely in your own environment. He said, wow, okay. His first question to me after that was compelling: “Can I use this in other parts of my business? We do not use Blend Labs, Inc. for these other kinds of loans,” and he named a couple. I said, yes. Autopilot works. You can put custom guidelines in there yourself; you do not even need to talk to us. His eyes lit up, and he asked for a copy of the Autopilot MCP documentation, which we sent to him. Historically, those stakeholders struggled with how to fit their tech stack into the Blend Labs, Inc. world, and now we have opened that up. We had another really interesting sales call with a fairly large bank. The digital leader came on the call — historically someone who felt a little bit displaced by us sometimes — and his first question was, “Can I use this with my current digital stack?” As soon as the answer was yes, with Autopilot MCP, he went from potentially being a detractor to saying, “Oh, wow. This is actually really interesting. Now I can give new digital capabilities, improve my customer experience, in a powered-by way that would take months, if not years, to do internally,” especially building agents that are this powerful and complex. Operator: A reminder, if you would like to ask a question, please press star 1 now to raise your hand. Your next question comes from the line of Aaron Kimson with Citizens. Your line is open. Please go ahead. Aaron Kimson: Great, thanks for the questions. Nima, in your conversations, how do customers perceive the value that Autopilot is providing today? Do you feel like it is still primarily being thought of as a component of tech budgets, or are financial institutions increasingly open to viewing agentic products like Autopilot as a component of their labor budgets? And then one more: You have been working with financial institutions for a long time now. Can you talk about the appetite for adopting new products faster today than in the past, and how they are thinking about build versus buy — the balance between adopting AI products from AI-native startups versus established software vendors like Blend Labs, Inc. — and then where the frontier labs fit in? I think we are all trying to figure this out for application software in general. Thank you. Nima Ghamsari: It is interesting. Right now, companies are figuring this out as we speak, so they do not know the answer to that exact question yet. That goes to how we price this in the short term — to allow our customers to use it free for a few months, and even after that we will have flat pricing that is good for us economically and good for our customers, to give them time in the short term to make the right changes in their processes and organizations. Long term, they are aligned to the fact that labor does not need to be scaled up and down with volume anymore. I was having a conversation with the CEO of one of our large customers, and the idea of being able to scale their organization without having to add thousands or more heads is so compelling. It naturally ends up being a labor question. But the more important value proposition, as numbers around conversion rates get set in stone and we have a better understanding, will be even more valuable to our customers. There are so many consumers in this country who can benefit from lower interest rates, or equity from their homes, or consolidating debt — things that have been historically hard for our customers to capture, and hard for consumers because they have to go through a lengthy process. If we can make it really transparent with something like Rapid and then really automated with something like Autopilot, it is going to reduce friction, and therefore consumers will do it, and they will do it with our customers. On adoption appetite and build versus buy, we are in an interesting place where a switch flipped sometime in the first quarter of this year — I think February 2026 — where our customers started to realize how important a transformation this is going to be. Maybe it was because of the Anthropic Claude code explosion in the market. They started to realize the magnitude, and they have put budgets behind AI and AI initiatives. It is important for their customers, for their users, and for their long-term economics as a business. It can do really powerful things, and people are starting to believe that. It is no longer something they felt was a 2027 or 2028 thing; it is, “I can do this now.” The sheer number of our large financial institution customers that have turned these capabilities on on their own, and are in active discussions or in process with us of rolling them out broadly, speaks for itself. They do think through how this fits into their stack. Is it a company like Blend Labs, Inc. that is already driving a lot of their work, internally and for their customers? Are they working with Anthropic or OpenAI or some other company in a big project in a consulting-like fashion? Or are they working with a small startup? In the Autopilot versus small startup frame, because we already have so much of the workflow happening in our system — natural entry points to invoke and spin up AI agents, and then spin them back down — we have a good advantage to help move very quickly for our customers. Our job is to make sure Autopilot is the best product on the market for the exact types of work our customers need to do; in this case, underwriting intelligence like I referenced in the prepared remarks. As long as we do those things, I do not think they will go to a small startup. We have to move fast, and we are moving fast; we have to build a great product, and Autopilot is a great product, doing things that a year ago would have seemed like science fiction to our customers. On the labs versus a company like Blend Labs, Inc., some of that remains to be seen. I have heard of really great things the labs are doing with many of our customers. The size of the pie is probably a lot bigger than anybody understands. The labs are not going to go in and try to build into our workflow to drive value for our customers — I do not think they would — but even if they would, we are already there. We already have it. Speed is very important in adoption. If you have to do a nine- or twelve-month project to get something, versus being able to flip a switch, our job is to make that possible. Operator: We have now reached the end of the Q&A session. This concludes today's call. Thank you all for attending. You may now disconnect.
Operator: Welcome to Sensus Healthcare, Inc. First Quarter 2026 Financial Results Conference Call. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Leigh Salvo with New Street Investor Relations. Please go ahead. Leigh Salvo: Good afternoon. And thank you all for joining today's call to discuss Sensus Healthcare, Inc.'s First Quarter 2026 Financial Results. Joining me from Sensus Healthcare, Inc. are Joseph C. Sardano, Chairman and Chief Executive Officer, Michael J. Sardano, President, Chief Commercial Officer and General Counsel, and Javier Rampolla, Chief Financial Officer. As a reminder, some of the matters that will be discussed during today's call contain forward-looking statements within the meaning of federal securities laws. All statements other than historical facts that address activities Sensus Healthcare, Inc. assumes, plans, expects, believes, intends, or anticipates, and other similar expressions such as will, should, or may occur in the future, are forward-looking statements. The forward-looking statements are management's belief based upon current available information as of the date of this conference call, 05/07/2026. Sensus Healthcare, Inc. undertakes no obligation to revise or update any forward-looking statements except as required by law. All forward-looking statements are subject to risks and uncertainties as described in the Company's Forms 10-K, 10-Q and other SEC filings. During today's call, references will be made to certain non-GAAP financial measures. Sensus Healthcare, Inc. believes these measures provide useful information for investors, yet they should not be considered as a substitute for GAAP, nor should they be viewed as a substitute for operating results determined in accordance with GAAP. A reconciliation of non-GAAP to GAAP results is included in today's press release. With that, I would like to turn the call over to Joseph C. Sardano. Joe? Joseph C. Sardano: Thank you, Leigh, and good afternoon, everybody. We appreciate you joining us today. 2026 represents an important transition period for Sensus Healthcare, Inc. With the dedicated CPT codes for superficial radiotherapy now in effect as of January 1, we are operating in a fundamentally different environment than ever before. We are tasked with the responsibility of helping our entire industry pivot to the new reality. For quite some time, two factors weighed heavily on our business: customer concentration and the absence of reimbursement clarity. Today, we believe both of those factors are beginning to shift in a meaningful way. I would like to frame our discussion around five priorities that we believe will define our progress in 2026 and provide a clear framework for tracking our execution over the course of the year. Number one, educate the market on the new reimbursement and train them on how to utilize the codes. Two, drive customer adoption following CPT code implementation. Three, grow our recurring and utilization-based revenue streams. Four, diversify and strengthen the commercial model. And last, number five, deliver sustainable profitability. Our entire first quarter was dedicated to helping existing customers and new prospects better understand the new reimbursement coding. Initial results are excellent. The coding is simple and straightforward, and for those who have billed CMS under the new coding, they are already seeing a smooth transition by the payers as our users receive reimbursements. Both physicians and patients will continue to grow in confidence that SRT is receiving full funding. Which brings us to customer adoption and CPT impact. One of our strategic priorities is converting the new reimbursement environment into broader customer adoption and a more diversified installed base. During the first quarter, we began to see the benefits of the new CPT codes move from concept to commercial reality. With reimbursement now clearly defined and physician economics significantly improved, including approximately a 300% increase in the per-fraction delivery code, we are seeing increased inquiry levels, stronger pipeline development, a growing pipeline of qualified opportunities as of quarter end, and greater engagement from dermatology practices and hospital systems. We shipped 14 SRT systems during the quarter, including 10 direct sales and four placements under the Fair Deal Agreement program as well as rental arrangements. Importantly, these shipments reflect continued progress in broadening our customer base and meaningfully reducing historical customer concentration. We were able to match our sales from Q4, which we believe we will improve upon quarter over quarter for the balance of the year and into 2027. We saw strong momentum coming out of several major dermatology conferences during the quarter where physician interest and engagement levels were among the highest we have experienced. These events continue to be a critical driver of our pipeline growth and customer education as awareness of the new reimbursement environment increases, in addition to the benefit of SRT as a non-invasive alternative to Mohs surgery. Patients are deciding more and more their preference to avoid surgery. Recurring revenue growth and the FDA plus software. Another priority is expanding recurring revenue streams tied to utilization of our installed base and new prospects. There are still groups who prefer a shared service program, as indicated by the four of 14 units shipped in Q1. We are confident this will continue to grow. Our Fair Deal Agreement program continues to be a driver of utilization-based revenue. During the quarter, treatment volumes increased 8% over 2025, and we continue to increase the number of patients. We ended the quarter with 18 active FDA sites and nine pending activations. As we have said previously, FDA placements often serve as a bridge to system ownership, and we continue to see that dynamic play out as customers better understand the economics under the new reimbursement environment. Importantly, we are now taking additional steps to expand recurring revenue through software and services. The introduction of SensusLink represents an important evolution of our model, enabling enhanced workflow, treatment documentation, and operating intelligence across our installed base, while creating a scalable recurring revenue opportunity tied to treatment activity. We view this as an important step in evolving our business model toward a more predictable and recurring revenue profile in the future. Over time, we expect recurring revenue including FDA, service, and software to represent an increasing percentage of total revenue, which historically has been about 10%. Commercial expansion and diversification. Our next priority is broadening commercial reach through access to our technology and reducing volatility by creating more ways for customers to acquire and use Sensus Healthcare, Inc. systems. We are seeing increased interest across a wider range of customers including independent dermatology practices, group networks, hospital systems, and private equity-backed platforms. To support this, we recently launched Sensus Healthcare Financial Services, which provides a streamlined pathway for customers to acquire our systems through flexible financing options. Since launch, we have begun actively engaging with prospective customers to utilize this platform and are seeing improved conversion rates on late-stage opportunities. We are also seeing a shift in customer preference towards purchase compared to prior periods where Fair Deal Agreement program participation was the primary entry point. We now have to ask the question: Why do you want to give up 50% of your revenue when one patient procedure per month represents your breakeven? Profitability. Our priority is translating stronger demand, a growing recurring revenue base, and disciplined expense management into profitability. We are entering this new phase with a strong balance sheet, including $18.3 million in cash and no debt. While our first quarter results continue to reflect transition away from historical customer concentration, we believe the combination of improved reimbursement, a more diversified customer base, expanding recurring revenue streams, and disciplined expense management positions us to deliver improved financial performance over the balance of 2026 with the objective of achieving full-year profitability. With that, I will turn the call over to Michael to provide more detail on our commercial execution and growth initiatives. Michael? Michael J. Sardano: Thanks, Joe. I will focus on how our commercial model is evolving and how we are executing against the priorities Joe just outlined. The most important change we are seeing is that reimbursement clarity has fundamentally reshaped how customers evaluate and adopt SRT. Importantly, this is shifting SRT from a considered option to a financially actionable decision for more and more practices. Customers now have multiple pathways to adoption, including outright purchase, leasing structures, and the Fair Deal Agreement program. In the first quarter, approximately 70% of systems shipped were purchased versus FDA. Average breakeven for customers is now two patients per month, and we are seeing a higher percentage of customers electing ownership earlier in the adoption cycle. From a pipeline perspective, we are seeing increased conversion activity across the board as customers move from evaluation to decision making. A key driver of this momentum has been our participation in several major dermatology conferences during the quarter. These conferences generated new leads, physician engagements and demos, and a meaningful increase in follow-up activity and site evaluations. Importantly, our decision to refine our conference and trade show strategy to prioritize high-yield events where purchasing decisions are actively being evaluated is paying off in our pipeline. Physicians are becoming more aware of the new CPT codes and improved economics of SRT. On the recurring revenue side, our focus is on increasing utilization across the installed base and expanding monetization through additional capabilities. SensusLink is an important part of this strategy, as it enables us to bring advanced functionality to both new and existing systems while also creating a pathway for ongoing service and software revenue tied to treatment workflows. On the installed base, total SRT systems now stand at approximately 965 units globally. We expect the rollout of SensusLink, which provides advanced operating capabilities to our SRT-100 installed base, to begin to take shape and increase interest in SRT significantly this year. Over time, we believe this will support increased utilization, improve customer retention, and create a recurring revenue stream tied directly to system usage. International markets continue to represent an important growth opportunity for Sensus Healthcare, Inc. We are seeing continued demand in key markets such as China and expect additional diversification over time as we expand into new regions. International sales also provide attractive margin characteristics due to lower servicing requirements. Domestically, we are taking a disciplined approach to scaling our sales organization in 2026. Our focus is on expanding selectively, increasing market education, and improving conversion efficiency. Overall, the underlying performance of our business will continue to improve as a combination of reimbursement clarity, expanded adoption pathways, and a more diversified commercial strategy positions us well for sustained growth and profitability. With that, I will turn the call over to Javier for a review of the financials. Javier Rampolla: Thank you, Michael, and good afternoon, everyone. I will briefly review our financial results for 2026, starting with revenue. Revenue for the quarter was $3.4 million compared to $8.3 million in the prior-year period. The year-over-year decrease was primarily driven by the absence of sales to our historically largest customer as well as a lower number of total units shipped. As a reminder, the prior-year period included a significant number of direct sales to that customer. In the current quarter, we had no sales to that customer, which reflects our ongoing transition towards a more diversified customer base. Importantly, excluding sales to that customer in the prior-year period, revenue increased compared to $2.7 million, demonstrating underlying growth driven by a broader mix of customers. In addition, a portion of systems shipped during the quarter were under the Fair Deal Agreement program and rental arrangements, where revenue is recognized over the term of the agreement rather than at the time of shipment. As a result, these placements contribute to revenue over time rather than upfront. Turning to cost of sales. Cost of sales was $2.4 million compared to $4.0 million in the prior-year period. The decrease was primarily driven by lower unit volumes, again reflecting the absence of sales to our historically largest customer, as well as the shift towards FDA and rental placements. Moving to gross profit and margin. Gross profit was $1.0 million compared to $4.4 million in the prior-year period, and gross margin was 29.2% compared to 52.2% in 2025. The decline in gross margin was primarily driven by product mix. This includes a higher proportion of international shipments, which carry lower average selling prices, as well as costs associated with the new system placements under our Fair Deal Agreement program. As utilization increases, these arrangements are expected to contribute more meaningfully to revenue and margin over future periods. Turning to operating expenses. General and administrative expense was $2.0 million compared to $2.2 million in the prior-year period, with the decrease primarily driven by lower professional fees. Selling and marketing expenses were $1.7 million compared to $2.2 million in the prior-year period. The decrease was primarily due to our decision to lower trade show-related spending to focus on events with the highest potential for sales generation. Research and development expense was $1.6 million compared to $2.6 million in the prior-year period. The decrease reflects lower lobbying costs related to reimbursement efforts as well as reductions in headcount and product development spending for next-generation systems. Adjusted EBITDA for 2026 was negative $4.2 million compared with negative $2.5 million for 2025. Adjusted EBITDA, a non-GAAP financial measure, is defined as earnings before interest, taxes, depreciation, amortization, and stock compensation expense. Please see our earnings release issued earlier today for a reconciliation of GAAP and non-GAAP financial measures. Other income was $0.1 million compared to $0.2 million in the prior-year period and relates primarily to interest income. Net loss for the quarter was $2.6 million, or $0.16 per share, consistent with the prior-year period. Finally, we continue to maintain a strong balance sheet, ending the quarter with $18.3 million in cash, no debt, and inventory of $16.5 million, an increase from $14.6 million as of 12/31/2025. This inventory level positions us to continue to meet demand in the coming quarters for both direct and for placements under the Fair Deal Agreement program. Before I turn the call back to Joe, I would like to provide some perspective on how we are thinking about the remainder of the year. We expect second quarter revenue to be higher than first quarter, and we also expect revenue in the second half of the year to be higher than the first half as we continue to build on the momentum we are seeing in our pipeline and customer engagement. From a margin perspective, as discussed earlier, first quarter gross profit and margin reflect the impact of product mix, including a higher proportion of international shipments, as well as costs associated with new system placements under our Fair Deal Agreement program. As utilization under these arrangements increases and revenue is recognized over time, we expect these dynamics to evolve over the course of the year. With that, I will turn the call back to Joe. Joseph C. Sardano: Thank you, Javier and Michael, for those updates. Before we open the call for questions, I want to reiterate that we believe SRT is increasingly being viewed as a compelling noninvasive treatment option that allows practices to expand patient access, improve workflow efficiency, and offer an alternative for treating patients with non-melanoma skin cancer. The new dedicated CPT codes for superficial radiotherapy significantly improve physician reimbursement and support broader adoption of our technology while benefiting patients with certainty of coverage for noninvasive treatment options. As we move through 2026, we remain focused on executing against our five priorities: education and training, accelerating customer adoption, expanding recurring revenue, broadening our commercial reach, and driving Sensus Healthcare, Inc. toward profitability. We believe we are still in the early stages of this transition and look forward to updating you on our progress throughout the year. Thank you for your continued support. Operator: We will now open the call for questions. Your first question today comes from Anthony V. Vendetti with Maxim Group. Anthony V. Vendetti: Joe, how are you doing? Hey, Mike. My first question is a two-part question. Your largest customer, which I think you had 15 units sold to in 2025, so with zero in first quarter 2026, it is not too surprising that revenue is down over 50%. When you said second quarter should be higher than first quarter, should we look at your largest customer, who is not buying any units right now, as upside if they come back? Are you internally assuming they do not come back, and if they do, it is upside? And then I have a follow-up question. Joseph C. Sardano: If they do come back, it is upside. We have not included them in our model for this year, but that does not mean they cannot figure out the new model they have to come up with so that they can remain strong in the market. Anthony V. Vendetti: Okay. So it is still a possibility. Then, with the new CPT codes that took effect January 1 and the approximately 300% increase in the per-fraction delivery code, are you seeing that translate into shorter sales cycles or a bigger pipeline of new business? If there is a pipeline, has it just not yet converted into revenue and you expect it to in time, or is it taking a while for the pipeline to build even though the code has significantly increased? Joseph C. Sardano: I will give you an overview, and then I will let Michael handle it since he was responsible for working directly with CMS to gain those codes. What we are seeing on an overall basis is that interest has increased significantly because of the dedicated and guaranteed coding system for SRT for dermatology. In the past, that did not exist. They were orphan codes that mostly came from ASTRO, and these new codes are specific to dermatology and to SRT. So we are excited for all of that. Regarding the interest from the field, more and more offices are contemplating bringing SRT into their practice because of those codes. Very clear, very obvious. Many are deciding whether they want to go with an FDA, an outright purchase, or a fair market value lease. They are taking it seriously because now all of these sites can consider this a long-term decision for their practice since those codes are in place. Michael? Michael J. Sardano: Sure. Thanks, Anthony. Great question. Joe covered most of it. The thing I will add is that on January 1, 2026, all of the codes took effect, but when it comes to coding and reimbursement, you do not know whether you are going to get paid or how the structure works until after you bill that patient and wait the four to six weeks. So people were not able to see the EOBs of these patients until mid-February to early March when you started treating patients. With those EOBs coming in, now we have actual proof, like Joe said, that we are getting paid. Private insurance, Medicare, Medicaid, CMS, etc., are paying these new codes the way they are supposed to. Now that we have that black-and-white proof, it is in our sales team’s hands, and we are giving it to the market. A big point we did not touch on is that our largest show of the year, AAD, took place March 27 to 31. Those leads could not close in Q1, so they are moving into Q2. I am very confident going into Q2 compared to Q1. As I said on the call, we expect to continue to grow and improve throughout the year, quarter over quarter. As Javier mentioned, we have more recurring revenue shipments than we have ever had before. From an FDA standpoint and also this rental model, as we get 10 rental contracts, then 30, then 40 or 50, we are quickly transitioning to a more recurring revenue base that will require patience. We are transitioning in a way investors have asked for over the last ten years—more recurring revenue, not solely focused on one revenue source—and now we are achieving that. I think we will see improvement on that. Anthony V. Vendetti: That makes sense. As best you can, can you timeline it for us? As you build this pipeline of recurring revenue and the Fair Deal Agreement, do you feel like, whether this quarter, next quarter, or sometime in 2026, you lap that pipeline and then it is easier to see revenues grow? Is there an inflection point you are looking for? Michael J. Sardano: As the education continues to roll out, for instance, we just had two or three more meetings this past April with large roll-up groups in addition to Florida-, Arizona-, and California-based meetings. As that happens, you are going to see education expand. The black-and-white codes greatly help us. This is the first time in our sixteen years that I have been able to go in a room and tell a doctor that these are black-and-white codes with no gray area. As that comes in, you will see a lot of people who were not interested over the last ten years now become interested because their accountants and lawyers can make sense of it. That is about education. The longer you give us, the more we can educate, and more people will adopt SRT. It is here to stay now. CMS has given us exclusive codes for SRT for the first time ever. We do not have to go to Washington as much anymore, which is good for time and money. We are excited. The sales team is fired up. We have already hired three more salespeople into territories—some new and some rehires. We are very excited to keep going. Joseph C. Sardano: Let me add one thing to your question about the recurring revenue piece. One of the codes involves radiation physics and the consults for radiation physics. This code has to be applied to every patient, and our introduction of SensusLink is a main focus for our customer base. They can charge that code once per week. For example, if their protocol uses 20 treatments at two treatments per week over ten weeks, this radiation physics code can be charged at an average of $93.85 per week across the country. That is ten weeks of treatment, or about $930. With our software, we will be sharing that revenue with our customers. The only way that they can access that reimbursement is through SensusLink. That is an important piece of our business that we did not have before. Anthony V. Vendetti: When did SensusLink officially go live? Joseph C. Sardano: It is live now and performing in several accounts already. Anthony V. Vendetti: Great. That was great color. Thanks. I will hop back in the queue. Appreciate it. Michael J. Sardano: Thanks, Anthony. Operator: Seeing no additional questions, this concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. Joseph C. Sardano: I think everybody heard where we are headed this year. We believe we are going to have a profitable year, with each and every quarter being better than the previous. We have a very solid start to the year and are looking for increased revenues throughout. With that being said, we look forward to a very successful second quarter and to talking to you again at the next earnings call. Thank you so much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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: Good afternoon, and welcome to Artivion, Inc.'s fourth quarter and year-end 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. I would now like to turn the conference over to your host from the Gilmartin Group. Thank you. You may begin. Unknown Speaker: Thank you. Good afternoon, and thank you for joining the call today. Joining me from Artivion, Inc.'s management team are Pat Mackin, CEO, and Lance Berry, COO and CFO. Before we begin, I would like to make the following statements to comply with the safe harbor requirements of the Private Securities Litigation Reform Act of 1995. Comments made on this call that look forward in time involve risks and uncertainties and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements made as to the company’s or management’s intentions, hopes, beliefs, expectations, or predictions of the future. These forward-looking statements are subject to a number of risks, uncertainties, estimates, and assumptions that may cause results to differ materially from these forward-looking statements. Additional information concerning certain risks and uncertainties that may impact these forward-looking statements is contained from time to time in the company’s SEC filings and in the press release that was issued earlier today. You can also find a brief presentation with details highlighted on today’s call on the Investor Relations section of the Artivion, Inc. website. Lastly, please refer to our release published earlier today for information regarding our non-GAAP results, including a reconciliation of these results to our GAAP results. Unless otherwise stated, all comments today will be using our non-GAAP results. Additionally, all percentage changes discussed will be on a year-over-year basis. Revenue growth rates will be at adjusted constant currency rates, and expenses as a percentage of sales will be based on adjusted revenues. With that, I will turn the call over to Pat Mackin. Pat Mackin: Thanks, and good afternoon, everyone. Through 2026, we continued to execute our strategy designed to drive long-term profitable growth through an expanding and clinically differentiated product portfolio. In the quarter, we delivered constant currency revenue growth of 12% and adjusted EBITDA growth of 26% year over year. Revenue growth was driven primarily by On-X and stent grafts, including AMDS. We also benefited from growth within preservation services as tissue processing volumes normalized following the 2024 cybersecurity event. Before expanding further on product line performance, I would like to address today’s exciting news regarding the exercise of our option to acquire Endospan. This follows the PMA approval of its NEXUS aortic arch stent graft system for chronic aortic dissections, which was achieved in early April. NEXUS is a branched endovascular stent graft system purpose-built for minimally invasive treatment of aortic arch disease, where patients often have no choice other than open-heart surgery. The clinical data are compelling. Data from the chronic aortic arch dissection cohort of the TRIUMPH trial demonstrated 93% survival from lesion-related death and 90% freedom from disabling stroke at one year post-treatment. Also, 95% were free from intervention due to endoleaks, excluding type II endoleaks, at one year in this very high-risk population. As a reminder, the total annual U.S. addressable market opportunity associated with both cohorts is estimated to be around $150 million, with dissections representing about $100 million of that. We plan to pursue supplementing the label to include aortic aneurysms through formal regulatory processes expeditiously post acquisition. Importantly, our anticipated acquisition of Endospan and its NEXUS system will complete our market-leading three-pronged aortic arch portfolio. This technology, acquired alongside AMDS and our E-vita OPEN NEO with LSA branch (C-Branch LSA), will position us at the forefront of this segment as the only company globally with a complete portfolio of aortic arch solutions. Importantly, NEXUS is a platform technology, not just a single product. It is supported by three additional PMA programs in development that we expect will further extend and solidify our leadership in the aortic arch market over time. We are pleased to have the financing already in place for this acquisition, and, subject to satisfactory and customary closing conditions, we expect to close in 2026. We expect to be ready for a full U.S. commercial launch of NEXUS in January 2027, following efforts to scale inventory production, complete value analysis committee processes, and augment our U.S. sales team. With that, let me turn back to our Q1 2026 results. From a product category perspective, stent graft revenues grew 10% on a constant currency basis in the first quarter compared to the same period last year. Year-over-year constant currency growth fell below our expectations due to lower than expected AMDS starter set sales in the U.S., as well as softer than expected performance internationally, particularly in the Middle East. Year-over-year growth also reflects a tougher comp in Europe, following a strong Q1 2025 performance as we recovered from the 2024 cybersecurity event. While U.S. AMDS sales associated with initial stocking fell short of our expectations in Q1, we have been very encouraged by implant and reorder patterns within the accounts already using AMDS. We view this as much more critical than the immediate impact of sales from starter sets. Strong reordering patterns reflect positive user experience and ultimately our long-term adoption and growth thesis. Looking ahead, we expect U.S. AMDS starter set sales to accelerate as more accounts get through the VAC process and finalize their procurement, and as we benefit from steps being taken to mitigate the initial upfront $100 thousand cost burden associated with stocking. We also anticipate PMA approval of AMDS in the coming months, which will obviate the need for entirely new accounts to go through the IRB process; some have deferred until PMA approval because of this increasingly imminent date. Ultimately, we see our comprehensive stent graft portfolio as a foundational component of our growth strategy. We are encouraged by our enduring fundamental strength and increasingly strong competitive advantage within the segment. Looking ahead, we intend to replicate our proven strategy by bringing additional stent graft products that are already generating revenue in Europe to the U.S. and Japan, which we believe will unlock further meaningful expansion of our stent graft total addressable market. Meanwhile, our Q1 On-X revenue was up 17% year over year on a constant currency basis. This growth was driven by further global market share gains and continued early traction in our new $100 million U.S. market opportunity unlocked by recently published data demonstrating improved outcomes with mechanical valves versus bioprosthetic valves for younger patients. We maintain our conviction that On-X is the best aortic valve in the market for patients under 65, and we will continue to take market share worldwide in that product line. Tissue processing revenues increased 23% year over year on a constant currency basis in the first quarter, as demand for our products remained strong and tissue volumes normalized year over year following the cybersecurity incident in late 2024. Q1 results were slightly ahead of our expectations of roughly $24 million per quarter for that business. Lastly, BioGlue was relatively flat on a constant currency basis compared to the same period last year. While this performance was slightly lower than our mid-single-digit growth expectation contemplated in our previously communicated full-year revenue guidance, it falls within the range of normal quarter-to-quarter growth variability due to the significant amount of stocking distributor business in that product line. Lastly, on our pipeline, we continue to make great progress on the ARTISON clinical trial for our next-generation frozen elephant trunk. We have 26 patients enrolled in the trial, which is a non-randomized clinical trial consisting of 132 patients in the U.S. and Europe at up to 30 centers for treatment of aortic dissection and aneurysm in the arch. We anticipate completing full enrollment in mid-2027. We are optimistic that the trial will be successful, supported by our clinical results from our current-generation frozen elephant trunk, E-vita OPEN NEO, which is available outside the U.S. Following the one-year follow-up period, assuming the trial meets its endpoints, we anticipate FDA approval for our C-Branch LSA in 2029, unlocking an incremental $80 million annual U.S. market opportunity. In conclusion, while Q1 results fell short of our constant currency expectations and reflected some moving pieces that Lance will walk you through in detail, it was a quarter of meaningful progress against our long-term strategy. The fundamentals that underpin our growth strategy remain intact: a comprehensive, clinically differentiated portfolio, a focused commercial organization, and a pipeline that stands to expand our total addressable market continuously over time. The reordering behavior we are seeing within AMDS accounts reinforces our conviction in the long-term adoption story, and we have a clear line of sight to near-term drivers that will accelerate new account conversion. On-X continues to take share from both mechanical and bioprosthetic valves and is the leading aortic valve on the market for patients under 65. With the addition of NEXUS, we now have what we believe is the most comprehensive aortic arch portfolio in the world, a position we have built deliberately and intend to extend. With that, I will now turn the call over to Lance. Lance Berry: Thanks, Pat, and good afternoon, everyone. Before I begin, please refer to our press release published earlier today for information regarding our non-GAAP results, including a reconciliation of these results to our GAAP results. Additionally, all percentage changes discussed will be on a year-over-year basis, and revenue growth rates will be in constant currency unless otherwise noted. Total revenues were $116.3 million for Q1 2026, up 12% compared to Q1 2025. Adjusted EBITDA increased approximately 26%, from $17.5 million to $22.1 million in Q1 2026. Adjusted EBITDA margin was 19% in Q1 2026, an approximate 130 basis point improvement over the prior year, driven by leverage in SG&A and gross margin improvement. From a product line perspective, stent graft revenues increased 10%, On-X grew 17%, tissue processing revenues grew 23%, and BioGlue revenues were relatively flat in Q1 2026. On a regional basis, revenues in Asia Pacific increased 6%, North America 23%, EMEA increased 5%, and Latin America decreased 23%, all compared to Q1 2025. International growth was below what we typically see from that part of the business. EMEA underperformance was driven by the stent graft-related factors that Pat discussed earlier, while underperformance across APAC and LatAm was driven primarily by quarterly fluctuations in distributor ordering patterns, which we expect to normalize over the course of the year. Q1 gross margins were 64.9%, an increase from 64.2% in Q1 2025, primarily due to favorable product and geographic mix. General, administrative, and marketing expenses in the first quarter were $60.8 million compared to $54.7 million in Q1 2025. Non-GAAP general, administrative, and marketing expenses were $59.3 million, or 51% of sales in the first quarter, compared to $53.0 million, or 53.6% of sales, in Q1 2025, reflecting a 260 basis point improvement. Approximately 170 basis points were driven through leveraging existing infrastructure and annualizing our year-one AMDS launch costs, and approximately 90 basis points were from stock-based compensation. Our as-reported expenses included a gain of approximately $1.5 million in Q1 associated with insurance reimbursement for cybersecurity costs incurred in previous periods, and approximately $1 million of diligence and integration planning costs associated with the planned acquisition of Endospan, both of which are excluded from adjusted EBITDA. R&D expenses for the first quarter were $8.8 million, or 7.6% of sales, compared to $6.7 million, or 6.8% of sales, in Q1 2025. Interest expense, net of interest income, was $5.2 million as compared to $7.5 million in the prior year. Other income and expense this quarter included foreign currency translation losses of approximately $800 thousand. Free cash flow was negative $6.8 million in Q1 2026 as compared to negative $20.6 million in Q1 2025. As a reminder, the first quarter is typically our seasonally lowest free cash flow quarter, and although negative, this quarter’s free cash flow results were slightly better than anticipated. As of 03/31/2026, we had approximately $55.8 million in cash and $215.4 million in debt, net of $4.6 million of unamortized loan origination costs. At the end of the first quarter, our net leverage ratio was 1.8x, down from 4.0x in the prior year. Now for our outlook for 2026. As Pat stated, our Q1 stent graft results did not meet our expectations, due to factors that could continue to impact our revenue in the near term, primarily softness in our international markets, particularly in the Middle East, and timing of AMDS starter set sales in the U.S. It is early in the year, and we are working to mitigate or offset these issues. However, given the uncertainty around the timing and impact of those actions, we believe it is prudent to adjust our guidance. We now expect adjusted constant currency growth between 7% and 11% for full year 2026, representing a reported revenue range of $480 million to $496 million. This guidance contemplates FX to have an approximate one percentage point tailwind on as-reported revenue for the full year. From a product line perspective, the reduction relates primarily to stent grafts due to the factors we have discussed. This guidance assumes inconsequential revenue from U.S. NEXUS sales in 2026 as we seek value analysis committee approvals and build supply for an anticipated 01/01/2027 U.S. launch. As a reminder, growth in Q1 2026 was anticipated to be higher than the remaining quarters, driven by the easier comps for the preservation services business from the prior-year cybersecurity event. These flip to difficult comps for the preservation services business in Q2 and Q3 before normalizing in Q4 2026, followed by a more consistent sequential improvement as our U.S. AMDS and U.S. On-X sales accelerate during the year and we return to normal costs for the preservation services business in Q4. Excluding the impact of the planned Endospan acquisition, we now expect full year 2026 adjusted EBITDA to be in the range of $100 million to $107 million, representing a range of 12% to 20% growth over 2025 and approximately 100 basis points of adjusted EBITDA margin expansion at the midpoint of our ranges. Please note that this full-year adjusted EBITDA guidance excludes potential impact from the anticipated completion of the Endospan acquisition. Assuming the acquisition closes later in the quarter as anticipated, we would expect to incur approximately $8 million of incremental expense through 2026. This would include investments in launch costs and commercial infrastructure while also accounting for the absorption of Endospan operating costs, including ongoing R&D and clinical expenses. Given our expectation for immaterial revenue contribution from U.S. NEXUS sales in 2026, this incremental $8 million would be expected to reduce our full-year 2026 adjusted EBITDA to $92 million to $99 million. Looking forward, we would expect the first meaningful revenue contribution to begin in January 2027, and we anticipate our combined results to be EBITDA neutral for full year 2027 as U.S. NEXUS revenue ramps over the course of the year and as we get combined R&D and clinical spending into our targeted range of 7% to 8% of sales. Relative to the pending acquisition, we also announced today that we drew $150 million under our existing term loan facility. The proceeds will be used to fund the $135 million upfront purchase price for the anticipated Endospan acquisition. Assuming the acquisition closes as anticipated, quarterly interest expense would increase to approximately $8 million starting in Q3 2026, with Q2 2026 interest expense expected to be slightly lower than that. As a reminder, we also continue to anticipate paying a $25 million earnout in 2026 following the anticipated mid-2026 AMDS PMA approval. With that, I will turn the call back to Pat for his closing comments. Pat Mackin: Thanks, Lance. Overall, we have near-term work to do, and we exited Q1 with greater conviction in our foundational growth strategy. We are excited to move forward with our pending acquisition of Endospan, as the NEXUS platform stands to complete our market-leading aortic arch portfolio. We see PMA approval of AMDS on track for midyear. Implant adoption for AMDS continues to build, and our broader market expansion pipeline is accelerating as planned, particularly with ARTISON enrolling as expected. Our long-range growth thesis remains intact. More specifically, we expect future growth to be driven by four key growth drivers: number one, the AMDS PMA; we are commercializing AMDS in the U.S. under HDE, increasing penetration of the annual U.S. market opportunity, with new clinical data, reimbursement dynamics, and PMA approval likely to be further tailwinds. Number two, the On-X heart valve data; we are continuing to educate providers on clinical data showing mortality and reoperation benefits in patients under 65 compared to bioprosthetic valves, which we expect to translate into greater market share globally. Number three, NEXUS; we are moving forward with our strategy to acquire our partner Endospan following the FDA approval of NEXUS. This acquisition, if closed, will provide an additional near-term growth driver, position us at the forefront of this segment, and significantly expand our pipeline with three additional PMA programs in development, extending our runway well beyond the initial approval. Number four, the ARTISON IDE trial; we continue to make progress in our third-generation frozen elephant trunk program, our C-Branch LSA. This clinical trial represents an incremental $80 million U.S. annual opportunity. I want to thank our employees around the globe for their continued dedication to our mission of being a leading partner to surgeons focused on aortic disease. We will now open the call for questions. Operator: At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you would like to remove your question from the queue. One moment, please, while we poll for questions. Our first question comes from Stifel. Your line is now live. Analyst: Hi, Pat and Lance. Thanks for taking the question. I just want to understand better on this guidance reset what is exactly contemplated in it now, because I think there are a few key assumptions, and the key one is exactly when AMDS receives PMA and then more broadly what kind of opportunity the PMA unlocks. Is this truly conservative, adequate, or how would you frame it in terms of expectations for when you get this AMDS approval, and then how should we think about the opportunity that approval unlocks in the context of the revenue ramp throughout the year? Pat Mackin: Thanks. I would say a couple of things. There were two things that did not go as planned in the first quarter. Number one was international stents were off, mostly due to unplanned things: one was the Middle East, and two was some supply chain challenges. Those are temporary, and we are working to fix those. Second, as we pointed out, was the AMDS starter set sales. Those are the starter sets where the hospital has to buy four. We do think that the PMA will help. We have been saying all along that we did not think the PMA was going to make that much of a difference, but the closer we get to PMA approval, there is some bureaucracy and work that hospitals have to do to get IRBs in place, and with the PMA so close, many are just going to wait. So we do think that will be helpful. We are also working to knock down some of the barriers that we are seeing on getting these starter sets. The encouraging thing is that we were ahead of plan on the actual implants. That is what we are working on now—making sure we can get access to these starter sets and working through that process. Lance Berry: We have been saying we expect PMA approval midyear. We still expect that. As far as what the guidance contemplates, it basically contemplates the trends we are seeing right now. We are working to improve those, but that is probably going to take a little bit of time. We think this is prudent guidance given the trends we have right now. Analyst: Got it. That is helpful. And then I also wanted to hit on NEXUS. You talked about working towards closing the acquisition. What are you doing as you work up to 01/01/2027 in terms of building out the commercial infrastructure from here, whether it be hiring or whatever else is required? Key next steps as you build to NEXUS would be great. Pat Mackin: We are very excited about this NEXUS platform. It is the third piece of the puzzle—AMDS, our LSA branch solution, and NEXUS—and that really gives us a comprehensive portfolio for the arch. We will need to do a few things to get ready. Number one, we must go through the value analysis committees. As you have experienced with AMDS, it can take four to six months. We will use that time to do two things: build inventory and hire dedicated clinical specialists. The good news is this is a very different market than AMDS in that there are only about 100 accounts on our initial list. These are very high-end, high-volume accounts. We know who they are, and we can cover that call point with not a lot of reps. We have already started hiring and will continue to add as we go through the value analysis process. Those are the two main focuses once we close this transaction to be ready for a January 1 launch. Analyst: Thanks. That is helpful, and thanks for taking the questions. Pat Mackin: Yep. Operator: Our next question comes from Lake Street Capital. Your line is now live. Frank Takkinen: Great. Thank you for taking the questions. I was hoping to get a little more color on reordering versus a potential plateauing of new accounts. Are new accounts starting to slow down or is the reordering not yet occurring? It feels like we had a steep trajectory with some of the initial ordering patterns, and then we are just waiting for the reordering, or are new orders starting to plateau? Pat Mackin: Let me clarify. We have started using the term “starter sets,” which is basically an account that does not have AMDS. To get AMDS, they need to purchase four devices for $100 thousand. That is not a normal practice for a lot of businesses that will consign units or sell out of trunk stock. We are having hospitals acquire four units. The other piece is the actual implants of the existing accounts. Those went quite well and were ahead of our plan. We are very encouraged and pleased by adoption in the accounts that purchased. What we are working on now is a lot of accounts that have AMDS in the queue, and we are working to get the units on the shelf. Barriers include the IRB or the $100 thousand upfront purchase. We are working on programs to minimize that burden. Lance Berry: In summary, there is the upfront $100 thousand, and every time the device gets used, they need to reorder a device. We call that initial $100 thousand a set sale, and everything after that is implant sales. Implant sales went great. They were ahead of our expectation, and all the feedback we are getting on those is fantastic. We are running into barriers getting the upfront $100 thousand investment approved for a number of different reasons—IRB, financial considerations—so we are putting things in place to help overcome those barriers. We think we will see a reacceleration of starter set sales. Pat Mackin: Because the $100 thousand upfront lands on someone’s desk, it can get stuck there for a while. A key point is DRG 209 for complex arch work—there is very strong reimbursement for AMDS. It takes time for that information to be disseminated to the account, so we are working to ensure they have good visibility to the publicly available information on DRG 209 and what that means to their procedural billing. Frank Takkinen: Got it. Very helpful. Thank you. And then as a second one on NEXUS, how should we think about the growth trajectory? There is potentially more training upfront, but it is very novel, so I would expect a strong growth trajectory coming out of that. And is there a point in time that the $8 million incremental cost is offset by revenue as you think about the ramp? Pat Mackin: Surgeons, particularly vascular surgeons, have a lot of patients who are not being treated right now because there is no option. These are patients too sick for cardiac surgery, and we now have a solution in the arch to treat those patients. They adopt technology rapidly because of the unmet need. The building blocks are: get through value analysis committees, train the surgeons, hire the team, and build inventory. Our goal is to be ready by January 1. We believe this technology has real opportunity to drive growth for the company and help a lot of patients. We will give you more information as we go into 2027. Lance Berry: On the $8 million, it is broken into three pieces. One is initial launch preparation costs that will not carry forward into next year. There are R&D and clinical related expenses that are incremental this year, but as we roll into 2027, we will fit those into our normal 7% to 8% of sales; it is not really incremental from a 2027 standpoint. Then there are run-rate expenses for the sales force and some G&A that will carry forward, and we think those will be covered by actual NEXUS revenue in the U.S. in 2027, making it EBITDA neutral overall. On supply chain and logistics, NEXUS is very different than AMDS. We are not making people buy it upfront. AMDS cases are acute type A emergencies, so you have to have stock on the shelf. Chronic dissections are elective, so we have time beforehand to know exactly what devices are needed, and we will ship them into the cases and get paid at the case. There will be no shelf stocking limiter for NEXUS. Frank Takkinen: Got it. Very helpful. Thank you, guys. Lance Berry: Thanks, Ryan. Operator: Our next question is from Canaccord Genuity. Your line is now live. William Plovanic: Hey, thanks. Good evening. I just wanted to unpack AMDS a little more. One of the challenges brought up multiple times is starter sets. You mentioned strategies to get around this. Are you going to shift the product to consignment, or do you believe the PMA is really going to open that? Is there a backlog? Are we through the early adopter phase and now getting into a broader customer base, implying a slower ramp for new accounts? Lastly, what was the growth of the core stent business if you back out AMDS? Pat Mackin: We have plenty of hospitals. When we set our internal plan and expectations for the year, we had more than enough target accounts to hit the numbers we communicated. We were pleased with implants—ongoing implants were ahead of what we expected. The challenge is getting into hospitals with this upfront $100 thousand purchase. We are not going to consignment. That could always be a last resort, but that is not our strategy. We have programs to address barriers to the $100 thousand upfront. Once PMA is out, there is no longer an IRB, and we think that will be very helpful. Getting accounts through those processes is what we are working on. That timing is harder to control than implant timing. Lance Berry: We do not break out the details on U.S. AMDS revenue compared to international stent grafts. You can tell by geographic growth rates: international growth was much lower than we typically expect this quarter for the reasons discussed. If you normalize North America for easier comps in Q4 and Q1, the North America growth rate is pretty similar in Q4 to Q1, which points to the slowdown being driven significantly by international. But U.S. AMDS starter set sales were below our expectations for the quarter. William Plovanic: When you started out the launch in the first quarter last year, you talked about 140 targeted accounts, with 600 full potential. Can you give any sense of the total targeted number of accounts today and how far you have penetrated? Lance Berry: We have not broken that out. I would say at this point we still have plenty of opportunity to sell starter sets. As we move along, we will consider giving more detail because at some point the starter set is a one-time revenue event, and the implants matter most long term. We will consider providing more information later, but we are not breaking that out at the moment. William Plovanic: On NEXUS, you are pushing to a 2027 launch. Is manufacturing scaled and ready to go? Lance Berry: They are manufacturing today. We have been selling the product in Europe for over five years. We do need to expand and build inventory for the U.S. launch. Endospan had an agreement with us to be acquired upon PMA approval and had no intention of commercializing the U.S. product themselves, so they did not build inventory for a U.S. launch. There is some scale up, but mainly we just need to build product. William Plovanic: Thanks for taking my questions. Pat Mackin: Thanks, Bill. Operator: Our next question is from Oppenheimer. Your line is now live. Analyst: Hi, Pat. Hi, Lance. Thank you for taking our questions. On AMDS, can you quantify how many accounts are deferring AMDS for PMA approval? Is this the first time you are calling it out, or has this been an ongoing trend that is now coming to a head? And with that, should we expect a bolus once you get PMA approval? Pat Mackin: We have been saying for several quarters that we did not really see PMA as a big catalyst. What has happened is practical: for example, we have to go to an IRB at a hospital and the surgeon has to take four hours of training. If PMA is expected in the second quarter, the surgeon may say, “I will just wait. I am not going to do four hours of training for this IRB.” We do have a number of accounts impacted by this. We are not giving specifics on counts. As PMA gets closer, people are less inclined to do the IRB work, and we see PMA as an opportunity. That is contemplated in our guidance. Analyst: On cross-selling with On-X via AMDS, any differences you are seeing in physician utilization? Are they ramping up on a similar curve, or is it more additive but minimal? Pat Mackin: It speaks to our strategy. We are a valve company that treats patients under 65 with the Ross and with On-X, and we are an aortic arch company. Our interactions with top aortic surgeons span our trials—PERSEVERE, ARTISON, TRIUMPH. We are training AMDS centers, and we will have NEXUS trainings that bring heart and vascular surgeons together. We have ARTISON investigator meetings. All of those events help us build relationships with aortic surgeons and deliver our messages across On-X, AMDS, and NEXUS. It is all about the aorta and is highly complementary. We are already seeing cross-selling, and it will get better as we scale trainings. Operator: Our next question comes from Ladenburg Thalmann. Your line is now live. Jeffrey Cohen: Hi, Pat and Lance. Thanks for taking the questions. Two from us. Any updates as far as the commercial organization, both U.S., EU, and perhaps Japan—W-2s and 1099s—for the balance of this year that we should anticipate? Lance Berry: We will have to hire some specialists for NEXUS, but other than that, sales force additions would be fairly limited across the globe and still highly leverageable with our focused sales force. Pat Mackin: On NEXUS, our initial target is about 100 U.S. accounts. We can cover that with a small, dedicated team because these are elective cases. In Japan, we have a relationship with a distributor that has a dedicated team on the ground. We have the commercial infrastructure in Japan; we just need to work through the approval process. Jeffrey Cohen: As a follow-up, can we touch upon the tissue business? It was a strong quarter. Any puts and takes or trends for the balance of the year? Lance Berry: We have told people to think about that as a $24 million per quarter business. We did a little better this quarter, which is great, but that is within normal quarterly fluctuations. If it is a little less in a future quarter, do not read into it. As long as it averages to about $24 million for the year, that is in line with expectations. Jeffrey Cohen: Got it. Thanks for taking the questions. Operator: Our next question comes from Needham & Company. Your line is live. Michael Matson: Thanks for taking my question. Starting with AMDS, I understand the commentary around consignment and the $100 thousand sets, but why not put it on consignment? Is it tying up too much of your capital and inventory on hospital shelves, or is there another reason you are requiring hospitals to have this big expense to get started? Lance Berry: You can always flip to consignment; you can never flip back. It is an emergency case; they need it on the shelf. It is a differentiated product with incredible reimbursement, and we think it is something they should stock. Many accounts have made the purchase. We have hit a point where, further down the list, we are seeing resistance that we had not seen earlier. Our job is to overcome that barrier. We have multiple levers to pull and will come up with solutions as we move along. We are not going to throw in the towel at the first sign of resistance. Pat Mackin: The data are extremely compelling. AMDS can convert malperfusion to non-malperfusion with associated mortality and blood flow restoration benefits. It eliminates the need for vein grafts, with about a 30% difference in reoperation at 10 years and a 20% difference in mortality at five years. It is an emergency, there has not been innovation in 50 years, and it has the best DRG in the market. It should be stocked. Once you start consignment, you typically do not reverse it. Michael Matson: On international stent graft issues, you called out the Middle East and supply chain. Which was bigger? Pat Mackin: About half and half. We have significant business in the Middle East, and we did not contemplate the current situation impacting results, but it did. We also had supply chain items we were not anticipating. Michael Matson: On the revenue guidance of 7% to 11% constant currency, what are your assumptions for AMDS sets and international stent graft sales? Any improvement assumed? Lance Berry: There is definitely some improvement expected for AMDS starter set sales, but at a rate lower than originally anticipated. Roughly half of the guidance reduction is AMDS starter sets and half is international stent grafts. The international stent graft impact is split roughly evenly between the Middle East situation and supply chain issues we are working through. Michael Matson: Got it. Thank you. Operator: Our next question comes from Citizens. Your line is now live. Daniel Walker Stauder: Thanks for taking the questions. First on AMDS reordering behavior, usage was more than you expected. Are multiple surgeons utilizing at some of your larger accounts? Any additional color? Pat Mackin: Typically, a surgeon from an account goes to the training program, returns, and starts implanting, then trains partners or they attend training. In bigger centers, there are often two, three, or four surgeons handling acute type A dissections. We might train one at a hospital, but there are multiple on call. We are training more surgeons per account over time. As usage spreads within accounts, reorders increase. We were pleased that reorders were ahead of expectations. Daniel Walker Stauder: Any different margin contribution from reorders compared to initial orders? Gross margins were strong despite starter set softness. Lance Berry: There is no meaningful difference to gross margin. Both are strong. Daniel Walker Stauder: Thank you. Operator: Our next question comes from Freedom Capital Markets. Your line is now live. Analyst: Thank you. On On-X, can you talk about current usage split between younger and older patients before the new data and where it is today? Pat Mackin: We do not get real-time patient-level age data, but we have historical profiles. Based on recent conferences, there is a lot of discussion about papers showing a mortality benefit for mechanical valves in patients under 60 and about a 20% reoperation benefit at 10 years in mechanical versus tissue valves for patients under 65. We are getting that data out and are growing share in the bioprosthetic space where we previously had not. Much of our growth is from patients aged roughly 50 to 65, which is our focus segment. Analyst: On NEXUS go-forward plans, are there plans to bring Duo and Tre to the U.S., and what regulatory steps are required? Any logistical issues having a custom-made product coming from Israel into the U.S.? Pat Mackin: It is still early; we do not own the company yet, but we have strong collaboration. We are planning to bring Duo and Tre to the U.S. It will require a clinical trial. We will have an off-the-shelf version rather than a custom-made version, which is part of the innovation. We are working on timing and will update our pipeline after closing and integration. On logistics, for U.S. commercialization we will align supply to elective case scheduling, so we do not anticipate custom-made logistical constraints for the U.S. launch plan. Operator: We have an additional question from Canaccord Genuity. Your line is now live. William Plovanic: There has been some discussion on supply chain challenges, and it sounds like that will continue to impact going forward. Can you unpack what it is, the solution, and timing? How much of the portfolio does it impact? Lance Berry: We are not going into a lot of detail, but we have ring-fenced the issue. It relates to our supplier network. We have our arms around it and feel confident about solving it, but it will take a little time. The time to solve it is contemplated in our guidance. It is not broadly across the stent graft portfolio—specific to a small number of products. William Plovanic: Okay. Great. Thanks. Operator: We have reached the end of the question-and-answer session. I would now like to turn the call back over to management for closing comments. Pat Mackin: Thank you for joining the call. We are excited about the Endospan transaction and will be working to close that. This is an exciting day for the company as it is the final piece to the puzzle of our aortic arch solutions. We have AMDS approved under HDE in the U.S. now and are hoping to get PMA midyear. NEXUS just received approval, and you heard our launch plans. ARTISON is enrolling as expected. We have three PMAs in the arch—one approved, one about to be approved, and one on its way. It is very exciting for the company, and we appreciate your support as we continue to build this aortic company. Thank you. Operator: This concludes today’s call. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful evening.
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: Thank you for joining our LANXESS's Q1 Results 2026 Conference Call. [Operator Instructions] First, we will hand over to Eva Husmann, Head of Investor Relations, for opening remarks. Eva Frerker: Yes. Thank you, and welcome to our Q1 call. Before we start, please take note of our safe harbor statement. And as always, we have our CEO, Matthias Zachert here; as well as Oliver Stratmann, our CFO. Matthias will start with a quick presentation before we answer your questions. Matthias, please go ahead. Matthias Zachert: Thank you, Eva, and welcome all of you to our conference call on first quarter '26. I start the presentation straight on Page 4, where we comment on the key financial indicators. So as far as Q1 is concerned, we guided in March already that it will be a soft start to the year. We've seen lower volumes, especially in January, February, a positive tone on March where business started to improve from the volume side, and was clearly a difference compared to the previous months and also towards the fourth quarter. Please take note of the fact that, in the comparison base last year, we have a relatively strong dollar and still the contribution from our urethanes business units, both has changed. In first quarter this year, urethanes is no longer consolidated and the dollar has visibly weakened. That we put a lot of attention on cash flow and financial balance sheet strength is something that we have reinforced over the last few quarters, and you can clearly see that also in Q1. Cash flow is still negative, but that's the normal seasonality. We start off with negative cash normally in first and second quarter and then improve afterwards. And as far as net working capital is concerned, we clearly manage that pretty tightly. So compared to previous year, it's lower. I do expect a gradual increase now in Q2, also driven by the fact that the precursors in energy will move up. But nevertheless, we will continue running it tightly. Net debt beginning of the year normally sees an increase of EUR 100 million to EUR 200 million. And in light of the good cash management, you see that we, by and large, keep net debt at comparable level. Now, let's turn the attention to Middle East. Middle East escalation or conflict has swiftly changed market conditions. We clearly see that value chains are under pressure. We clearly see that customers have concern on delivery security. And therefore, let me give you the following color on what we would like to shed light on. And here, I clearly would like to stress that the conflict that we have seen, the war that we have seen in the Ukraine area, in the Ukraine situation massively impacted Europe and definitely led to a disadvantage as far as the European chemical industry is concerned. The Iran conflict is different. Whilst true Ukraine, Russian gas and oil was reduced in Europe. The Iranian gas and oil is primarily being a supply source to Asia. So while we were suffering in Europe through the Ukraine war implications, in the current Middle East conflict, we clearly stress it will put pressure on the worldwide economy, definitely as far as energy price inflation is concerned, but the region that suffers most is going to be Asia according to our analysis. Now logistical chains are definitely under pressure as well, but here, I can give you comfort. We have agreed contracts in place on ocean freight, on other logistical chains that are needed. And for that very reason, we had until now, no negative impact through supply that was being shipped to us or to our customers. Of course, we took note of the fact that prices were on the rise as far as chemical precursors and energy costs are concerned. So we saw the reaction on the oil markets, gas markets beginning of March. And that was the reason why we swiftly analyzed our market situation. And I think we were one of the first chemical companies that went out with a series of price increases in order to at least mitigate the current input cost inflation. On working capital, I alluded to the fact that we expect an increase in Q2, but it will be tightly managed. You can bet on this. Now let's turn the attention to Page 6. What we try to do here is simply to give you some facts on hand so that you can better understand how we look into our segments into current trading vis-a-vis Q1 and the last 2 quarters of 2025. When we look at the current conflict in Middle East, our assumption is that the Consumer Protection segment will, by and large, not be really affected. There will be some precursors on the rise, but the Consumer Protection segment is not so much impacted through oil derivatives. Here, basically, consumer demand is essential. And we do have some precursors coming here from China, so that is a watch out. But all in all, I don't expect that this will change the current trading vis-a-vis the past 2 to 3 quarters. On additives, we see a moderate upside potential. Of course, you need to take into consideration that flame retardants or bromine, for instance, is also coming and is shipped from Middle East. We don't depend on that primarily. We have sources in El Dorado, which is not affected at all. So here, we do see upside potential in trading, but the strongest momentum we clearly see in Advanced Intermediates. This segment and here notably the business unit, AII, was suffering through competition coming from China. And of course, we had a substantial amount of pressure on some of the value chains here. This should change. Here, customers are clearly looking for delivery security, 1. And second, we have seen over the last 4 to 6 weeks that even the chemical pricing on these products in China have been on the rise. And guess what, they are on the rise in our business as well. So this should give you some qualitative color on how you should look at the segments compared to the last 3 quarters. So let's see if you can then better model second quarter, and it's up to you how you look into '26 in total. What we would like to give you comfort for, or comfort on is our full year guidance. The world is in quite a turmoil for various reasons that are all known to you. We clearly see positive momentum for Q2. So we try to here give you a quantitative corridor of EUR 130 million, EUR 150 million, which would be a strong sequential improvement versus Q1, which we clearly see either driven through volume or through pricing, in some cases, driven by both in respective business units. But we don't change our yearly guidance in light of the turmoil that we see in the world. If Q2 momentum continues, of course, that could give further comfort to potentially go into the upper range of the guidance. But please take note of the fact that, escalation in the Middle East could accelerate again, and then we potentially look at demand crush and then we look into the lower end of the guidance. For that very reason, we give you a broad range where you slot in yourself is in your hands, but we want to give you comfort on the full year guidance and definite comfort that second quarter will come out sequentially clearly stronger than the first one. And here, we see that the business is moving accordingly. This is what we would like to give you as entry presentation on Q1, and we now open up the floor for your questions. Operator: [Operator Instructions] We have the first question from Thomas Wrigglesworth from Morgan Stanley. Thomas Wrigglesworth: A couple of questions, if I may. Just focusing on -- thank you for the guidance range that you've given for 2Q. That's very helpful. But how much visibility do you actually have into your order books? Do you have to make this solely on what you're seeing in April and make a best guess for the next few months? And any sense of how you think those volumes will continue through the quarter? Second question, if I may, just coming on to -- so one of the things that we've seen and it's in the context of Saltigo has been a significant spike in glyphosate and I assume glufosinate as well, which would suggest that maybe some of the generics from Asia are going to have less market presence for crop protection chemicals. I appreciate that Saltigo makes the API, but maybe this will see -- could we possibly see a rotation from customers away from generics given supply chain risk back towards more branded products, which probably have more LANXESS-orientated products embedded in them. So just kind of keen to get the crop protection picture, both from a disruption and actually, if you add any color around the seasonality, that would be helpful as well. Matthias Zachert: Tom, very valid questions, indeed. Let me take them one by one. As far as visibility is concerned, we have clearly April strong clarity as far as volumes and pricing is concerned. So sales are known to us. And we have a good order book for May. So a very reasonable visibility and of course, a softer but already a reasonable indication for the month of June. We see in April that the momentum from March continued. Of course, we know when our price increases will more and more contribute to quarterly support. Of course, we are still in the rollout of the announced price increases of March. So once you do a price increase, you afterwards go to your customers. In some cases, you have contractual agreements that you cannot change on a quarterly basis, but you then go for the spot markets and afterwards, you adjust for the quarterly contracts in the following quarter. So this is an ongoing process. But we know definitely that volume are at the same momentum that we've seen in March with a slight uptick for April and May. And then, of course, we know ourselves what price initiatives are ending up in the P&L and when this is going to occur. So as far as visibility is concerned, I think we have, for the next quarter, a reasonable good indication. Now your question on Saltigo is operationally very focused and smart. In the last 12 months, we have seen in the crop protection space and here I'm not alluding to glyphosate, but to Crop Protection specifically that the commodity products in Crop Protection were under severe generic pressure from India and China. And I think that was being mentioned by the big agro company themselves. They all alluded to pricing pressure, and that was definitely not on the innovative products, but on the commodity grades. Now with China facing substantial freight issues and cost explosion on trades and some areas also pressure in their supply chain, we definitely have to monitor the markets. We don't see an immediate reaction here in Europe, but that is likely to come in the weeks and months to go. And that could change, of course, the competitive landscape for the European crop protection companies, which we don't see at this point in time, but normally, we would see that 3 to 6 months later. So this is something high on our radar, and I'm very impressed that you have spotted that as well. Operator: The next question comes from Christian Bell from UBS. Christian Bell: So I just have a couple. My first one, I guess, picks up following the discussion in the previous question on April customer demand dynamics. Are you able to just please give a sense of how much of the volumes that came through in April were at the higher prices that were implemented in mid to late March. I'm just trying to understand, how much of those volumes that have come through are getting ahead of prices or whether they are -- what percentage is actually effective at the new pricing? And then my second question would be just to help us bridge to your EBITDA guidance -- at the midpoint, your second quarter guide is roughly 7% below last year, which implies you need to do about 20% growth in the second half to reach the midpoint of the full year guidance, which is quite an acceleration. So just what do you think underpins that acceleration? Is it largely price cost normalization? And then if possible, if you could sort of speak to any potential demand deterioration that you're thinking about that may offset some of that margin improvement? Matthias Zachert: Thank you, Christian, for these thoughtful questions. I would take them in the same sequence as you asked them. So as far as April is concerned, we basically see same to slightly modestly higher volume pattern compared to March. So this is positive because April is -- if you look into holiday seasonality, that was main impact here as far as Europe is concerned, in April Easter holiday season, la, la, la. So as far as underlying trading volume-wise is concerned, slight uptick versus March. On pricing, as I said before, we made the announcements in March, in course of March. And then afterwards, you -- wherever you have spot contracts, or spot pricing, you can then adjust customer by customer. This takes normally something like 4 to 6 weeks, depending on the customer base, depending on, of course, the sensitivity, elasticity they have, and then you change the pricing one by one. On the contract establish quarterly contract pricing, you basically can take that only with a certain delay, but that follows afterwards. So on pricing, generally, you should assume that this will ramp up first steps in April. Then, I would say, 2/3 will be reached in May and then the full effect you will see or should see in June. Of course, we have to monitor what implications that has on the volume side. But from the pure pricing side, there will be a gradual buildup at cost of Q2. And then, of course, if momentum remains healthy, the contract, the quarterly contract pricing would then be also a driver for Q3 going onwards. All this having this assumption that the underlying momentum on volumes will not change, and with all questions on geopolitical tensions. So that should hopefully answer your first question. Now on second quarter, I think my answer on the volume and pricing side will give you also some color on Q2. If you look into second half of this year, of course, our cost savings that we've initiated will gradually ramp up as well. And that should give you the indication that we are still not falling in euphoria for the second half. We are clearly very, very straightforward and not modest, but we take the current geopolitical tension very seriously. And therefore, we keep here our assumptions in a normal environment and not into a gradually improving environment. And with this, I think you have the best basis for modeling the full year implications for our company. Christian Bell: If I could just quickly follow up on that last point. Are you able to -- like given second half cost savings are important to the full year guidance, are you able to give us -- tell us what the net cost saving you are expecting in the second half will be from your cost saving programs, given that there should be a relatively, I guess, concrete level of foresight over there? Matthias Zachert: Yes. We've given you the yearly number, and I think this should suffice with the comments that I've made that this will gradually build up. And therefore, please take this as basis. Operator: The next question comes from Anil Shenoy from Barclays. Anil Shenoy: Just 2, please. The first one is a little difficult question on your unconditional put on Envalior in 2028. So you have mentioned that the put obligation sits at the Holdco level and not Advent. And I know you have a confidentiality agreement, and so you cannot give a lot of details. But just theoretically, what are the funding pathways that the Holdco will have in 2028? From what I understand, it's either refinancing from Advent or taking on external debt or dividends upstream from Envalior. Would that be the right way to think about it? And finally, on a sort of pessimistic note, if -- what happens if the Holdco declares bankruptcy? I mean, does -- in that case, does LANXESS end up becoming an unsecured creditor? In other words, basically, what I'm asking is, is there a risk to this unconditional put in 2028? Matthias Zachert: Yes. Let's take it step by step. First question is a question I cannot answer due to confidentiality reasons. And I stick to that 100%. Your second question, I've read your report. This basically shed at 100% concern on our company and completely hence one-sided. I was very much surprised about this. And therefore, let me simply come on a higher level. You said, it's a theoretical question. So I give you a theoretical answer. In insolvencies or bankruptcy, the party going insolvent loses everything. Everything is gone. It is normally by somebody who runs the insolvency afterwards, any possible areas where you can get proceeds is going to the lenders. So if there is a company holding shares, they lose everything, 100% loss. This is the consequence. Taking such a hit for any investor who might have a major investment is a complete disaster. Next to this, the company theoretically that goes into bankruptcy, loses its global reputation. That might be even a bigger damage. And therefore, that's my answer on your theoretical question with a theoretical answer, food for thought. Operator: The next question comes from Chetan Udeshi from JPMorgan. Chetan Udeshi: My first question was, you said you've already seen April sales. And I was just curious, you talked about volume versus March, but are you able to provide some clarity on when we think about year-on-year, how are we tracking in terms of volumes? Is it now up 5%, 6%, 7%? Any sort of color in terms of how you see the volume momentum building on a year-on-year basis, that would be helpful. The second question was LANXESS was one of the companies that was more active, I would say, over the last 18 months in pushing the European Union to do more of these antidumping investigations. Some of these investigation actually went into your favor last year with Adipic Acid, phosphorus additives and all those stuff. But I'm just curious, have you seen any benefit from these antidumping investigations in your numbers given that some of those were already decided and ruled into your favor in second half of last year? And the last question I have is, you mentioned about customers coming to LANXESS for security of supply. Is that because you actually -- based on your conversation with these customers, do you actually see that your Asian competitors are not able to supply right now? So in other words, some of your Chinese or Indian competitors, are they having supply issues? Or are customers coming to LANXESS just to make the supply chain more resilient rather than not necessarily driven by short-term supply shortages? Matthias Zachert: Thank you, Chetan. We will take them one by one, and Oliver will start on price and volume, and I take the other 2 questions. So Oliver? Oliver Stratmann: Many thanks, Chetan. Actually, I'm thinking about, what I could add because Matthias has already been pretty diligent here in outlining how volumes have picked up in March and what we have seen in April. And to be absolutely frank here, I wouldn't like to go into a monthly reporting now. I would just like to remind you that there is an awful lot of uncertainty out there. And I think the commentary that you've received so far is a positive one with regard to going into Q1 and going into Q2 and the volume development. And beyond that, we really need to see how things evolve, but the positive impetus is there. Back to Matthias. Matthias Zachert: So thanks, Oliver. Then on European dumping, I think, been very clear at the outset when we mentioned it that this is taking time. And we said that, this normally lasts 12 to 18 months. So this is the normal duration of an antidumping case or antidumping trial. You mentioned a typic asset. So that was one that was decided in, I think it was August last year, summertime. What you need to take into consideration is that the antidumping once it's declared is, of course, positive for any supplier operating in this market like us. But in the first antidumping cases, like on Adipic Acid, we have seen that China was loading up the value chains before the antidumping declaration was imposed. So China was loading this value chain by around about 6 to 9 months with capacity. And only once this capacity is absorbed, you truly see volume momentum rising and pricing rising. For Adipic Acid, this is now happening. So we have seen the declaration on antidumping last summer. The value chains and stocks were loaded immediately before the declaration became effective. I have to say, fortunately, the European Commission has realized this practice in many other similar cases and have now basically put the volume buildup under scrutiny as well. So this will be retroactive impacted by price adjustment or antidumping cases as well, which is a positive move. So this gives you the color. And I do expect that further antidumping cases will be decided in the course of this year. I know that many chemical companies have cases that are filed in the European Commission. We keep a close eye on this. And I do support that one and the other products could positively be impacted by us as well, which will help us going forward in areas where we see dumping being practiced. So that should address your second question. Now on the third question, there are basically 2 drivers. First, European customers want to protect their supply chain. They want to have security. They are concerned that similar disruptions could happen that they've seen in Corona times. So we've seen over the last 6 to 9 months that customers went to China because of pricing, pricing, pricing benefits. We had a very tough economic situation here in Europe. So pricing was essential. But now for many customers, supply security is higher in the priority and some of the customers that left for China in the last 9 months are coming back into our order book. We also see completely new customers, which is a positive sign. Second point is, I think also China and Chinese companies have realized that the pricing level of last year has also ruined the pricing level in China itself, which is not liked by the administration. And of course, long term, no company can generate losses. So we also see that the pricing level now in China is moving upwards, which is a clear difference to the last 12 months. And when the pricing level in China moves upwards, you can assume that then, of course, pricing in the European area is also being positively impacted by that. So you have 2 perspectives on this, and I think this answers your third question. Operator: The next question comes from Tristan Lamotte from Deutsche Bank. Tristan Lamotte: Two questions, please. The first one is coming back to your comments that you made on pricing timings. I was just wondering kind of high level, do you generally see net pricing is likely to be a positive? Or kind of how do you expect the phasing to be there? Is it, for example, negative net pricing in Q2 and then positive in Q3 if all current conditions stay the same? And then second question is, could you maybe elaborate a bit on the current dynamics in bromine? Because I think there was a price spike and the China price has fallen back. And obviously, I appreciate that you don't necessarily have direct exposure to the China price, but what kind of underlying dynamics are going on there? And has the demand fallen off versus what it was? Matthias Zachert: Thank you, Christian. Let's take that also step by step. So on your first question on pricing, I would like to give you the indication on a sequential basis, so not vis-a-vis previous year, but versus Q1. What we should see in second quarter that prices versus Q1 are -- should be up. The tendency, if the momentum continues, like I explained, and you assume that there is no insanity happening in geopolitics anymore or no further escalation, and current trading continues, you should also see a sequential price increase in Q3 vis-a-vis Q2. But with all the nonsense that is happening on the geopolitical side, I take that, of course, with some -- with a pinch of cautiousness, and I hope you understand the rationale for this. Now on bromine, I would like to allude again or come back to the stated seasonality we see in China on the spot market. We always have a seasonal price increase in bromine prices notably in Q4 and Q1 because of the bromine extraction methodology, i.e., water vaporization. So therefore, when in the colder months, Q4, Q1, you normally see that bromine prices are on the rise, and they go down again Q2, Q3. If you now look at the last 6 months, that was exactly what happened. Bromine prices went up. They went up to a high level of EUR 60,000, EUR 70,000 and are now moving down to around about EUR 38,000, EUR 39,000, EUR 40,000. This is the normal seasonal pattern. But overall, the pricing level is clearly still in the healthy territory. EUR 40,000 is 100% up compared to 1 year ago or 2 years ago, when the prices were more depressed. So now the pricing level despite having fallen now in the last 4 weeks is still at a reasonably high level. I hope that clarifies the points on bromine, Tristan. Tristan Lamotte: And maybe just a follow-up on the pricing question. I understood your comments on the kind of price rises timing. How does that align to the cost increases, i.e., what kind of net impact should we think about modeling? Or is that just too many moving parts to comment on? Matthias Zachert: No, no. This is a smart one, Tristan. I think we've always stated that a lot of our input costs are basically set up in a way that like in Q1, when you have a rise in input costs, you adjust in the quarter afterwards. So you've seen the increase in precursors on raw materials, on oil derivatives on energy. You've basically seen that already in March, with no real implication on our P&L because we clearly stressed that in March, we rather had a positive momentum, profitability-wise, turnover-wise. And this was volume driven, but not because input costs have been falling. They have rather been on the rise, but not impacting the first quarter P&L. The implications of the higher input costs will be visible in second quarter. That's the reason why we've given you the financial guidance. So we basically -- in our guidance of EUR 130 million, EUR 150 million, we absorb the rising costs that we have now seen in March, which will roll into our P&L in the second quarter. So that's the reason why we tried to give you a good hard landing so that you understand that we are sequentially clearly managing the situation and manage the input cost increases. Operator: And the last question comes from Georgina Fraser from Goldman Sachs. Georgina Iwamoto: Given the situation, I was wondering how your relationship with your distributors might be evolving. Are you kind of selling through the same distribution channels as historically? Or are you seeing more direct to customer sales? Matthias Zachert: May I understand more of the backgrounds to this question, Georgina? Georgina Iwamoto: Well, I wanted to understand if every single chemical company is discussing the fact that security of supply is #1. And the question is, are customers seeing the manufacturers as the most likely source of secure supply? Or are distributors being seen as being able to source from lots of different places. Does that make sense? Matthias Zachert: Yes, that makes sense. So I mean, the distributor world in chemicals is very broad. In parts, you have niche distributors, then you have specialized distributors in certain chemical value chains, then you have the bigger distributors that have the broad reach. You have some that only pack and ship, others give service like finishing, like analytics, et cetera. So the world in chemical distribution is very, very broad. So giving a general answer that solves everything is, I think, not possible. But I would like to give you the following. In our interaction, we use distributors basically globally, wherever we see that the size of the order level is simply too small for us or the customer is too distant away for us. So we use distributors. But companies like ourselves, of course, are more and more reinforcing the direct contact to customers as well. So this is a trend on our side, and I cannot speak for the industry, but what we are doing, we use distributors. But also we would like to have a better market transparency, market dynamics, customer trends, et cetera, on our end. And therefore, we strengthen the relationship also to the next level of manufacturing. And therefore, of course, also a question if we do need a distributor or not. So that is the one thing I can say for our group. Then for customers, we do see customers that want to have the direct access to the manufacturer in order to have clarity. and also preferred treatment. When we are selling to a distributor, there are some that are very, very close to us, but some that we simply used to pack and ship. If a customer is ordering from a distributor, he does not get the same preferred treatment that direct customers often have. And therefore, on the customer side, we also see that for very important precursors and chemicals, they also tend to establish more direct relationships. But I say again, this is this is an answer that does not apply to this huge distribution network that you have in the chemical space. There are different kind of distributors with different business models. So the specific answer I have given will not be an answer for the general industry. I hope that clarifies the point. Any further questions? Operator: So there are no further questions, and I will now hand back to Matthias Zachert for closing remarks. Matthias Zachert: Well, thank you so much for orchestrating this conference call, and thank you to everybody who listened in. I hope this was giving you enough color on current markets and trading environment. We will be now heading on the road to speak to investors and looking forward to the exchange. And if you have follow-up questions, please don't hesitate to touch on my Investor Relations team, and they would be very happy to take any questions and provide answers. Thank you so much. Take care, and bye-bye.
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: Good afternoon, and welcome to Flux Power Holdings, Inc.'s fiscal third quarter 2026 earnings conference call. At this time, participants are in listen-only mode. At the conclusion of today's conference call, instructions will be given for the Q&A session. As a reminder, this conference call is being recorded today, 05/07/2026. If you require operator assistance, please press star then 0. I would now like to turn the call over to Joel Achramowicz of Shelton Group Investor Relations. Joel, please go ahead. Joel Achramowicz: Good afternoon, and welcome to Flux Power Holdings, Inc.'s fiscal third quarter 2026 earnings conference call. I am Joel Achramowicz of Shelton Group, Flux Power Holdings, Inc.'s investor relations firm. Joining me on today's call are Krishna Vanka, Flux Power Holdings, Inc.'s CEO; Kevin Royal, Flux Power Holdings, Inc.'s Chief Financial Officer; and [inaudible], Flux Power Holdings, Inc.'s new Director of OEM Sales. Before I turn the call over to Krishna, I would like to remind our listeners that during the course of this conference call, the company will provide financial guidance, projections, comments, and other forward-looking statements regarding future market developments, the future financial performance of the company, new products, or other matters. These statements are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically our 10-K and our most recent 10-Q, which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements. Also, the company's press release and management's statements during this conference call will include discussions of certain adjusted or non-GAAP financial measures. These financial measures and related reconciliations are provided in the company's press release and related current report on Form 8-Ks, which can be found in the Investor Relations section of Flux Power Holdings, Inc.'s website at fluxpower.com. For those of you unable to listen to the entire call at this time, a recording will be available via webcast on the company's website. It is now my great pleasure to turn the call over to Flux Power Holdings, Inc.'s CEO, Krishna Vanka. Krishna, please go ahead. Krishna Vanka: Thank you, Joel, and welcome, everyone, to our third quarter conference call. As we anticipated and signaled last quarter, third quarter revenue was impacted by two factors: our largest material handling customer implementing a capital freeze and dynamic ordering patterns across the business. Late in the quarter, rising geopolitical tensions in the Middle East drove fuel prices higher, which further delayed some customer spending. Together, these headwinds pulled consolidated revenue below our expectations entering the quarter. Importantly, however, in both the ground service equipment business and with our material handling customer navigating their capital freeze, customer commitment to Flux Power Holdings, Inc. remains strong. We expect order activity to return to prior levels once these near-term headwinds subside. Given these headwinds, we moved decisively on cost. With our targeted headcount reductions and broader efficiency actions, operating expenses are down 30% versus the prior-year period. We continue to optimize our sales team, launching aggressive new marketing programs and expanding our OEM partner engagements. We have been successful in adding senior industry sales professionals to the team, and we are in the process of replacing our sales leader; we are anxious to have this position filled soon. Further, under new marketing leadership, we launched a comprehensive digital strategy spanning social media, lead generation, and brand awareness initiatives. We also had a strong showing at the MODEX show in Atlanta last month, one of the most important industry events on our calendar. The highlight was winning the Innovation in Sustainability Award. After a rigorous vetting process, including multiple booth visits from an elite panel of industry judges, Flux Power Holdings, Inc. was recognized for delivering an innovative sustainability solution not currently offered by any other company in our space. This award reflects our commitment to cleaner, more efficient, and holistic energy life cycle management from design through deployment to recycling. We believe no one in the lithium-ion battery industry does this better than Flux Power Holdings, Inc. Beyond the award, MODEX delivered on several fronts. Booth traffic was strong, with meaningful engagement from both new prospects and existing customers. We showcased recent advancements to our Sky EMS Fleet Intelligence platform, including mobile dashboards, real-time notifications, expanded data integration and API connectivity, and advanced reporting and analytics. We also featured our newly patented state-of-health technology, which we believe represents a significant advancement in battery life cycle management. I want to highlight another development driving new business activity. You may recall that we announced last quarter that we hired a new director to work with our existing OEM partners and to identify and cultivate new OEM partnerships. He has more than 20 years of experience working for material handling OEMs and their dealer networks. I will now turn the call over to our Director of OEM Sales to provide an overview of these efforts. Unknown Speaker: Thank you, Krishna. I am very happy to be with Flux Power Holdings, Inc. I am thoroughly enjoying working with our existing OEM partners and also working with other OEMs to introduce them to Flux Power Holdings, Inc. and identify how we can work together. I would like to highlight a few data points related to the global forklift market and the status of the electrification of the forklift industry. The global forklift market was approximately $87 billion in calendar year 2025. The electric share of new purchases in North America was 65% for the same period. Lithium-ion penetration stands at 32% at the end of calendar year 2024 and is projected to exceed 70% by 2034, with calendar year 2027 being the year that lithium-ion overtakes lead-acid as the preferred power source for electric forklifts. In addition, the North American forklift market is projected to grow at a compound annual growth rate of 17.2% through calendar 2031. These factors, along with Flux Power Holdings, Inc.'s strong product portfolio, are the primary reasons I am excited to be a part of the team. I have already been in contact with several OEMs. I am pleased with the responses I have received and look forward to securing new OEM partners. I will now turn it back over to Krishna. Krishna Vanka: Thank you. The company has also been working closely with existing OEM partners to optimize our pricing structure for our white-label products. We believe this initiative increases our competitiveness in the market and has resulted in increased volume commitments from our existing OEM partners. As a result of these developments, along with the proactive efforts I have outlined above, we are seeing positive indications of increased order activity going into the fourth quarter and expect sequential revenue growth of approximately 20% in the fourth quarter. Additionally, we are aggressively working to improve margins through near-term supply chain optimization, vendor renegotiations, and product redesign efforts. We believe that these initiatives will have a significant impact on our operating model and will improve our profitability. I look forward to providing additional details of these new efforts and our results on the next earnings call. Let me be clear. While I am excited with our new initiatives and we believe we are positioned positively in the market, I am not satisfied with the results. We are taking every step we believe is necessary to meet and ultimately exceed historic revenue levels, achieve profitability, and build a stable recurring revenue stream business. We have proven our potential to get there based on our Q2 performance. To achieve this profitability goal, the Flux Power Holdings, Inc. team remains intensely focused on the five strategic initiatives that continue to guide us, which include: number one, profitable growth; number two, operational efficiencies; number three, solution selling; number four, building the right products; and number five, integrating value-added software. We continue to make progress on these initiatives each quarter as they remain a top priority for the company. With that, I will now turn the call over to our CFO, Kevin Royal, to discuss our third quarter financial results in more detail. Kevin, please go ahead. Kevin Royal: Good afternoon, everyone. Revenue for the third quarter of 2026 was $6.6 million compared to $16.7 million in the same quarter last year. Gross margin in the third quarter was 27.3% compared to 32% in the prior-year period. The year-over-year decline in gross margin was largely due to changes in product mix and lower volumes resulting in higher unabsorbed labor and overhead. Operating expenses in the third quarter of 2026 were $4.8 million compared to $6.9 million in the third quarter of 2025. The year-over-year decrease in operating expenses primarily reflects cost reduction actions taken to reduce headcount and streamline the operating model. Net loss for the third quarter was $3.2 million, or $0.15 per share, compared to a net loss of $1.9 million, or $0.12 per share, in the third quarter of 2025. Excluding stock-based compensation, third quarter non-GAAP net loss was $2.9 million, or $0.14 per share, compared to a non-GAAP net loss of $1.1 million, or $0.07 per share, in the prior-year period, which also excluded costs associated with the multiyear restatement of previously issued financial statements. Adjusted EBITDA for the third quarter was negative $2.5 million compared to negative $500 thousand in the same quarter a year ago. Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $400 thousand compared to $1.3 million at the end of our 2025 fiscal year. I will now hand the call back to Krishna for closing comments before we open it up to your questions. Krishna Vanka: Thank you, Kevin. In summary, I want to emphasize that the entire Flux Power Holdings, Inc. team remains fully focused on executing our key strategic initiatives as we navigate these short-term challenges. We believe the markets we are targeting in the global lithium-ion industry continue to offer expanding growth opportunities. In addition, our leaner cost structure, margin improvement initiatives, new product development, and enhanced sales and marketing efforts are designed to position us for a return to growth and profitability as revenue recovers. Thank you for your continuing interest and support of Flux Power Holdings, Inc. Operator, you may now open the line for questions. Operator: We will now open the call for questions. To ask a question, please press star then 1. 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. At this time, we will pause momentarily to assemble our roster. Mr. Vanka, you have a clarification. Krishna Vanka: Yes. I want to clarify the sequential revenue growth. It will be approximately 20% in the fourth quarter. I want to make sure that came out clearly; there was some double connection on the line. Operator: The first question comes from Sameer Joshi with H.C. Wainwright. Please go ahead. Sameer Joshi: Good afternoon, Krishna and Kevin, and welcome to the team. Thanks for taking my questions. Maybe the first question is for your Director of OEM Sales. You highlighted the market growing at around 17.2% CAGR to 2031. What is the approach you are taking to grow faster than this 17.2% for Flux Power Holdings, Inc.? Krishna Vanka: I will start the answer, and then we will have our Director of OEM Sales follow up. Our approach is to continue working with existing OEMs to further gain share of wallet, as well as work with new OEMs so that we are not only certified, but eventually work more closely with them. Unknown Speaker: Thank you, Krishna. That is a very good question. We are working with OEMs—some under nondisclosure agreements—whose path forward in the market is to transition the majority of their product lines to electrified lift truck models. That aligns with our goals to grow with them and ahead of them, so that we are ready for the market as they continue to phase lead-acid out of their operations. Sameer Joshi: Understood. Krishna, you mentioned 20% sequential growth. Do you have any further visibility beyond that for 2027 in terms of the pipeline you are looking at and maybe orders that are already on the books that will be executed in the fiscal first and second quarters? Krishna Vanka: We are definitely seeing increased activity, and we believe we are coming back up from this quarter—picking up 20% this quarter—and then hopefully continuing that trend forward. The geopolitical situation is not helping, so we hope that will subside soon. We are investing significantly into marketing. We have optimized pricing as we mentioned on the call. We are working closely with our Director of OEM Sales on more OEMs, and we are looking at a new sales leader. All of the above should allow us to continue to grow beyond Q4 and into Q1. Sameer Joshi: Understood. On your comprehensive social media strategy, can you give a bit more insight into what that entails, and does it incrementally add to operating costs going forward? Krishna Vanka: Our digital strategy focuses on generating more qualified leads for our sales team, especially as we target top fleets. This includes collecting information through social media and running significant account-based campaigns. We are seeing good feedback. MODEX proved that we are not only getting good leads, but also quality leads as we follow up. We are doing all of this within the existing budget by focusing the team on what is important. With Michelle, our Director of Marketing who joined about six months ago, we put this program together and started executing in January. We are starting to see the fruits of it, and we are positive it will help build pipeline and backlog. Sameer Joshi: Understood. Thanks for taking my questions. Congratulations on the success at MODEX, and good luck for the rest of the year. Operator: The next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead. Rob Brown: Good afternoon. Thanks for taking my question. Just to clarify the outlook, it is 20% growth off what you reported here in Q3. Is that the baseline? Krishna Vanka: Yes, that is correct—sequential. Rob Brown: And then on visibility for the lifting of the capital freeze, do you see that coming, or is that still to be determined? Krishna Vanka: We do see indications of an eventual lift, but not this calendar year. Rob Brown: Thank you. Operator: Again, if you have a question, please press star then 1. The next question comes from Craig Irwin with ROTH Capital Partners. Please go ahead. Craig Irwin: Good evening, and thanks for taking my questions. Can you compare the relative levels of activity you are seeing in the electric forklift market versus the airport ground equipment market? You have introduced new technology to these customer groups over the last few years with specific product introductions. Can you help us unpack relative activity in these two markets and whether some of these product changes are helping you generate leads that will convert to revenue over the next couple of quarters? Krishna Vanka: Thanks, Craig. Our solutions are being very positively received. We continue to lead the GSE space with respect to lithium-ion solutions through our partner. Any lag we are seeing is due to broader market dynamics, not our product portfolio or GSE in particular. The forklift market has been moving up and down with tariffs and sensitivity to capital spending, and we were particularly affected by one customer's capital freeze, which was beyond our control. Overall, we are seeing increased activity. There was a pickup during the tariff changes, and then the war added some stress again. In both cases, we are looking at growth. In forklift, we are working closely with OEMs and dealerships and pursuing more certifications. In GSE, we remain committed to working with our partner as they bring new airlines into the mix. Craig Irwin: Thank you. Given the sequential progression in revenue, I was pleasantly surprised that margins were as strong as they were. Can you talk about what went right on gross margin and how this should impact progress over the next couple of quarters toward your longer-term targets of 40%? Kevin Royal: We have focused on improving product cost, working with existing vendors in some cases and, in other cases, creating competition by putting certain subassemblies out for bid, thereby lowering cost. That work is ongoing. We have seen a fair amount of progress that has not fully rolled through cost of sales yet because we hold inventory of older, higher-priced components. We also have additional plans for product redesigns, which take longer, so we will not realize those improvements for probably 12 to 15 months. We are happy with the progress thus far from working the supply chain side of the equation. Craig Irwin: Understood. Last question is on the balance sheet. Kevin, inventory management looked good. What stood out was approximately $4.6 million in cash in from receivables. Did you change terms, offer discounts, or were there specific items that allowed you to cut receivables by more than 50% in the quarter? Kevin Royal: We did not change terms. We have been fortunate, even with deteriorating conditions in some cases, to hold the line on payment terms. We had strong collections from last quarter’s shipments, which helped reduce receivables by the March 31 balance sheet date. Operator: Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Krishna Vanka for any closing remarks. Krishna Vanka: Thank you again for joining today's call. We look forward to speaking with you all again on our Q4 call during the September timeframe. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. 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 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: Greetings, and welcome to the KORU Medical Systems First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Louisa Smith from Investor Relations. Louisa Smith: Thank you, operator, and good afternoon, everyone. Joining me on the call today are Linda Tharby, Chief Executive Officer of KORU Medical Systems; Adam Kalbermatten, President and Chief Commercial Officer; and Tom Adams, Chief Financial Officer. Earlier today, KORU released financial results for the first quarter ended March 31, 2026. A copy of the press release is available on the company's website. I encourage listeners to have our press release in front of them, which includes our financial results and commentary on the quarter. Additionally, we will use slides to support further commentary in today's call, which are also available on the Investor Relations section of our website. During this call, we may make certain forward-looking statements regarding our business plans and other matters. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to risks and uncertainties, including those mentioned in the associated press release and our most recent filings with the SEC. We assume no obligation to update any forward-looking statements. During the call, management will also discuss certain non-GAAP financial measures. You will find additional disclosures, including reconciliations of these non-GAAP measures with comparable GAAP measures, in our press release, the accompanying investor presentation, and SEC filings. For the benefit of those listening to the replay, this call was held and recorded on Wednesday, May 6th, 2026, at approximately 4:30 p.m. Eastern Time. Since then, the company may have made additional comments related to the topics discussed. I'd now like to turn the call over to Linda Tharby, Chief Executive Officer. Linda, please go ahead. Linda Tharby: Thank you, Louisa, and good afternoon, everyone. Before we get into the quarter, I want to briefly acknowledge that this will be my final earnings call as CEO. As we shared last quarter, Adam has been appointed as my successor and will step into the role on July 1st. The transition is well underway and is progressing extremely well. I have great confidence in Adam's leadership and in the continued momentum of the business under his direction. I'll begin today with some commentary on our performance highlights in the quarter, and then Adam will step in to speak about our broader strategy. Tom will then walk through our financial results before we open the call for questions. Q1 2026 was a record start to the year. We delivered $11.8 million in revenue, representing 22% growth over the prior year period. This reflects the strength and consistency of a recurring revenue model business built on the foundation of approximately 60,000 patients on the KORU platform. A few highlights. Domestic core grew 12% year-over-year, driven by new patient diagnosis starts in both legacy KORU accounts as well as competitive conversions, driving outperformance within a strong underlying SCIg market. International core grew 35%, driven by prefilled syringe conversions in Europe and strong distributor orders in a new market to support this growth. Within our non-Ig pipeline, two of our existing pharma collaborations advanced assets within their Phase III clinical trials, including one for an expanded indication and the other restarting their trials for a new drug application. We executed to plan in submitting our 510(k) application for the use of the Freedom Infusion System with deferoxamine, reflecting further tangible progress in our growing commitment to expand beyond Ig. From a balance sheet perspective, we used only $100,000 in cash this quarter, ending the period with $8.8 million in cash, reflecting our continued progress towards sustainable profitability. We are reiterating our full-year 2026 guidance for revenue, gross margins, adjusted EBITDA, and cash flow. Overall, this was a very good quarter, delivering strong revenue growth and continued execution against our strategic priorities. And now I am pleased to turn it over to Adam. Adam Kalbermatten: Thank you, Linda. I'm encouraged by what lies ahead for KORU. Before I discuss our strategy more broadly, I'd like to take a moment to reflect on how our recent performance fits into the three-pillar strategy, protecting and growing our domestic core business, international expansion, and enabling more patients by adding more drugs to our Freedom Infusion System. The three strategic pillars we've been executing against are all moving in the right direction, and they remain central to our focus as I step into my role as CEO. The first pillar is protecting and growing our domestic core business. Our U.S. business continues to outperform the underlying SCIg market, driven by capture of new patient diagnosis starts in both legacy KORU accounts as well as competitive account conversion and further supported by a strong recurring revenue base serving chronic immunodeficient patients. Regarding the recent clearance for RYSTIGGO on KORU's label, our commercial rollout with this asset is advancing as planned. We are working through clinical evaluations with specialty pharma companies, and we expect the incremental revenue contribution from RYSTIGGO this year to be modest. Most importantly, however, this rollout represents meaningful progress as an entry point into the ambulatory infusion clinic channel and marks an important expansion of our platform beyond the home setting as RYSTIGGO is administered across both home and ambulatory infusion clinic environments. We believe this positions us well for increasingly meaningful contributions in this channel in the years ahead. We also want to highlight secondary immunodeficiency or SID as an important emerging opportunity for KORU. Outside the U.S., SID has already become a key priority for major pharma players, and there has been increasing focus on Ig manufacturers translating that success in the U.S. market with several ongoing pivotal trials expected to reach their endpoints in 2027. Should reimbursement coverage expand in this area domestically, it could meaningfully broaden our addressable opportunity in SCIg with another indication. In terms of current market dynamics, the SID market growth has been tracking ahead of the broader SCIg market, with growth currently being driven primarily by immunologists. However, we anticipate that as the clinical trials conclude, SCIg manufacturers will begin actively marketing to hematologists and oncologists who recognize the unmet need for patients following courses of treatment with immunosuppressive drugs like chemotherapy and ultimately opening up an entirely new and incremental patient population that we believe KORU is well positioned to serve. The second pillar is international expansion, and this remains one of the most exciting areas of our business. Today, our international growth has been led by SCIg, but consistent with our domestic strategy, we are establishing a footprint designed to support an extension into non-Ig drugs over time. In the first quarter, we delivered 35% international growth, and we believe we are still in the early stages of a much larger long-term opportunity. With key EU markets coming online in 2026 through the pharmaceutical manufacturer-driven vial to prefilled syringe conversions, there is significant runway for continued market penetration. Our growth rates in these markets will continue to be variable as we continue to deepen our knowledge and expand our capabilities across reimbursement, pharmaceutical and home care partnerships. Beyond this core SCIg opportunity, we are also actively exploring the expansion of our oncology initiative into international markets, an area we view as a longer-term growth driver for the company and one for which we already have compelling market insight given some of our early hospital work on the KORU value proposition, including last year's Denmark nursing study. The third pillar is enabling more drugs to reach more patients. Our pipeline continues to advance meaningfully with new drug submissions, Phase III trials with the KORU Freedom Infusion System and multiple new feasibility agreements. We are engaged in active conversations with partners across multiple therapeutic areas, conversations that we believe will translate into tangible opportunities for KORU in the years ahead. Turning to the pipeline. We now have eight active non-Ig drug opportunities in development, which together represent more than 6 million annual infusions worldwide, a meaningful reflection of the breadth and scale of what we are building. To put that in context, 6 million incremental annual infusions would represent approximately double our current SCIg business revenue, where we estimate we are enabling the delivery of nearly 3 million infusions a year, underscoring the significant long-term growth potential embedded in our pipeline. I want to highlight two important updates this quarter. As Linda noted earlier, two of our existing non-Ig pharmaceutical collaborations have advanced to Phase III clinical trials, and we remain an infusion device supplier for those trials. Apellis continues to invest resources in adding new clinical indications for Empaveli, having progressed into Phase III trials for the drug's fourth indication, this one in DGF or delayed graft function. We estimate this unmet need within nephrology represents an additional 25,000 annual infusions across the pediatric patient base. And second, one of our undisclosed pharmaceutical partners has reinitiated Phase III clinical trials on one of its assets, for which we believe the opportunity to be 500,000 annual infusions. The progression of both of these drugs in their clinical pipelines represents meaningful signals of forward momentum across our development portfolio and another step forward in potentially recognizing commercial revenue opportunity upon these drugs' commercial launches. Additionally, we submitted our 510(k) application this quarter for use of the Freedom Infusion System with deferoxamine, for which we estimate that there are approximately 200,000 annual infusions of this drug, another base hit for our non-Ig strategy. We also made the decision this quarter to remove vancomycin from our active development pipeline. As we reviewed the market opportunity, the current usage we are already seeing and the risk of an infusion to the central artery, we chose to commit our resources to align to our greatest commercial opportunities. The incremental 2026 revenue associated with vancomycin was expected to be modest, and we remain confident that our current guidance still accurately reflects the strength and trajectory of the business going forward. Turning to oncology specifically. We continue to have highly constructive discussions with pharmaceutical partners on a range of oncology assets and the opportunity ahead remains strong. We are in active communication with the FDA regarding our Phesgo submission, and we are also in early discussions around an additional high-volume oncology asset that we believe could be significant for us. We look forward to providing further updates as these discussions progress. The momentum building across our domestic business, international expansion and pipeline reflects progress on our three-pillar strategy. Each pillar is advancing and the compounding effect of that execution is what drives durable long-term value creation. We remain focused on maintaining that discipline as we move into the next phase of KORU's growth. I'll now turn things over to Tom for a review of our quarterly financial results and 2026 outlook. Tom Adams: Thanks, Adam, and good afternoon, everyone. We are very pleased with another strong quarter with revenue of $11.8 million, which represents 22% year-over-year growth and speaks to the underlying strength of the business. Breaking down by segment, domestic core grew 12% year-over-year. Growth was driven by higher consumable volumes from new patient starts and market share gains within new and existing accounts against the healthy SCIg market backdrop. International core grew 35% year-over-year, driven by higher pumps and consumables volumes in support of prefilled syringe conversions in the EU market. We saw strong first quarter distributor orders from one of our new 50 ml prefill markets, where we saw a bolus of pump orders for new patient starts and moving forward, we'll expect to see end user pull-through of our consumables. We remain highly encouraged by the opportunity ahead of us in the EU. PST revenues grew 166% over the prior year period, driven by higher clinical trial product revenues from our pharma collaborations who are advancing in their clinical trials. As always, this business will remain variable based on milestone and clinical trial timing, but the underlying activity level with pharmaceutical companies remains high. On gross margin, we delivered 61.5% for the quarter to 62.8% in the prior year period, a 130-basis points reduction year-over-year. The primary drivers of the decrease were higher production costs based on timing of production runs at the end of 2025 that were amortized in Q1 as well as tariff-related charges that did not occur in the prior period. These were partially offset by favorable geographic sales mix. Adjusting for the 87-basis point tariff impact, gross margins for the quarter would have been 62.4%. Despite the tariff headwinds in the quarter, we remain confident in our full year guidance range of 61% to 63%. Turning to cash. We ended the quarter with $8.8 million, reflecting minimal cash usage of $100,000 in the quarter. This was driven by 22% revenue growth and continued operating leverage. On a cash flow from operations basis, Q1 was essentially breakeven, a strong result given the normal seasonality patterns of the business. As we've noted before, Q2 is expected to be our heaviest cash usage quarter for the year, driven by the annual one-time cash outlay for last year's performance bonuses paid in April. We expect positive cash flow in the back half of the year as revenue ramps and planned operating leverage builds. Based on these dynamics, our full year guidance of positive cash flow remains intact. And as a reminder, we also have access to our unused $10 million debt facility, which provides additional financial flexibility for incremental opportunities as we execute against our growth plan. Looking at the full picture for Q1, revenue grew 22%, gross margin was 61.5% and net losses improved 33% to $800,000 and adjusted EBITDA was minus $10,000, essentially breakeven and a 95% improvement versus the prior year period. Operating expenses increased 11% versus the prior year. We continue to invest strategically in sales and marketing and R&D to support growth while maintaining spending discipline across the business to drive operational leverage. On guidance, we are reiterating our full year 2026 outlook with revenue of $47.5 million to $50 million, representing growth of 15% to 22%, gross margin of 61% to 63% and positive adjusted EBITDA and positive cash flow for the full year. Growth momentum in the business continued to advance in the quarter. We are maintaining the current range with the guidance we provided in March. Our Q1 results were benefited from strong PST revenues associated with clinical trial orders. We are also watching how dynamics related to how end user adoption develops behind the strong distributor orders we saw in Q1 in our prefill markets. Let me walk through each component in further detail. On revenue, the primary growth drivers are continued U.S. and international share gains in SCIg, NRE and clinical trial revenue from ongoing and new collaborations and modest incremental revenue from pending 510 clearances. We continue to expect these drivers to build through the year, taking into account some upticks in initial orders. We expect the back half to be weighted more heavily as recent clearances and new prefilled geographies ramp up and patients are added. We have also incorporated geopolitical risk associated with the Middle East in our guidance. We continue to expect revenues to ramp in the second half. On gross margin, we are maintaining our full year range of 61% to 63%. We expect pricing and manufacturing efficiencies to support our range through revenue mix variability in new markets and channels could move margin modestly in either direction quarter-to-quarter. We continue to be active and are making progress with cost improvement initiatives through our operational excellence programs to drive margins higher. On cash, we were disciplined in our usage this quarter. Q2 is expected to be our heaviest usage quarter from our annual one-time prior-year bonus payouts. And moving into the second half, we see operating leverage building through the year with a positive cash flow anticipated in the second half. I'll now turn the call back over to Adam for additional comments on our forward momentum. Adam? Adam Kalbermatten: Thanks, Tom. I want to take a few minutes to talk about what lies ahead. On the domestic side, we now have two new non-Ig drugs on label. RYSTIGGO was cleared earlier this year in January in addition to the earlier Empaveli in the U.S., Aspaveli in the EU approvals starting in 2022, which are now generating broader patient indications. Our oncology opportunity continues to advance. Our Phesgo 510(k) is currently under active FDA review, and we are also in productive discussions related to another high-volume oncology asset. On the international side, we achieved EU MDR clearance of our Freedom60 with prefilled syringe compatibility earlier this year and are supporting the EU conversion. We are also actively exploring the expansion of our oncology opportunity into international markets. Alongside our pipeline and market expansion work, we continue to invest in the next generation of the Freedom platform. We plan to submit a 510(k) and MDR applications for the next-generation Freedom60 pump in 2026, and we are targeting the submission for the flow controller in late '26 or early 2027. The pharmaceutical pipeline remains strong. We have four new collaborations targeted for this year, two of which have already been in signed. Two existing collaborations have advanced to Phase III clinical trials. And with the deferoxamine 510(k) submitted this quarter, we are steadily building towards a diversified platform spanning multiple therapeutic areas, one that we believe will define the next chapter of recurring revenue growth for KORU. I want to close with a broader framing of where we are going because I believe the best is genuinely ahead of us. The foundation we have built is differentiated and durable, a growing recurring patient base, a patient-preferred delivery system, deep and expanding pharma partnerships and a platform purpose built to support multiple drug categories across multiple therapeutic areas. That foundation positions KORU for something meaningfully larger than where we are today. Our long-term targets are clear, and we are executing toward them with discipline, $100 million in revenue, accelerated double-digit revenue growth, gross margins above 65% and EBITDA margins of 20% or greater. Achieving those targets requires continued focus on three things, growing our domestic market share, expanding internationally as we help to enable the pharmaceutical manufacturer vial to prefilled syringe market conversion and adding more drugs on our label. We know what we need to do, and we are doing it. The first quarter results are a tangible demonstration that we are on the right path. The pipeline is advancing. The platform is expanding, and the team is executing against the strategy in an exceptional way. As I step into the role of CEO, I do so with a deep sense of responsibility and an equally deep sense of confidence in what this capable company is able to achieve. KORU's most significant chapter of growth is ahead of us, and I cannot be more energized about what that means coming next. With that, I'll turn it back to Linda for closing remarks. Linda Tharby: Thank you, Adam. Q1 sets the tone for 2026, underscoring the results we've been working hard to deliver and is a reflection of how far this organization has come. As I step back from my role at KORU, I leave with real confidence in Adam's leadership, in the strategy and in this team's ability to execute against it. The strategic pillars are in place, the pipeline is advancing and the commercial momentum is there. I have no doubt that the path to $100 million in revenue, margins above 65% and EBITDA of 20% or greater is within reach. It has been a privilege to lead this company and to work alongside such a talented and dedicated group of people. I want to express my sincere gratitude to our employees, our customers, our partners and our shareholders. To the entire KORU team, thank you. What we have built together and what you will continue to build is something I am incredibly proud of. I remain fully supportive during the transition, and I'm confident the company's best days are ahead. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question will hear from Caitlin Roberts with Canaccord Genuity. Caitlin Cronin: Linda, again, congratulations on the next chapter of your journey. Just to start off, maybe just the rationale for keeping top line guidance the same despite the beat this quarter. And if you could give us some insight into the maybe updated cadence for the year. Linda Tharby: Thank you, Caitlin, for your wishes. And yes, we are very excited that we have a strong quarter behind us and good momentum heading into the year. I will let Adam comment on the guidance for the year. Adam Kalbermatten: Caitlin, thanks for the question. As Linda was mentioning, we're really, really happy with the strong start to the year in Q1. We have a lot of momentum. We're continuing to outperform the market and international growth remains strong. In addition, we're finding a lot of new opportunities. One of the things is we're going after bigger opportunities, we are seeing that there's some more variability there, really around the vial to prefill syringe conversions in Europe and how we're going about entering each of those markets. We continue to see a lot of really good momentum there. But at the moment, we're pretty confident in our guidance, and we're just not looking to make any changes on that at the moment until the year plays out a little bit further. Linda Tharby: I was just going to hand it to Tom for the cadence question, Caitlin. Tom Adams: Caitlin, you can think of our -- in terms of our guidance, you can think of the pattern, specifically in Europe. similar to last year, where we have initial markets that are ordering pumps, if you will, to start their initial adoption. We expect to see that adoption play through in Q2. And then after that happens, we expect to see strength in the back half of the year. So very similar to what we saw last year in the case of the European and the international markets. Caitlin Cronin: Understood. And then just thinking about adding new drugs to the core revenues, how much of your core mix is Empaveli and Aspaveli today? And do you have any expectations for non-Ig mix this year over the next few years? Linda Tharby: Yes. Maybe just -- I'll start and then hand it to Adam for more specifics. So broadly, we don't comment on any specific drugs contribution. But what we have said is that all of the new drugs we're adding, we expect to add between $0.5 million and $1 million in 2026 via those new label additions. With that, I'll turn it to Adam. Adam Kalbermatten: Yes. So, as we are thinking about non-Ig drugs, I mean, one of the recent ones we had approval on is with RYSTIGGO, and we're seeing some really good traction on that so far. Between RYSTIGGO and some of the other drugs outside Ig, we're continuing to look at anywhere between $0.5 million and $1 million overall is what we're targeting to plan. We're tracking really well against that overall, throughout the first quarter and looking forward to continuing to execute that plan as we get to the rest of the year. Tom, anything else you want to add to that? Tom Adams: No, I think you guys hit it pretty well. Operator: Next, we'll move to Frank Takkinen with Lake Street Capital Markets. Frank Takkinen: Wishing you the best in retirement, Linda. I look forward to keeping in touch. I was hoping to start with some additional color on oncology conversations. I think Adam twice in the prepared remarks, you referenced kind of the what's up beyond Phesgo and large volume oncology infusions. Can you just maybe speak a little bit more about that? When could we see the second oncology? I know we're still waiting for the first, but when could we see the second oncology and maybe magnitude of size would be helpful color as well. Adam Kalbermatten: Frank, great question. You picked up on that earlier. So, we're really excited about the oncology opportunity, right? Just to kind of frame that out at a higher level. We're seeing it today as almost a $40 million market opportunity growing over the next five years to over $120 million. Putting that in perspective, that's roughly 4 million units today, growing to over 10 million units. We did file for Phesgo at the end of last year. We are in active discussions with the FDA. So, we still continue to be really excited about that. We continue to expand into other areas where we have some other potential drugs that we're looking to bring on label. So, we do have some active discussions ongoing now. As we see it continuing to go forward, we're hoping that towards the end of this year, hopefully, in the next quarter, we have an update on where we are with Phesgo moving forward. But at a high level, still really, really excited about where this is going and what it can do for us. Phesgo alone is approximately 1.1 million, 1.2 million units a year. So, we see that as being something that would be really, really great entering into these infusion clinics. Frank Takkinen: Got it. That's helpful color. And then I was hoping to follow up on the distributor. I think last year, we saw this play out. And obviously, there was extreme growth from the geography launch with prefilled last year. But we had a distributor order come in, and I think there was a concern that, that was going to be the big order of the year. And then what we actually saw was orders increasing in magnitude of size throughout the year. Is there a chance that, that dynamic could actually happen again as this geography is just getting up and running on prefilled? Tom Adams: Yes, Frank, thanks for the question. Yes, similar to last year, you are correct. We did see some nice orders in the first quarter of 2025. Then we saw a little bit of a lag after that in this particular market. And as I mentioned, as adoption and rollout happen, that took about a quarter. And then you're right, we saw the ramp-up really start to pick up in the second half of the year, particularly in our international business. So, we do expect a similar pattern. We entered the next phase of a launch in a particular market. And so, we see a similar pattern rolling out here in 2026. Operator: And next, we'll move to Jason... Jason Bednar: Can you hear me okay? Linda Tharby: We can hear you, Jason. Jason Bednar: Great. Linda, I will add to the well wishes here. Have been great working with you and wish you all the best. Adam, I want to follow up on, I think, Caitlin's question earlier on the revenue side. So, I think the midpoint of the guide, I mean I appreciate it's early in the year, still you left it unchanged, but it does imply a little bit of a decel from the revenue growth rate we saw in the first quarter. I think midpoint something like mid-teens implied over the balance of the year. So, what decels from here? Is it the U.S. that decels in the growth? Is it international that decel in the growth? And then also within the whole answer, if you could, I think I heard you're building a little bit of cushion or uncertainty around the Middle East. So, if you can maybe quantify or size that for us, it would be helpful. And then also within the whole answer, if you could, I think I heard you're building a little bit of cushion or uncertainty around the Middle East. So, if you can maybe quantify or size that for us, it would be helpful. Adam Kalbermatten: Yes. Absolutely. I heard a few things in there. So let me start, and then maybe I'll pass it to Tom. In terms of where we've started the year, we're feeling really, really good about everything ongoing, both domestically and internationally. As we look at international markets and where we see some of the high growth coming, it's really country by country and figuring out the pieces of the puzzle in each of these countries, how the health care systems work. As we're going forward, we're planning to do a lot of blocking and tackling. And depending on how that uptake continues to go, it's going to go at different speeds in different markets. Compared to last year, when we converted the large international market, it's a little bit of a different approach, where it wasn't a pharma-driven tender. It's more of "How do we go out and actively convert those markets on our own?" And we're working with partners to do that, but it's a little bit of a different approach than last year. So, we want to continue to see how that plays out over the second quarter with the balance of the year. But overall, we're still seeing very positive momentum, very, very happy with how we started the year, and we're encouraged that we're on track and continuing to move forward in a very positive fashion. But Tom, maybe you want to take that second part of the question. Tom Adams: Yes. I'll just reiterate some of what Adam said. And the fact of the matter is that we are still largely a distributor market in our international business. And with that, you do get distributor orders that are ramping up for launches. So, we did see some of that in Q1. So, we know that some of that has to play out. We know that we need to see that patient conversion happens. And then we typically see it backed up by orders after that conversion starts to pull through. So, we did see some of that in Q1. And then again, the type of market is different. The tender markets are generally faster because the pharmaceutical is the financial backer of the tender markets, and the reimbursement markets are generally a little slower. So, we're taking all those dynamics into effect with our phasing in our quarters. But I will say we start off pretty strong with our Q1 results. Linda Tharby: He also asked about the timing of the phasing for the Middle East and the comment there. Tom, if you can comment on that. Tom Adams: Yes. So, in terms of the Middle East, if you all remember last year, we started up a distributor in the Middle East. We have one large one that dominates it for us. And we saw some strength, we are just cautious this year, just due to the geopolitical risk. We don't see the strength in the orders so far this year. So, we're just putting some caution around that Middle East distributor. Not a meaningful part of our business, but one that we're just making sure that we're cautious with, given the risk in the region. Jason Bednar: Okay. All right. That's helpful. And then just as a follow-up, I mean, actually kind of dovetailing off of that, the Middle East point. Now a lot of companies are dealing with fuel surcharges, freight increases as they source product, just given where oil is. So, I don't know if you're seeing that. Maybe you can speak to that a little bit, just how you're handling that in terms of are there mitigation actions underway if you are seeing that in your sourcing? And then also, are you passing along any fuel surcharges or price increases to your customers? Tom Adams: Yes. Thanks, Jason. We're watching that situation closely, specifically with oil prices with respect to our supply chain. We do procure plastics from different parts of Asia, et cetera. So, we are watching it. So far, we haven't seen any impacts that are material to our business. But we will continue to monitor the situation. We know this conflict started in Q1. So, we think there will be some time before it really hits. But for now, we don't see any meaningful impacts. Jason Bednar: Congrats, Linda. Linda Tharby: Thank you, Jason. Pleasure to work with you as well. Operator: And next, we'll move to Chase Knickerbocker with Craig-Hallum Capital Group. Chase Knickerbocker: So, just first for me, if you could give us a quick update on kind of what you saw from an SCIg volume growth in the market in Q1? And then, just secondly, another one on international. If we kind of look at where the strength came from in Q1, maybe talk us through kind of how many geographies this reflects, as far as prefilled conversions? How many times has it occurred now? Is it one or two geographies that we may be sold into ahead of those conversions that kind of led to a little bit of a stocking benefit in Q1? Maybe just kind of some additional thoughts on those fronts. Adam Kalbermatten: Chase, I'll start with your question. You had a few in there. On the international market side, we are seeing strong growth across a few different specific markets. In the past, we've mentioned five specific countries where we saw a large volume of prefilled syringes entering the market, and we are working in all of those markets. They continue to go through what I would describe as the initial conversions and continue to progress with those new patient starts and conversions. Each of them is a little bit different depending on how the pharmaceutical partners are introducing them, but we're following closely behind in all of them. So, we're making progress across the board. I think you were specifically asking if we're one or two. We are tracking in all five of those that we previously mentioned. In terms of volume growth, Tom, I don't know if you want to take that one on the numbers side of things and what we're seeing so far. Linda Tharby: I think it was for SCIg growth. Tom Adams: Yes. On the SCIg side, we did see a strong -- in the U.S. market, we saw strong growth. In terms of the market, we did outpace the market. Our third-party marketing source had a number of around 8%, and we outpaced that with our performance. We see strength in the U.S. business. We expect that strength to continue, and we expect to continue to grow sequentially in our U.S. business. So, we left the quarter feeling very good about the future strength in that business. Chase Knickerbocker: Got it. And then maybe just on the 510(k) submission for the next-gen pump. Can you just give us an idea of kind of what's left to do to enable that submission? And if we should think about the kind of timing on MDRs, kind of similar to 510(k), will those happen pretty concurrently? Adam Kalbermatten: We're really excited about our Freedom360 pump. That's the new pump that we have under development right now, which is looking to accommodate all sizes of prefilled syringes in one device. So, this is super exciting as the market continues to progress from vials to prefilled syringes across the different geographies. In terms of where we are right now, we are at the end of our development process. We're actually in the middle of going through some final checks on that development side, called design verification testing. As we get to the second half of this year, we are looking to submit our regulatory filings in both the U.S. and Europe. So, we're super excited about how this is continuing to progress. We've had a number of different industry meetings and specific pharmaceutical partner meetings where we've been discussing the pump across the board. We're getting very positive feedback. So, a lot of excitement is building here. And we're kind of at the 10-yard line looking to drive this one across the goal line pretty soon here towards the end of the year. Operator: There are no further questions at this time. I would like to turn the floor back to Linda Tharby for any additional or closing remarks. Linda Tharby: Great. So, thank you for your questions. I'm extremely proud of the strong track record of the company over the last five years, which reflects the strong team that I am leaving behind here at KORU. I want to thank Adam, who is knee-deep in this transition and is going extremely well. So, with the strategic momentum that we have ahead of us, I really think the company is well-positioned as we move forward. So, thanks to everyone for all the support. Operator, you can close the call. Operator: Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.
Operator: Good day, and thank you for standing by. Welcome to Papa John's First Quarter 2026 Earnings Conference Call and webcast. [Operator Instructions] Please be advised, today's conference is being recorded. I would now like to turn the conference over to your speaker today, Heather Hollander. Please go ahead. Heather Hollander: Good morning, and welcome to our first quarter 2026 earnings conference call. Earlier this morning, we issued our earnings release, which can be found on our Investor Relations website at ir.papajohns.com under the News and Events tab or by contacting our Investor Relations department. Joining me on the call this morning are Todd Penegor, President and Chief Executive Officer; and Ravi Thanawala, Chief Financial Officer and President, North America. Comments made during this call will include forward-looking statements within the meaning of the federal securities laws. These statements may involve risks and uncertainties that could cause actual results to differ materially from these statements. Forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our SEC filings. In addition, please refer to our earnings release and our Investor Relations website for the required reconciliation of non-GAAP financial measures discussed on today's call. Lastly, we ask that you please limit your questions to one question and one follow-up. And now I'll turn the call over to Todd. Todd Penegor: Thank you, Heather, and good morning, everyone. During the first quarter, we continued to execute our transformation plan to be the best pizza makers in the business. I am proud of the work our team is doing to navigate the current consumer backdrop and highly promotional QSR marketplace. Although certain competitors have outlined their strategy to compress restaurant margins in the sector, we are taking a disciplined approach, executing a balanced transformation that extends well beyond price, meeting customers where they are while improving 4-wall margins, elevating our fleet and supporting our franchisees to build this business for the long term. While transformation work is neither linear nor instant, we are confident that the progress we are making in Papa John's transformation, combined with the strength of our brand and quality of our pizza will fuel profitable growth and value creation over the long term for all our stakeholders. Now turning to our quarterly results. In our international business, results continue to be strong. We delivered 3.6% comparable sales growth, marking six consecutive quarters of positive comps, driven by the benefits of our transformation initiatives. We continue to see strong performance in our focus markets in the first quarter, including Europe, the Middle East and Asia Pacific. In the U.K., comparable sales growth accelerated to 11% compared with 7% in the fourth quarter, driven by strong operational execution and enhanced customer experience and increased media investment that is strengthening our brand awareness and foundation for growth in the market. Comparable sales in the Middle East increased 9%, driven by sustained transaction growth, while Asia Pacific increased 5%, reflecting continued strength in Korea, supported by product innovation, partnerships and holiday demand. As anticipated, North America comparable sales ended the first quarter down mid-single digits, primarily driven by declining orders, which were pressured by lower new customer acquisition. During the quarter, we continued to see resilience in core pizza and customers ordering multiple pizzas, with flat year-over-year pizza volumes, excluding 2 weeks that were impacted by severe weather and pies per order increasing 5% versus last year. Our loyalty customers continue to be a force for the company, and we added nearly 1 million new loyalty members in Q1. We also saw growth among our frequent and super frequent customers. And combined, these tiers make up approximately 30% of our customer base. Our loyalty customers are our most valuable customers, generating 5% higher ticket per order and ordering twice as often as non-loyalty members. This upside was offset by pizza mix shifting to smaller nonspecialty pizzas, resulting in low single-digit declines in overall pizza sales, excluding severe weather impacts. Outside of pizza, comparable sales were pressured by declines in size and desserts and lower new customer acquisition compared with last year. We are working with urgency to address areas of opportunity and capitalize on areas of strength through our transformation work. Our two largest opportunities to gain share are building on our improved value perception and leveraging our rebuilt innovation pipeline to win new customers, elevate our pizza order mix to more premium pizzas, drive add-ons and expand our total addressable market. Starting with our value proposition, we are meeting customers where they are with popular offers, including Buy One pizza, Get One free, $9.99 3-topping and our Papa Pairings. Leveraging our CRM platform, we meaningfully increased engagement with existing customers, which translated into higher subscriber order frequency in Q1. We are also leaning into innovation because newness is critical to winning new customers. We rebuilt our pipeline to deliver more frequent, compelling new product launches. And in the first 3 months of 2026 alone, we introduced 2 new menu platforms, Pan Pizza and oven-toasted sandwiches. These launches elevate our pizza mix and expand our total addressable market. Our first innovation of the year was Pan Pizza, which launched at the end of January and filled a critical menu gap developed through extensive consumer research and rigorous testing, our Pan Pizza is truly a best-in-category product. Since launch, it has delivered strong repurchase rates, and we plan to build on this momentum throughout the year in North America by driving trial and awareness. We also have plans to expand Pan Pizza into several priority international markets. Next, we introduced oven-toasted sandwiches at the end of March, opening an entirely new category for Papa John's. This platform features 3 chef-crafted handhelds, each available at an accessible price point. We integrated sandwiches into our Papa Pairings value offer, where they've mixed well since launch. We're encouraged by the early results we're seeing with sandwiches driving participation across both dayparts, contributing to sales expansion and already exceeding sales of Papadias without complicating our makeline. The feedback from our restaurant teams on the introduction of sandwiches and the removal of Papadias and Papa Bites has been overwhelmingly positive. Not only have we removed operational complexity, but we are seeing benefits to the brand as we introduce new menu items outside our core pizza. Great pizza deserves great pairings. Part of our 2026 innovation agenda is crafting compelling side items at accessible price points to encourage customers to look beyond the center of the plate and drive higher ticket, increase sales and improve 4-wall margins. We introduced Cheesy Garlic Bread in April, a new value side baked on the same tasty ciabatta bread as our sandwiches. This operationally friendly side item is designed to be a strong add-on, increase check and expand non-pizza sales. We're also unlocking new sales layers to expand our top line. I'm excited to share that this summer, our iconic Papa John's garlic sauce will be available for retail purchase across 7,500 distribution points at Walmart, Kroger, Albertsons, Safeway and other leading retailers across the country. This launch builds awareness by extending our brand beyond our restaurants and gives customers a convenient way to add Papa John's signature flavor to their everyday meals. Finally, we're partnering with iconic global brands to introduce Papa John's to new customers in powerful and highly relevant ways. I'm excited to share that Papa John's has announced a global collaboration for the theatrical release of Toy Story 5 on June 19, the first time Disney and Pixar have collaborated with a pizza brand for a Toy Story movie release. We're fully leaning into this activation with new product innovation, custom packaging and a special custom animated spot created by the team at Pixar Animation Studios. At participating international restaurants, customers will also be able to receive an exclusive Toy Story 5 collectible. Papa Rewards members can also join in on the fun and earn Papado through our new Toy Story 5-themed in-app game. As part of the collaboration, we're also launching a new lineup of Toy Story 5 personal pizzas. Looking ahead, we believe that our individual 8-inch pizza can become a new innovation platform with a compelling price point to drive customer acquisition. We're thinking big with our innovation strategy and all our newest offerings, Pan Pizza, oven-toasted sandwiches and our Toy Story 5 activation, including our single-serve pizza creations will also be available across select international markets. Our international innovation continues to raise the bar with the U.K. launching an on-trend Artisanal Salerno pizza last month. Backed by consumer-led insights, this lighter, thinner, more premium pizza is designed to attract new customers and further elevate the Papa John's brand. Our reimagined innovation pipeline is fully stocked and purpose-built to win new customers, elevate our pizza lineup, drive add-on sales and expand our total addressable market. In addition to our compelling product innovation, we're sharpening our marketing message to drive greater impact at the local level. As we discussed on our last earnings call, we reinstated advertising co-ops across the U.S. to improve local targeting and relevance. While still early, 50% of our U.S. restaurant system is now supported by local co-ops across more than 50 markets. With our reestablished co-ops and sharpened value proposition, our local operators are aligning around a unified market strategy, accelerating our ability to win at the local level and driving benefits that will build throughout the year. Investing in technology and our tech stack is essential to delivering a seamless customer experience across our digital assets and own channels, strengthening customer connections and driving operational efficiency. For example, we have now made to-the-door delivery tracking a brand standard across our U.S. restaurant system. Through our app, customers can see real-time updates on their order, including its progress through the bake process and when it is ready, creating greater transparency and confidence in their experience. We continue to build on our partnership with Google Cloud to transform our digital ordering experience with Google's Food AI. This partnership is highly customized to Papa John's and grounded in a customer-first approach, focused on solving real customer problems and removing friction from the ordering journey. Across our U.S. system, we rolled out advanced voice and group ordering, enabling customers to order using voice and text inputs, significantly reducing friction in the order process. Our agentic ordering technology further enhances the customer experience by applying the best deals and enabling high-speed and seamless reordering for Papa Rewards members. Together, these innovations underscore our commitment to leveraging technology to make the customer experience even more seamless. We are pleased with the early results, showing faster ordering and higher conversion rates. As part of our ongoing efforts to improve workflows across our U.S. restaurant operations, we began piloting our new POS solution in our first restaurant in April. Our new PAR POS is designed to simplify restaurant operations by bringing inventory management, makeline operations and labor inventory and restaurant management systems onto a single integrated platform. It will help us also innovate faster through improved SKU management and faster deployment of menu changes across our restaurant system. This modernized POS solution will equip our operators with more actionable insights, enabling them to run more efficiently while delivering a better experience for our customers. Designed to utilize existing hardware, it minimize implementation expense and accelerates deployment across our restaurant fleet. We continue to differentiate our customer experience across every demand channel to support top line growth. As of the end of the first quarter, we are approaching 42 million loyalty members and year-over-year loyalty redemption sales continue to grow. Leveraging our robust CRM platform, we are engaging customers more frequently and using targeted personalized communications across e-mail, push and SMS to drive incremental visits and deepen engagement. Our restaurant general managers and their teams are hard at work driving a more consistent experience in our restaurants. Ravi will share more about their progress in a moment. Finally, we continue to partner with and evolve our franchisee base. Our efforts to optimize our North American supply chain and reduce overall cost to serve are gaining momentum on a path to unlocking the full potential of our vertically integrated model. We captured $7 million of benefits in the first quarter and are now on track to realize at least $25 million of these savings this year. We are confident that we will achieve at least $60 million of North American system-wide supply chain productivity opportunities, equating to at least 160 basis points of 4-wall EBITDA improvement by 2028 for both company and franchise restaurants. In total, we expect to generate at least 200 basis points of 4-wall EBITDA improvement for both company and franchise restaurants over the medium term, driven by supply chain savings, operational efficiency and restaurant portfolio optimization. In summary, while the consumer environment has impacted the pace of our transformation, we are managing through these short-term headwinds and building for the future. We are confident that we are taking the right actions to transform the business and set Papa John's up for long-term success. We are making progress and are excited about the opportunities ahead. And with that, I'd like to turn the call over to Ravi. Ravi Thanawala: Thank you, Todd, and good morning, everyone. I will begin by sharing an update on the progress we've made in the first quarter to drive 4-wall profitability across our restaurants, elevate our service model and optimize our restaurant portfolio. I'll then provide a summary of our first quarter financial results and conclude with our outlook. Improving 4-wall profitability remains a core pillar of our transformation. We have clear line of sight to delivering at least 200 basis points of store level profitability through supply chain productivity, labor optimization, market optimization and dedicated coaching and financial incentives for our franchisees. As Todd shared, we are on track to achieve at least 160 basis points of 4-wall EBITDA improvement through our supply chain productivity work with 24 basis points of margin improvement captured to date through Q1. We're also encouraged by the early results of our labor optimization efforts, supported by new tools that more accurately forecast sales and help our restaurants align staffing with intraday demand. While it's still early, we're seeing meaningful labor productivity gains and improved operation scores in our test. We're also leveraging new AI capabilities, including our Google Cloud partnership to further reduce costs and enhance customer service. Optimizing our restaurant portfolio is also a key lever to improve profitability and overall fleet health. We are making progress on our previously announced efforts to address locations that are failing to meet brand standards, lack a clear path to sustainable improvement or represent an opportunity for strong sales transfer to nearby restaurants. These sites, primarily decade-old franchise units with AUVs below $600,000, predominantly generate negative EBITDA. During the first quarter, we closed 44 of the 300 identified locations. Early results are encouraging as we have observed a strong transfer of sales to neighboring restaurants. These results, along with the demonstrated success of our international transformation underpinned by a focus on priority markets and strategic closures give us confidence that our strategy will enhance our competitiveness and support our efforts to increase North America market share. We are also addressing low-volume restaurants where operational improvements can drive significant value. Currently, there is a 400 basis point gap in comparable sales performance between restaurants and the highest quintile of operation scores versus the lowest quintile. To close this gap, we are planning to provide certain franchisees with dedicated coaching and financial incentives to elevate operational execution, boost sales and enhance unit economics. Turning now to our first quarter results. Please note that all comparisons and growth rates referenced today are compared to the prior year period, unless otherwise noted. For the first quarter, global system-wide restaurant sales were $1.2 billion, down 3% in constant currency as higher international comparable sales were more than offset by lower comparable sales in North America. As Todd shared, our international teams delivered another exceptional quarter with comparable sales growing 4%. Our international focus markets continue to outperform as we build momentum through new menu offerings, aggregator expansion and improved brand and marketing performance. Total consolidated revenue for the first quarter was $479 million, down 8% as lower revenue at our domestic company-owned restaurants, North America commissary and all other business units was partially offset by higher international revenues. Domestic company-owned revenues decreased $31 million, primarily due to refranchising of 85 corporate restaurants in the fourth quarter of 2025 in addition to lower comparable sales. Revenues at our North America commissary segment decreased $18 million, primarily due to food cost deflation, partially offset by higher pricing and all other business unit revenues decreased $4 million, driven by lower digital fees and advertising funds revenue as a function of lower sales. Partially offsetting these declines was a $4 million increase in international revenue. Consolidated adjusted EBITDA decreased $2 million to approximately $48 million, impacted by pressure flow-through due to lower sales and QCC volumes in North America and increased food costs in the supply chain, which will be covered by pricing in subsequent quarters, partially offset by improved performance in our international markets, lower overall G&A spend due to our biannual franchisee conference, which did not repeat this year, as well as lower supplemental advertising and lower cost of sales due to commodities deflation and lower volumes to our restaurants. As Todd stated, we recognized approximately $7 million of benefits or approximately 20 basis points of 4-wall margin improvements related to our efforts to increase efficiency and reduce our overall cost to serve at our North America commissary during the first quarter. North America commissary segment adjusted EBITDA margins were 5%, a decline of 230 basis points, primarily reflecting franchisee food cost subsidies, increased food costs, which will be covered by pricing increases in subsequent quarters and lower volume during the quarter. Domestic company-owned restaurants delivered 4-wall EBITDA of $16.6 million and a 4-wall margin of 11.9%, an improvement of 140 basis points. Importantly, 4-wall margins have remained resilient, supported by our benefits of our transformation work and our disciplined approach to sharpening our value proposition. Turning to our balance sheet. At the end of the quarter, our total available liquidity was approximately $498 million, and our covenant leverage ratio was 3.3x as we continue to maintain a strong balance sheet. Turning now to cash flows. Net cash provided by operating activities in the first quarter was $7 million. Free cash flow was an outflow of $6 million compared with the last year's cash inflow of $19 million, primarily reflecting lower net income and a more normalized incentive payments, inclusive of the company's enterprise transformation plan. Now turning to our 2026 outlook. As discussed, we are making progress advancing the actions we're taking to transform the business. We have taken steps to accelerate the top line throughout the year through an enhanced value offering, our rebuilt innovation pipeline and improved mix of national and local media through our reestablished local co-ops. We're also driving efficiencies across our business with our supply chain optimization and cost savings initiatives and evaluating refranchising actions, which are progressing our business towards an asset-light model with higher free cash flow. With that in mind, we are reiterating our 2026 financial and operational metrics. For 2026, we expect global system-wide sales to range between flat and low single-digit declines. For North America, we still expect comparable sales to be down 2% to 4%. Our guidance reflects both the benefit of our innovation pipeline and enhanced marketing strategy and considerations around the current cautious consumer environment. April North American comparable sales are trending slightly worse than Q1 on a year-over-year basis, but consistent with Q1 on a 3-year stack. We expect to build top line momentum in the second half of the year with sequential improvements versus the first half as we benefit from our product innovation, marketing co-op activations and meaningful brand collaborations and strengthened aggregator marketing strategy. We expect the North America quarterly comps will be relatively consistent for the remainder of the year on a 3-year stack. Internationally, we continue to build on our transformation momentum and still expect comparable sales to increase between 2% and 4%. Our outlook reflects current geopolitical and consumer conditions, and we'll continue to monitor developments closely. We are currently in negotiations to refranchise 29 restaurants in the Southeast, and we expect to close the transaction in the third quarter of 2026. Consistent with our prior expectations, we expect that this transaction will reduce 2026 consolidated revenues by approximately $9 million, including the impact of eliminations and benefit adjusted EBITDA by approximately $1 million, all of which is factored into our 2026 financial guidance. We are on track to reduce our company-owned restaurant ownership to mid-single digits of the North America system, and we expect to unlock growth opportunity as we refranchise certain restaurants with well-capitalized growing franchisees. We will provide an update on future earnings calls as these transactions move forward. For 2026, we continue to expect consolidated adjusted EBITDA to be between $200 million and $210 million. We now plan to invest approximately $18 million in supplemental marketing and franchisee subsidies to support our promotional strategy and this year's reinvigorated innovation calendar. Our 2026 consolidated adjusted EBITDA outlook also includes $13 million of G&A savings outside of marketing. We now have line of sight to achieve at least $30 million of total cost savings by the end of 2027. We also expect that stock-based compensation will be approximately $5 million per quarter. Consistent with our prior guidance for nonoperating expense items, we expect net interest between $35 million and $40 million, adjusted D&A between $70 million and $75 million and capital expenditures between $70 million and $80 million. We expect our 2026 GAAP effective tax rate to be in the range of 30% to 34%. Finally, we expect diluted shares outstanding of approximately 33 million. Turning to restaurant development. We are on track to open between 40 and 50 gross new restaurants in North America in 2026, having opened 8 restaurants in the first quarter. We continue to expect 200 restaurant closures in North America. Internationally, we expect to open between 180 to 220 gross new restaurants in 2026 with closures representing 5% to 6% of our international system. Overall, we continue to execute on our transformation efforts to deliver a better customer experience, accelerate sales, improve restaurant level profitability and move to a more asset-light model and become a more nimble organization to deliver value creation for all of our stakeholders. With that, we'd like to open the call up for any questions you may have. Operator? Operator: [Operator Instructions] Our first question comes from Brian Bittner with Oppenheimer. Brian Bittner: Just a question on the same-store sales guidance. As we look to the rest of the year, your comparisons don't get much easier for the rest of the year until the fourth quarter, but you are baking in a big improvement from the first half of the year. And I'm just curious why maybe not derisk the guidance a bit. I know you have a lot of initiatives to bend the trend in the second half of the year, but why not derisk the guidance a bit? And why, Ravi, should the 3-year trend be the right way for us to model comps as the year unfolds? Just any other color you can provide on 3-year trends being the right metric? Todd Penegor: Yes, Brian, I'll start and see if Ravi has anything to add on. If you start to think about where our year-over-year comparisons starting to soften and lapping over some of the competitive pressure from a year ago, the back half, not all the way to the fourth quarter, starts to get a little bit easier. But what we really wanted to look at is how does the business normalize with all the choppiness over the last couple of years. So very clear that our business, our transactions, how we're actually forecasting the outlook, and we think we've derisked it with really providing guidance that it remains fairly consistent on a stack 3-year basis. If you think about where we stand with all the second half of the year initiatives, we've launched some compelling innovation. We've got Pan in the world. It's mixing really well with existing consumers. The opportunity is to continue to wear it in and recruit new with that great product. We've got sandwiches in play, again, mixing well with existing consumers, plays to refresh our Papa pairing offering, so great value with that in it. And we're really excited about our partnership with Toy Story 5 and driving 8-inch pizzas with some news as we work to compete in the back half of the year. We'll continue to work to make sure we got our mix well so we compete on third party as the year progresses. But we think it's a prudent and realistic outlook for the year with lots of initiatives to support it, and that's considering the competitive and the consumer landscape that we're faced with at the moment. Anything else you'd say, Ravi? Ravi Thanawala: Yes. And Brian, you asked the question of why the 3-year stack. One, like as we looked at month-over-month and where we saw a bit of the trend come through is we saw some consistency there. So one, the underpinning data from Q1 and quarter-to-date Q2 has reflected that. Second is middle of 2025, we saw a meaningful step-up in competitive pressure from a promotional standpoint. And if you go back one more year, that was really when we saw the competitive pressure step up from an aggregator standpoint. So we're trying to take into account the competitive landscape, both from what's happening in the respective channels as well as what's been happening from a pricing pressure standpoint. Operator: Our next question comes from Alex Slagle with Jefferies. Alexander Slagle: I just wanted to ask on some of the new menu categories with sandwiches and pan and then, I guess, the personal pies and ask about your confidence that all these changes don't drive too much complexity. I realize you're going to pull out the Papadias and Bites and that helps. But maybe you could kind of walk us through and help envision what changes happen that keep this simple to execute. Todd Penegor: Yes. No, it really starts with a focus on operational excellence and delivering great product with everything we do. And we really stepped back as we started to introduce all these new products to make sure that we set our restaurants up for success starts with great training and making sure that we're ready to deliver on the promise when the new customers show up. What we really wanted to do is ensure that pan was designed to be best-in-class in the industry, but be able to do it with a one pass through our oven. And that's different than what we've done in the past. We did all the oven calibration work. We're able to make a great Pan Pizza simply with one pass to the oven that takes the complexity out of how we've done it relative to the past. Sandwiches is a very easy build with the oven recalibration, a great one pass. The ciabatta bread cooks really well in the oven and a lot simpler than what we were doing with Papadias, really getting into that handheld occasion, taking Papa Bites out. Those 2 things, Papadias, Papa Bites were our biggest rhythm breakers in the restaurant and really distracted from making great food day in and day out. We do make small pizzas today. So as you start to think about the simplistic builds, the unique builds that we're going to have that go along with Toy Story 5 at the 8-inch, that is a very easy build and can be managed quite nicely within our restaurants. So I think we've really set our teams up with less operational complexity and operational focus to really deliver great products with the innovation pipeline we've had. We've taken some of the friction out of our restaurants today to be able to do that. Operator: Our next question comes from Todd Brooks with Benchmark StoneX. Todd Brooks: First, I was wondering, Ravi, can you decompose the same-store sales between check and traffic? I'm just trying to get a sense of this more competitive approach to value as innovation ramps, kind of what was the drag on check that was part of that down 6.4% North American comp? Ravi Thanawala: Yes. Check was effectively flat in Q1, and that's been the trend in Q2 quarter-to-date as well. So the check has been there. And as a reminder, there was slight food cost deflation in Q1, some labor productivity and supply chain benefit. So 4-wall margins hung in there fairly well in Q1 because of that. But where the sales comp drag has really come has been from a transaction standpoint. If I take -- go one more click down, it was really in small transaction size from a number of pizzas. The transaction loss was in orders that contain only one or no pizzas. We continue to see order growth in multi-pie orders. Todd Penegor: That's why we feel confident with the incoming of Toy Story 5 and that partnership that can address that one pie order. Our challenge really is people are managing their overall check, right? And we're still seeing some of the leakage in size. We've not got cheesy garlic bread as a compelling price point side. We're going to have to continue to make sure sides are relevant. That's the opportunity to allow us to drive some check and mix up, but haven't planned for that with the tough consumer environment. So our guidance reflects where we stand today. Todd Brooks: And I'm sure there was a weather reality that hit the same-store sales as well. Can you size that for us? And should we be normalizing for that when we're thinking about the 3-year stack trend or just build off of the trend that we saw with the weather impacts this quarter? Ravi Thanawala: Yes. The weather impact was about just under 40 basis points of impact for the quarter. But what I would say is build off of the 3-year stack, that probably best reflects how we're thinking about it. And as we talked about, like that applies to all the quarters for the year. And as a reminder, like this is about us like taking into account a more intense competitive pressure, also the competitive landscape in each of the channels, and that's been the underpinning driver of that. Operator: Our next question comes from Sara Senatore, Bank of America. Isiah Austin: Isiah Austin on for Sara. Just in the line of questioning about competition, where do you guys see the competition coming from? Just when you think of the 3 large major chains seem to be struggling. So is it national, regional, maybe there's a resurgence in local? Just curious on your thoughts on that. Todd Penegor: Yes. I think if you look at where overall competition, clearly, the pizza category has been very promotional, not just where we participated at times and tried to do it smartly to make sure that we are managing margin while meeting the consumer where they're at. But 2 of the larger competitors have been aggressive on price. But the total QSR industry has been very aggressive on price. You start to look at some of my past life, the burger players, others with scale. There's a lot of promotional pressure out there to really try to make sure they're meeting the consumer where they're at. And we're going to pick our spots where we need to do that. We're going to leverage innovation to balance it. We're going to take a long-term approach to make sure we set our business up for long-term success. But we are conscious of where the consumer dynamic is with some of the headwinds that we're seeing with gas prices and impacts on discretionary income. But we also know we're going to have to play a long-term game to really set this brand up for sustainable long-term success, and we're going to use the opportunity to continue to build a really strong foundation, whether that be operationally, whether that be upgrading our tech stack, whether that's continuing to rebuild our momentum on innovation and importantly, making sure that we've got a local co-op environment set up so we can compete as a unit at the local level. There is regional and local pressures out there, but we do think the co-ops getting reestablished will help us compete at that level quite nicely as the national calendar balances with our local calendar. Isiah Austin: Great. And just as a follow-up, thinking about third-party versus first-party delivery, is third-party still outperforming? And just if you guys can broadly speak about your performance on third party, do you feel like you're still taking share on platforms? Or are you more growing in line with aggregator demand? Ravi Thanawala: Yes. So third party is still outperforming first party from an order and from a comp sales standpoint. We have seen competitive intensity really ramp up over the last 9 months in the aggregators. And it's a fairly dynamic space. So checking and adjusting on pricing and promotion is a really important part of the cadence. So there are definitely some weeks where we're taking market share. There are other weeks where we're in line. And we just continue to adjust. But I would say that broadly speaking, the space has just gotten more competitive from a pricing standpoint. We're still really focused in on winning across all of our channels and also balancing at the same time, volume, customer count and 4-wall margins to make sure that we navigate this environment well. Operator: I see there are no more questions in the queue. I will now turn the call back to Todd Penegor for closing remarks. Todd Penegor: Well, thank you, everyone, for joining the call this morning and for your continued interest in Papa John's. I'd like to extend a special thanks to our team members and our franchisees for their continued commitment to serving our customers. We are focused on continuing our transformation work to be the best pizza makers in the business and generate profitable growth and value creation for all of our stakeholders. Have a great day, everyone. Operator: Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.
Operator: Thank you for joining our LANXESS's Q1 Results 2026 Conference Call. [Operator Instructions] First, we will hand over to Eva Husmann, Head of Investor Relations, for opening remarks. Eva Frerker: Yes. Thank you, and welcome to our Q1 call. Before we start, please take note of our safe harbor statement. And as always, we have our CEO, Matthias Zachert here; as well as Oliver Stratmann, our CFO. Matthias will start with a quick presentation before we answer your questions. Matthias, please go ahead. Matthias Zachert: Thank you, Eva, and welcome all of you to our conference call on first quarter '26. I start the presentation straight on Page 4, where we comment on the key financial indicators. So as far as Q1 is concerned, we guided in March already that it will be a soft start to the year. We've seen lower volumes, especially in January, February, a positive tone on March where business started to improve from the volume side, and was clearly a difference compared to the previous months and also towards the fourth quarter. Please take note of the fact that, in the comparison base last year, we have a relatively strong dollar and still the contribution from our urethanes business units, both has changed. In first quarter this year, urethanes is no longer consolidated and the dollar has visibly weakened. That we put a lot of attention on cash flow and financial balance sheet strength is something that we have reinforced over the last few quarters, and you can clearly see that also in Q1. Cash flow is still negative, but that's the normal seasonality. We start off with negative cash normally in first and second quarter and then improve afterwards. And as far as net working capital is concerned, we clearly manage that pretty tightly. So compared to previous year, it's lower. I do expect a gradual increase now in Q2, also driven by the fact that the precursors in energy will move up. But nevertheless, we will continue running it tightly. Net debt beginning of the year normally sees an increase of EUR 100 million to EUR 200 million. And in light of the good cash management, you see that we, by and large, keep net debt at comparable level. Now, let's turn the attention to Middle East. Middle East escalation or conflict has swiftly changed market conditions. We clearly see that value chains are under pressure. We clearly see that customers have concern on delivery security. And therefore, let me give you the following color on what we would like to shed light on. And here, I clearly would like to stress that the conflict that we have seen, the war that we have seen in the Ukraine area, in the Ukraine situation massively impacted Europe and definitely led to a disadvantage as far as the European chemical industry is concerned. The Iran conflict is different. Whilst true Ukraine, Russian gas and oil was reduced in Europe. The Iranian gas and oil is primarily being a supply source to Asia. So while we were suffering in Europe through the Ukraine war implications, in the current Middle East conflict, we clearly stress it will put pressure on the worldwide economy, definitely as far as energy price inflation is concerned, but the region that suffers most is going to be Asia according to our analysis. Now logistical chains are definitely under pressure as well, but here, I can give you comfort. We have agreed contracts in place on ocean freight, on other logistical chains that are needed. And for that very reason, we had until now, no negative impact through supply that was being shipped to us or to our customers. Of course, we took note of the fact that prices were on the rise as far as chemical precursors and energy costs are concerned. So we saw the reaction on the oil markets, gas markets beginning of March. And that was the reason why we swiftly analyzed our market situation. And I think we were one of the first chemical companies that went out with a series of price increases in order to at least mitigate the current input cost inflation. On working capital, I alluded to the fact that we expect an increase in Q2, but it will be tightly managed. You can bet on this. Now let's turn the attention to Page 6. What we try to do here is simply to give you some facts on hand so that you can better understand how we look into our segments into current trading vis-a-vis Q1 and the last 2 quarters of 2025. When we look at the current conflict in Middle East, our assumption is that the Consumer Protection segment will, by and large, not be really affected. There will be some precursors on the rise, but the Consumer Protection segment is not so much impacted through oil derivatives. Here, basically, consumer demand is essential. And we do have some precursors coming here from China, so that is a watch out. But all in all, I don't expect that this will change the current trading vis-a-vis the past 2 to 3 quarters. On additives, we see a moderate upside potential. Of course, you need to take into consideration that flame retardants or bromine, for instance, is also coming and is shipped from Middle East. We don't depend on that primarily. We have sources in El Dorado, which is not affected at all. So here, we do see upside potential in trading, but the strongest momentum we clearly see in Advanced Intermediates. This segment and here notably the business unit, AII, was suffering through competition coming from China. And of course, we had a substantial amount of pressure on some of the value chains here. This should change. Here, customers are clearly looking for delivery security, 1. And second, we have seen over the last 4 to 6 weeks that even the chemical pricing on these products in China have been on the rise. And guess what, they are on the rise in our business as well. So this should give you some qualitative color on how you should look at the segments compared to the last 3 quarters. So let's see if you can then better model second quarter, and it's up to you how you look into '26 in total. What we would like to give you comfort for, or comfort on is our full year guidance. The world is in quite a turmoil for various reasons that are all known to you. We clearly see positive momentum for Q2. So we try to here give you a quantitative corridor of EUR 130 million, EUR 150 million, which would be a strong sequential improvement versus Q1, which we clearly see either driven through volume or through pricing, in some cases, driven by both in respective business units. But we don't change our yearly guidance in light of the turmoil that we see in the world. If Q2 momentum continues, of course, that could give further comfort to potentially go into the upper range of the guidance. But please take note of the fact that, escalation in the Middle East could accelerate again, and then we potentially look at demand crush and then we look into the lower end of the guidance. For that very reason, we give you a broad range where you slot in yourself is in your hands, but we want to give you comfort on the full year guidance and definite comfort that second quarter will come out sequentially clearly stronger than the first one. And here, we see that the business is moving accordingly. This is what we would like to give you as entry presentation on Q1, and we now open up the floor for your questions. Operator: [Operator Instructions] We have the first question from Thomas Wrigglesworth from Morgan Stanley. Thomas Wrigglesworth: A couple of questions, if I may. Just focusing on -- thank you for the guidance range that you've given for 2Q. That's very helpful. But how much visibility do you actually have into your order books? Do you have to make this solely on what you're seeing in April and make a best guess for the next few months? And any sense of how you think those volumes will continue through the quarter? Second question, if I may, just coming on to -- so one of the things that we've seen and it's in the context of Saltigo has been a significant spike in glyphosate and I assume glufosinate as well, which would suggest that maybe some of the generics from Asia are going to have less market presence for crop protection chemicals. I appreciate that Saltigo makes the API, but maybe this will see -- could we possibly see a rotation from customers away from generics given supply chain risk back towards more branded products, which probably have more LANXESS-orientated products embedded in them. So just kind of keen to get the crop protection picture, both from a disruption and actually, if you add any color around the seasonality, that would be helpful as well. Matthias Zachert: Tom, very valid questions, indeed. Let me take them one by one. As far as visibility is concerned, we have clearly April strong clarity as far as volumes and pricing is concerned. So sales are known to us. And we have a good order book for May. So a very reasonable visibility and of course, a softer but already a reasonable indication for the month of June. We see in April that the momentum from March continued. Of course, we know when our price increases will more and more contribute to quarterly support. Of course, we are still in the rollout of the announced price increases of March. So once you do a price increase, you afterwards go to your customers. In some cases, you have contractual agreements that you cannot change on a quarterly basis, but you then go for the spot markets and afterwards, you adjust for the quarterly contracts in the following quarter. So this is an ongoing process. But we know definitely that volume are at the same momentum that we've seen in March with a slight uptick for April and May. And then, of course, we know ourselves what price initiatives are ending up in the P&L and when this is going to occur. So as far as visibility is concerned, I think we have, for the next quarter, a reasonable good indication. Now your question on Saltigo is operationally very focused and smart. In the last 12 months, we have seen in the crop protection space and here I'm not alluding to glyphosate, but to Crop Protection specifically that the commodity products in Crop Protection were under severe generic pressure from India and China. And I think that was being mentioned by the big agro company themselves. They all alluded to pricing pressure, and that was definitely not on the innovative products, but on the commodity grades. Now with China facing substantial freight issues and cost explosion on trades and some areas also pressure in their supply chain, we definitely have to monitor the markets. We don't see an immediate reaction here in Europe, but that is likely to come in the weeks and months to go. And that could change, of course, the competitive landscape for the European crop protection companies, which we don't see at this point in time, but normally, we would see that 3 to 6 months later. So this is something high on our radar, and I'm very impressed that you have spotted that as well. Operator: The next question comes from Christian Bell from UBS. Christian Bell: So I just have a couple. My first one, I guess, picks up following the discussion in the previous question on April customer demand dynamics. Are you able to just please give a sense of how much of the volumes that came through in April were at the higher prices that were implemented in mid to late March. I'm just trying to understand, how much of those volumes that have come through are getting ahead of prices or whether they are -- what percentage is actually effective at the new pricing? And then my second question would be just to help us bridge to your EBITDA guidance -- at the midpoint, your second quarter guide is roughly 7% below last year, which implies you need to do about 20% growth in the second half to reach the midpoint of the full year guidance, which is quite an acceleration. So just what do you think underpins that acceleration? Is it largely price cost normalization? And then if possible, if you could sort of speak to any potential demand deterioration that you're thinking about that may offset some of that margin improvement? Matthias Zachert: Thank you, Christian, for these thoughtful questions. I would take them in the same sequence as you asked them. So as far as April is concerned, we basically see same to slightly modestly higher volume pattern compared to March. So this is positive because April is -- if you look into holiday seasonality, that was main impact here as far as Europe is concerned, in April Easter holiday season, la, la, la. So as far as underlying trading volume-wise is concerned, slight uptick versus March. On pricing, as I said before, we made the announcements in March, in course of March. And then afterwards, you -- wherever you have spot contracts, or spot pricing, you can then adjust customer by customer. This takes normally something like 4 to 6 weeks, depending on the customer base, depending on, of course, the sensitivity, elasticity they have, and then you change the pricing one by one. On the contract establish quarterly contract pricing, you basically can take that only with a certain delay, but that follows afterwards. So on pricing, generally, you should assume that this will ramp up first steps in April. Then, I would say, 2/3 will be reached in May and then the full effect you will see or should see in June. Of course, we have to monitor what implications that has on the volume side. But from the pure pricing side, there will be a gradual buildup at cost of Q2. And then, of course, if momentum remains healthy, the contract, the quarterly contract pricing would then be also a driver for Q3 going onwards. All this having this assumption that the underlying momentum on volumes will not change, and with all questions on geopolitical tensions. So that should hopefully answer your first question. Now on second quarter, I think my answer on the volume and pricing side will give you also some color on Q2. If you look into second half of this year, of course, our cost savings that we've initiated will gradually ramp up as well. And that should give you the indication that we are still not falling in euphoria for the second half. We are clearly very, very straightforward and not modest, but we take the current geopolitical tension very seriously. And therefore, we keep here our assumptions in a normal environment and not into a gradually improving environment. And with this, I think you have the best basis for modeling the full year implications for our company. Christian Bell: If I could just quickly follow up on that last point. Are you able to -- like given second half cost savings are important to the full year guidance, are you able to give us -- tell us what the net cost saving you are expecting in the second half will be from your cost saving programs, given that there should be a relatively, I guess, concrete level of foresight over there? Matthias Zachert: Yes. We've given you the yearly number, and I think this should suffice with the comments that I've made that this will gradually build up. And therefore, please take this as basis. Operator: The next question comes from Anil Shenoy from Barclays. Anil Shenoy: Just 2, please. The first one is a little difficult question on your unconditional put on Envalior in 2028. So you have mentioned that the put obligation sits at the Holdco level and not Advent. And I know you have a confidentiality agreement, and so you cannot give a lot of details. But just theoretically, what are the funding pathways that the Holdco will have in 2028? From what I understand, it's either refinancing from Advent or taking on external debt or dividends upstream from Envalior. Would that be the right way to think about it? And finally, on a sort of pessimistic note, if -- what happens if the Holdco declares bankruptcy? I mean, does -- in that case, does LANXESS end up becoming an unsecured creditor? In other words, basically, what I'm asking is, is there a risk to this unconditional put in 2028? Matthias Zachert: Yes. Let's take it step by step. First question is a question I cannot answer due to confidentiality reasons. And I stick to that 100%. Your second question, I've read your report. This basically shed at 100% concern on our company and completely hence one-sided. I was very much surprised about this. And therefore, let me simply come on a higher level. You said, it's a theoretical question. So I give you a theoretical answer. In insolvencies or bankruptcy, the party going insolvent loses everything. Everything is gone. It is normally by somebody who runs the insolvency afterwards, any possible areas where you can get proceeds is going to the lenders. So if there is a company holding shares, they lose everything, 100% loss. This is the consequence. Taking such a hit for any investor who might have a major investment is a complete disaster. Next to this, the company theoretically that goes into bankruptcy, loses its global reputation. That might be even a bigger damage. And therefore, that's my answer on your theoretical question with a theoretical answer, food for thought. Operator: The next question comes from Chetan Udeshi from JPMorgan. Chetan Udeshi: My first question was, you said you've already seen April sales. And I was just curious, you talked about volume versus March, but are you able to provide some clarity on when we think about year-on-year, how are we tracking in terms of volumes? Is it now up 5%, 6%, 7%? Any sort of color in terms of how you see the volume momentum building on a year-on-year basis, that would be helpful. The second question was LANXESS was one of the companies that was more active, I would say, over the last 18 months in pushing the European Union to do more of these antidumping investigations. Some of these investigation actually went into your favor last year with Adipic Acid, phosphorus additives and all those stuff. But I'm just curious, have you seen any benefit from these antidumping investigations in your numbers given that some of those were already decided and ruled into your favor in second half of last year? And the last question I have is, you mentioned about customers coming to LANXESS for security of supply. Is that because you actually -- based on your conversation with these customers, do you actually see that your Asian competitors are not able to supply right now? So in other words, some of your Chinese or Indian competitors, are they having supply issues? Or are customers coming to LANXESS just to make the supply chain more resilient rather than not necessarily driven by short-term supply shortages? Matthias Zachert: Thank you, Chetan. We will take them one by one, and Oliver will start on price and volume, and I take the other 2 questions. So Oliver? Oliver Stratmann: Many thanks, Chetan. Actually, I'm thinking about, what I could add because Matthias has already been pretty diligent here in outlining how volumes have picked up in March and what we have seen in April. And to be absolutely frank here, I wouldn't like to go into a monthly reporting now. I would just like to remind you that there is an awful lot of uncertainty out there. And I think the commentary that you've received so far is a positive one with regard to going into Q1 and going into Q2 and the volume development. And beyond that, we really need to see how things evolve, but the positive impetus is there. Back to Matthias. Matthias Zachert: So thanks, Oliver. Then on European dumping, I think, been very clear at the outset when we mentioned it that this is taking time. And we said that, this normally lasts 12 to 18 months. So this is the normal duration of an antidumping case or antidumping trial. You mentioned a typic asset. So that was one that was decided in, I think it was August last year, summertime. What you need to take into consideration is that the antidumping once it's declared is, of course, positive for any supplier operating in this market like us. But in the first antidumping cases, like on Adipic Acid, we have seen that China was loading up the value chains before the antidumping declaration was imposed. So China was loading this value chain by around about 6 to 9 months with capacity. And only once this capacity is absorbed, you truly see volume momentum rising and pricing rising. For Adipic Acid, this is now happening. So we have seen the declaration on antidumping last summer. The value chains and stocks were loaded immediately before the declaration became effective. I have to say, fortunately, the European Commission has realized this practice in many other similar cases and have now basically put the volume buildup under scrutiny as well. So this will be retroactive impacted by price adjustment or antidumping cases as well, which is a positive move. So this gives you the color. And I do expect that further antidumping cases will be decided in the course of this year. I know that many chemical companies have cases that are filed in the European Commission. We keep a close eye on this. And I do support that one and the other products could positively be impacted by us as well, which will help us going forward in areas where we see dumping being practiced. So that should address your second question. Now on the third question, there are basically 2 drivers. First, European customers want to protect their supply chain. They want to have security. They are concerned that similar disruptions could happen that they've seen in Corona times. So we've seen over the last 6 to 9 months that customers went to China because of pricing, pricing, pricing benefits. We had a very tough economic situation here in Europe. So pricing was essential. But now for many customers, supply security is higher in the priority and some of the customers that left for China in the last 9 months are coming back into our order book. We also see completely new customers, which is a positive sign. Second point is, I think also China and Chinese companies have realized that the pricing level of last year has also ruined the pricing level in China itself, which is not liked by the administration. And of course, long term, no company can generate losses. So we also see that the pricing level now in China is moving upwards, which is a clear difference to the last 12 months. And when the pricing level in China moves upwards, you can assume that then, of course, pricing in the European area is also being positively impacted by that. So you have 2 perspectives on this, and I think this answers your third question. Operator: The next question comes from Tristan Lamotte from Deutsche Bank. Tristan Lamotte: Two questions, please. The first one is coming back to your comments that you made on pricing timings. I was just wondering kind of high level, do you generally see net pricing is likely to be a positive? Or kind of how do you expect the phasing to be there? Is it, for example, negative net pricing in Q2 and then positive in Q3 if all current conditions stay the same? And then second question is, could you maybe elaborate a bit on the current dynamics in bromine? Because I think there was a price spike and the China price has fallen back. And obviously, I appreciate that you don't necessarily have direct exposure to the China price, but what kind of underlying dynamics are going on there? And has the demand fallen off versus what it was? Matthias Zachert: Thank you, Christian. Let's take that also step by step. So on your first question on pricing, I would like to give you the indication on a sequential basis, so not vis-a-vis previous year, but versus Q1. What we should see in second quarter that prices versus Q1 are -- should be up. The tendency, if the momentum continues, like I explained, and you assume that there is no insanity happening in geopolitics anymore or no further escalation, and current trading continues, you should also see a sequential price increase in Q3 vis-a-vis Q2. But with all the nonsense that is happening on the geopolitical side, I take that, of course, with some -- with a pinch of cautiousness, and I hope you understand the rationale for this. Now on bromine, I would like to allude again or come back to the stated seasonality we see in China on the spot market. We always have a seasonal price increase in bromine prices notably in Q4 and Q1 because of the bromine extraction methodology, i.e., water vaporization. So therefore, when in the colder months, Q4, Q1, you normally see that bromine prices are on the rise, and they go down again Q2, Q3. If you now look at the last 6 months, that was exactly what happened. Bromine prices went up. They went up to a high level of EUR 60,000, EUR 70,000 and are now moving down to around about EUR 38,000, EUR 39,000, EUR 40,000. This is the normal seasonal pattern. But overall, the pricing level is clearly still in the healthy territory. EUR 40,000 is 100% up compared to 1 year ago or 2 years ago, when the prices were more depressed. So now the pricing level despite having fallen now in the last 4 weeks is still at a reasonably high level. I hope that clarifies the points on bromine, Tristan. Tristan Lamotte: And maybe just a follow-up on the pricing question. I understood your comments on the kind of price rises timing. How does that align to the cost increases, i.e., what kind of net impact should we think about modeling? Or is that just too many moving parts to comment on? Matthias Zachert: No, no. This is a smart one, Tristan. I think we've always stated that a lot of our input costs are basically set up in a way that like in Q1, when you have a rise in input costs, you adjust in the quarter afterwards. So you've seen the increase in precursors on raw materials, on oil derivatives on energy. You've basically seen that already in March, with no real implication on our P&L because we clearly stressed that in March, we rather had a positive momentum, profitability-wise, turnover-wise. And this was volume driven, but not because input costs have been falling. They have rather been on the rise, but not impacting the first quarter P&L. The implications of the higher input costs will be visible in second quarter. That's the reason why we've given you the financial guidance. So we basically -- in our guidance of EUR 130 million, EUR 150 million, we absorb the rising costs that we have now seen in March, which will roll into our P&L in the second quarter. So that's the reason why we tried to give you a good hard landing so that you understand that we are sequentially clearly managing the situation and manage the input cost increases. Operator: And the last question comes from Georgina Fraser from Goldman Sachs. Georgina Iwamoto: Given the situation, I was wondering how your relationship with your distributors might be evolving. Are you kind of selling through the same distribution channels as historically? Or are you seeing more direct to customer sales? Matthias Zachert: May I understand more of the backgrounds to this question, Georgina? Georgina Iwamoto: Well, I wanted to understand if every single chemical company is discussing the fact that security of supply is #1. And the question is, are customers seeing the manufacturers as the most likely source of secure supply? Or are distributors being seen as being able to source from lots of different places. Does that make sense? Matthias Zachert: Yes, that makes sense. So I mean, the distributor world in chemicals is very broad. In parts, you have niche distributors, then you have specialized distributors in certain chemical value chains, then you have the bigger distributors that have the broad reach. You have some that only pack and ship, others give service like finishing, like analytics, et cetera. So the world in chemical distribution is very, very broad. So giving a general answer that solves everything is, I think, not possible. But I would like to give you the following. In our interaction, we use distributors basically globally, wherever we see that the size of the order level is simply too small for us or the customer is too distant away for us. So we use distributors. But companies like ourselves, of course, are more and more reinforcing the direct contact to customers as well. So this is a trend on our side, and I cannot speak for the industry, but what we are doing, we use distributors. But also we would like to have a better market transparency, market dynamics, customer trends, et cetera, on our end. And therefore, we strengthen the relationship also to the next level of manufacturing. And therefore, of course, also a question if we do need a distributor or not. So that is the one thing I can say for our group. Then for customers, we do see customers that want to have the direct access to the manufacturer in order to have clarity. and also preferred treatment. When we are selling to a distributor, there are some that are very, very close to us, but some that we simply used to pack and ship. If a customer is ordering from a distributor, he does not get the same preferred treatment that direct customers often have. And therefore, on the customer side, we also see that for very important precursors and chemicals, they also tend to establish more direct relationships. But I say again, this is this is an answer that does not apply to this huge distribution network that you have in the chemical space. There are different kind of distributors with different business models. So the specific answer I have given will not be an answer for the general industry. I hope that clarifies the point. Any further questions? Operator: So there are no further questions, and I will now hand back to Matthias Zachert for closing remarks. Matthias Zachert: Well, thank you so much for orchestrating this conference call, and thank you to everybody who listened in. I hope this was giving you enough color on current markets and trading environment. We will be now heading on the road to speak to investors and looking forward to the exchange. And if you have follow-up questions, please don't hesitate to touch on my Investor Relations team, and they would be very happy to take any questions and provide answers. Thank you so much. Take care, and bye-bye.
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 morning, and thank you for joining today's Planet Fitness Q1 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Brendon Frey for opening remarks. Please go ahead. Brendon Frey: Thank you, operator, and good morning, everyone. Speaking on today's call will be Planet Fitness' Chief Executive Officer, Colleen Keating; and Interim Chief Financial Officer, Tom Fitzgerald. Colleen and Tom will be available for questions during the Q&A session following the prepared remarks. Today's call is being webcast live and recorded for replay. Before I turn the call over to Colleen, I'd like to remind everyone that the language on forward-looking statements included in our earnings release also applies to our comments made during the call. Our release can be found on our investor website along with any reconciliation of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. With that, I'll now turn it over to Colleen. Colleen Keating: Thank you, Brendon, and thank you, everyone, for joining us for the Planet Fitness First Quarter Earnings Call. I'm pleased to have Tom Fitzgerald joining me on today's call, and I'd like to thank Tom for pausing his retirement to step in as Interim CFO. Tom is an accomplished finance leader with a deep understanding of our business and franchise model. I look forward to working with him again to position Planet Fitness to drive growth and shareholder value as we conduct a thoughtful and disciplined search to identify our next permanent CFO. To start today's call, I'll walk through the key drivers of our first quarter performance and review the actions we're taking to refine our go-to-market strategies and reinvigorate member growth. Tom will follow with a review of the financials and outline our updated 2026 guidance. During the first quarter, we grew net new members by more than 700,000, achieved system-wide same club sales growth of 3.5%, increased adjusted EBITDA 19.5% over Q1 2025 and opened 15 new clubs. While our top and bottom line results exceeded expectations, we are not satisfied with our member growth performance. The fitness industry continues to enjoy a number of long-term tailwinds as more people recognize the critical role movement plays in enhancing both physical and mental well-being, preventing disease and enabling longer, healthier lives. As a result, demand for accessible and affordable fitness continues to grow. We saw this momentum in 2025, delivering 6.4% club growth and adding approximately 1.1 million net new members, a 10% increase in net new membership adds over 2024. A recent Health & Fitness Association study cited that fitness memberships for 2025 were up 5.4% over '24, reflecting that the industry experienced solid growth last year as well. While this favorable backdrop remains in place, during our key Q1 sign-up period, we faced some internal and external headwinds that impacted our join momentum year-to-date. As a result, we are taking targeted actions to reinvigorate member growth. We believe that a combination of 4 factors most directly affected our performance. First, our marketing largely resonated with a more fitness-minded consumer, yet had less resonance with the fitness beginner or more casual gym goer, traditionally our sweet spot given our differentiated nonintimidating environment. Second, we saw some competitive impacts in certain markets, particularly South Central and Southeast U.S. Third, unfavorable weather conditions affected a number of regions during the quarter; and fourth, macroeconomic pressures and uncertainty weighed on consumers. Our overall performance reflects the strength and resiliency of our model. However, the addition of more than 700,000 net new members during the quarter did not meet our expectations. While this was driven by multiple factors, refining our marketing messaging and targeting is directly within our control. We are making immediate and near-term adjustments to broaden our reach and ensure our messaging is both visible and resonates with the fitness beginner and more casual gym goer. Before I further address that, let me provide some context on how the year has unfolded. Member join trends were solid in the first 2 weeks of January, partially offset by temporarily elevated churn. Severe cold and winter weather in late January and February disrupted joins, especially as several of the storms fell on Mondays, our busiest join day of the week. We anticipated that our March campaign, Black Card First Month Free, which was very successful during the same time last year, would improve our join momentum over the remainder of Q1 and into Q2. Yet as we moved through March and into early April, our join trends remained below our plan. Guided by consumer research and member behavior, over the past 2 years, we've evolved our equipment mix to deliver a more balanced combination of strength and cardio equipment, along with additional open floor space. This ensures members can work out their way. At the end of the first quarter, more than 80% of our entire system featured some version of a format optimized layout or equipment offering. As we've shared previously, our data shows this was the right decision as we enhance the member experience and support long-term engagement, and we shared some of this feedback at our Investor Day last fall. This evolution was a notable shift within our clubs. To broaden our reach and reinforce that people of all fitness levels can achieve their goals at Planet Fitness, in Q4 of 2024, we began to showcase more advanced aspirational gym goers and strength equipment in our marketing, which resonated with a more fitness-minded consumer. This was a shift from the lighthearted approachable tone that had previously been a hallmark of our brand messaging. We were encouraged by our net member growth in 2025 and made the decision to extend the campaign into 2026. However, looking at data from Q4 of last year and Q1 of this year, we saw that our messaging and targeting was successful in driving increased penetration with the fitness-minded consumer, yet we may have pivoted too far. To this end, we've identified 2 areas where we're sharpening and intensifying our focus this year, driving member acquisition and reinforcing affordability. Let me start with member growth. We believe we have an opportunity to dial up the brand's no-gymtimidation ethos in our creative and messaging to appeal broadly to fitness beginners or more casual gym goers, a differentiator that sets us apart from the rest of the industry and is a critical advantage relative to other HVLP peers. To support this, we're testing new marketing initiatives aimed at reigniting net member growth with our target audience at the forefront. We also ran an RFP process in Q1 and recently selected a new creative agency. While we are already refining existing work for Q2 and Q3, we anticipate a new campaign to be in market before year-end to set us up for Q1 2027. Additionally, as we shared at our Investor Day, we are investing in more advanced data-driven marketing tools that allow us to be more agile in our messaging. This includes testing different machine learning models as we modernize our CRM engine as well as building a dynamic content optimization engine for both development of creative assets and dynamic ad serving. These tools will enable us to deliver personalized advertising in real time through the right channels, driving acquisition and retention. While we have seen and are actively addressing increased competition from other HVLP brands in certain markets, they generally target a narrower span of fitness levels and age cohorts. In this environment, it is critical that we clearly and consistently message consumers that while our offering has evolved to meet consumer needs, what truly sets Planet Fitness apart is our nonintimidating judgment-free environment. And this is where we can fully leverage our unmatched marketing fund by letting prospective members who are new to fitness know we're the place for them to begin their fitness journey and remain as they progress on that journey. While we know most consumers today are more fitness aware, our sweet spot is the more than 70% of the population that are not a gym member today and who value the welcoming environment at Planet Fitness. We have a clear plan to expand our leadership position, strengthening the Planet Fitness brand, deepening member engagement, shifting elements of our execution to ensure we continue to maintain and extend our leadership in the HVLP space and driving membership and unit growth. Now let me turn to our affordability and the everyday value that we offer. Against a macroeconomic backdrop of increasing financial pressure on consumers, we are reinforcing Planet Fitness' long-standing commitment to affordability. Economic data indicates an increasingly uneven economic recovery with higher-income households remaining resilient, while lower-income consumers experience mounting pressure. We want Planet Fitness to be accessible to all consumers who want to improve their health. Our pricing architecture and consumer value proposition is one of our most powerful strategic levers and historically has been a source of disruption and growth for our brand as the leader in the HVLP space. While we conducted extensive testing over the past couple of years to support a potential Black Card price increase, the consumer and economic backdrop have shifted. Based on our experience, price increases create a near-term headwind to member joins. As a result, given our decision to prioritize member growth, we have decided to pause the national rollout of our Black Card price increase. At the same time, we are a test-and-learn organization, and our objective is to evolve pricing thoughtfully and in line with our brand promise of democratizing access to fitness while delivering exceptional value. Our test-and-learn approach ensures any pricing change is deliberate, data-driven and true to who we are as a brand, reinforcing our HVLP positioning while sustaining our role as the category leader. Given our softer start to the year and the adjustments to our strategies, we are updating certain elements of our full year guidance. Two key factors driving the revisions are the net member growth shortfall in Q1, which has an outsized impact on the year, and our decision to pause an increase to Black Card pricing. Tom will walk through the specifics shortly. These changes also impact the 3-year algorithm we shared at Investor Day last November. And as a result, we've made the decision to withdraw that outlook. I want to reaffirm our confidence in our strategy and the many key initiatives that underpinned it, which we outlined at Investor Day. We are continuing with these investments, and they are progressing well and on track. While we are taking action to address current market conditions, we are doing so while leaning into the same initiatives we outlined in November to drive sustainable long-term member growth. Now I'll turn it over to Tom. Thomas Fitzgerald: Thanks, Colleen. It's a pleasure to be back at Planet Fitness supporting you and the team while we search for a permanent CFO. This is a great brand with an incredibly strong competitive position, and I love the brand, and I love the team. So it was easy to say yes to rejoin Planet on an interim basis. While 2026 is off to a slower start than expected, I believe the factors impacting our momentum have been identified and are addressable through adjustments to our strategies. Before I get into the financials, I would like to provide further insight into what we believe drove the softer net member growth in Q1. In addition to the marketing not resonating with the fitness beginner or more casual gym goers and competitive pressures in certain markets that Colleen spoke to, net member growth was also impacted by higher-than-expected attrition in the first quarter. Now Planet Fitness is committed to delivering an exceptional member experience, ensuring that our members choose to stay with Planet Fitness based on the value we provide, not due to any barriers to cancellation. This is why the company took the lead and rolled out online member management nationally in May of last year. As we have shared before, our monthly attrition has historically been between 3% and 4%. This was true last year even after we introduced online member management more broadly. In January, we experienced elevated churn, which we partially attribute to a heavy rotation of TV advertising that included the use of the phrase "cancel anytime" in the messaging. After adjusting the language, attrition for February and March declined. Though it was still elevated versus last year, the gap was more in line with what we saw in Q4 of last year. For Q1, our attrition rate averaged 3.8% per month, which was within our historical range. For the rest of the year, we expect monthly attrition to continue to be in the top half of our historical range due in part to the implementation of online member management, but also driven by the increased penetration of Gen Z as younger consumers historically churn more than older cohorts. Adding to what Colleen touched on earlier, the headwind from churn was followed by winter storms in January and February. While these weather-related disruptions were known and contemplated when the company issued guidance on the Q4 call in late February, the expectation was that, with better weather, net member growth would improve over the remainder of the quarter, similar to what we had seen in the latter half of December and the first half of January. Unfortunately, this reversion did not materialize to the levels expected for the reasons Colleen and I mentioned earlier. Now to our first quarter results. All of my comments regarding our first quarter performance will be comparing Q1 2026 to Q1 of last year, unless otherwise noted. We opened 15 new clubs compared to 19. We delivered system-wide same club sales growth of 3.5% in the first quarter. Both franchisee and corporate same club sales increased 3.5%. Approximately 90% of our Q1 comp increase was driven by rate growth with the balance being net membership growth. Black Card penetration was 67% at the end of the quarter, an increase of 240 basis points from the prior year. For the first quarter, total revenue was $337 million compared to $277 million, an increase of 22%. The increase was driven by revenue growth across all 3 segments. A 17% increase in franchise segment revenue was primarily due to an increase in National Ad Fund, or NAF, higher royalty revenue from increased same club sales as well as new clubs, and placement and franchise fees. The increase in NAF revenue was primarily due to a 1% increase in NAF contributions from 2% to 3% for 2026. For the first quarter, the average royalty rate was 6.7%, an increase of 10 basis points from prior year. The 5% increase in revenue in corporate-owned club segment was primarily driven by sales from new clubs as well as increased same club sales. As a reminder, we opened 23 new corporate clubs since January 1, 2025, 11 of which occurred in the fourth quarter. Equipment segment revenue increased 123%. The increase was primarily driven by higher revenue from replacement equipment sales and higher revenue from new franchisee-owned club placement sales. We completed 14 new club placements this quarter compared to 10 last year. For the quarter, replacement equipment accounted for 87% of total equipment revenue compared to 78%. Our cost of revenue, which primarily relates to the cost of equipment sales to franchisee-owned clubs, amounted to $45 million compared to $22 million. Club operations expenses, which relates to our corporate-owned club segment, increased 8% to $88 million compared to $82 million. This increase was primarily due to operating expenses from 23 new clubs opened since January 1, 2025. SG&A for the quarter was flat to prior year at $34 million, while adjusted SG&A was $33 million, an increase of 2%. National Advertising Fund expense was $32 million compared to $22 million, primarily due to the 1 point shift this year in marketing from the local fund to the national fund. Net income was $52 million, adjusted net income was $59 million, and adjusted net income per diluted share was $0.74. Adjusted EBITDA was $140 million, an increase of 20% year-over-year, and adjusted EBITDA margin was 41.5% compared to $117 million with adjusted EBITDA margin of 42.3%. By segment, franchisee adjusted EBITDA was $95 million, and adjusted EBITDA margin decreased from 73.7% to 70.4%. Corporate club adjusted EBITDA was $46 million, and adjusted EBITDA margin decreased from 34.3% to 33.1%. Equipment adjusted EBITDA was $19 million, and adjusted EBITDA margin increased from 26.8% to 31.3%. Now turning to the balance sheet. As of March 31, 2026, we had total cash, cash equivalents and marketable securities of $652 million compared to $607 million on December 31, 2025, which included $81 million and $66 million of restricted cash, respectively, in each period. In Q1 2026, we used $50 million to repurchase approximately 614,000 shares at an average price of $81.47. Moving on to our 2026 outlook. As Colleen noted earlier, given the net member growth trends in the first quarter and our decision to pause the planned national Black Card price increase, we are adjusting our 2026 guidance. We now expect system-wide same club sales growth to be approximately 1%; revenue to grow approximately 7%; adjusted EBITDA to grow approximately 6%; net interest expense to be approximately $111 million; adjusted net income to decrease approximately 2%; adjusted net income per diluted share to grow approximately 4% based on adjusted diluted weighted average shares outstanding of approximately 79 million. Our decision to pause the increase on Black Card accounts for approximately 150 bps of the reduction in our outlook for same club sales for the year. The rest of the decrease is due to softer net member growth trends. As we think about the composition of same club sales in the future, our goal is to have the majority of growth driven by member growth versus rate growth. Our outlook for unit growth has not changed. We still expect between 180 and 190 new clubs system-wide and anticipate that the cadence of these openings and the related 150 to 160 equipment placements to be weighted to the second half of the year, especially the fourth quarter. We expect that re-equip sales will make up approximately 70% of total equipment segment revenue for the year with an equipment margin rate of approximately 30%. We expect the second and third quarter to each account for approximately 30% of our full year replacement equipment revenue and the fourth quarter to be approximately 15% of the full year. Lastly, we continue to expect capital expenditures to be up 10% to 15% and depreciation and amortization to be up approximately 10%. In closing, we recognize that the operating environment has evolved in ways that require us to make some adjustments and to execute with sharpened focus on our core target. In response, we are taking proactive steps to reinvigorate net member growth and leverage our industry-leading marketing scale. Our focus will be to communicate the unique value proposition of Planet Fitness to a broader audience and ensure we connect with both our current and prospective members in a way that drives sustainable and profitable growth. I will now turn the call back to the operator to open it up for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Simeon Siegel with Guggenheim Securities. Simeon Siegel: First off, Colleen, any color you can share on how your conversations with franchisees are going amid all of it, just the current performance. And this color -- and then either for you or for Tom, just obviously a notable guidance cut. So maybe just speak to how you arrived at these new numbers, confidence in them. And do you think or do you believe this should be the last cut, and we should be looking at it that way? Colleen Keating: Sure. Thanks for the question, Simeon. So from the standpoint of our conversations with franchisees, certainly, we've got alignment on our overarching strategy. Some of the things we're sharing today as it relates to kind of shift in marketing messaging, this is fairly new news. And we have a town hall with our franchisees next week to share more detail on the go-forward plan. Thomas Fitzgerald: Yes. Simeon, I'll take the second part on the outlook. I think the big change really is how we're seeing same club sales and net member growth for the year coming out of Q1. I think Colleen a couple of minutes ago outlined the 4 reasons behind it. And also not taking the Black Card price up, given our net member trends, we think that makes sense. But that obviously has a bit of a headwind on the outlook for the year. But we think absolutely the right strategic move to make. Our approach was to revise the guidance with the idea that we wouldn't lower it for the rest of the year. Operator: Your next question comes from the line of Randy Konik with Jefferies. Randal Konik: So Tom, just to kind of kind of bounce off that a little more. Coming out of the first quarter, are the trends kind of stable from first quarter into the second quarter? Are they getting worse on a net member basis? Can you kind of elaborate on that a little bit in terms of, again, arriving to the annual outlook change? Thomas Fitzgerald: Yes. Sure thing, Randy. And we don't really comment on the member growth for the year or project it. But to help you out with a little bit of the color, we -- as Colleen said, we added about 1 million net members in Q1 last year. And this year, it was about 700,000 -- a bit over 700,000. And that's with more new clubs year-on-year. So clearly, we expected more. And I think for the reasons Colleen outlined, we think a big reason is the marketing and sort of trying to go after a more fitness-minded target versus our traditional target. And we think the beginner, first-timer is just a much bigger pool. So we're going to redirect what is, as you know, an outsized orders of magnitude, larger marketing spend than anyone else in the industry. So we're going to put the crosshairs kind of back on where we used to. And -- but that's going to take a little time. It's not a flip of the switch, as you know, particularly in a franchise system. So I think that's principally what we're seeing. I would say we don't comment in the quarter, but I'd say we projected the rest of the year based on what we've seen coming out of February after the storms and into March -- through March. Colleen Keating: Maybe I'll chime in on that a little bit. In March of last year, we had a very, very strong performance from our Black Card First Month Free promotion. And while we had some elevated churn in January and then some storm weather impacts that we were seeing coming out of January and into February, we anticipated very strong performance because we knew we were going to be running the Black Card First Month Free again in March, and we had softer performance than we anticipated there. So some of those trends are what we kind of carried forward in reforecasting the rest of the year because we didn't see the momentum in March that we had anticipated. And then maybe just to comment a little bit further on the marketing and the shift in messaging, particularly because we, a couple of times a year, do a brand health tracker. We use a third-party research firm to help us evaluate how our marketing is landing. And when we built the 2025 campaign, "Grow Stronger Together," and "We're Are All Strong on This Planet," we were responding to what we saw in the brand tracker in early '24, which was that we needed to communicate to consumers and prospects that you could get strong at a Planet Fitness and that we had the right complement of strength equipment. The early read on that marketing was that it was working and it was communicating that message. So we saw the lift in consumer sentiment as we evaluated that campaign. What we've come to recognize more recently, particularly in the data that we saw late last year and coming into this year, was that we were penetrating a more fitness-minded consumer. But you'll remember at our Investor Day, Brian Povinelli talked about defending and enhancing. And what this messaging did was enhance, but we missed a little bit of the defending. So where we had a strong ownership of the kind of the beginner or the person who might be more gymtimidated, that 70% of the population that doesn't have a gym membership today, this messaging may have resonated -- or did resonate a bit more intimidating, and we saw that in the more recent brand health data. So that's what's influencing the pivoting on the marketing messaging. Randal Konik: Got it. And then when you think about -- when I look at the Black Card penetration, I believe it was up, and then you're talking about a broader price review. What is the kind of messaging there or thought process there? Because on one hand, you're getting that increased penetration so that fitness-minded person, I'm assuming, is appreciating the value of those amenities in the Black Card spa, yet -- are you kind of looking at that from a perspective of -- is our initial pricing to an initial gymgoer looking too high when they see that Black Card price? Or just kind of give us some perspective of why the broader price review and pausing the Black Card. Just want to get some color there. Colleen Keating: Absolutely. Great question. I'm glad you asked it. So as we think about the increased penetration that we've been experiencing with Black Card pricing and in the mid- to upper mid-60s in penetration across our membership, since we've narrowed the delta, the increase in the Classic Card price to $15 narrowed the delta between Classic and Black. That increased penetration is giving us price, right? It's giving us organic price lift because we're getting more penetration at the Black Card price of $24.99 versus the Classic price of $15. So to be clear, and we've said this over the past year, we are getting price from the increased penetration. We also -- as we've talked about, we have seen -- in the past where we've taken a lift in Black Card pricing, we've seen a slight headwind on joins, certainly a diminution on the penetration, but it builds back over time. Given what we saw in the first quarter and our focus on doubling down on member growth, really leaning into member growth for the rest of the year and kind of the consumer landscape and backdrop, we felt that the most prudent decision was not to put a price headwind when we're doubling down on membership growth. So we've put the pause on the nationwide rollout of a Black Card price elevation. And we're continuing to do price testing in a number of different markets with a couple of different price scenarios. We're always going to be testing, but the Black Card price test was initiated in a different -- much different consumer environment. So we felt it was prudent to refresh our tests, run a couple of new ones and put the pause as we really, really lean in heavy on driving member growth between now and the end of the year. Operator: Your next question comes from the line of Max Rakhlenko with TD Cowen. Maksim Rakhlenko: Maybe piggybacking in a way to the last question. But Tom, can you -- just going back to the comp for the year at plus 1%, because -- just give us more help. You are still getting the benefit from the Black Card mix, as Colleen just discussed. You are going to be cycling the worst of click to cancel in 2Q and 3Q. And then in 4Q, you start to get the benefit from the waterfall given all the boxes that you opened late last year. So in the context of all this, sort of how do we build to the 1% comp? And then how should we think about the member versus rate contribution in the rest of the year? Thomas Fitzgerald: Yes. Max, so I would say that you're right, the clubs coming on board towards the end of the year into the comp base, that helps. It really does come down to the member growth. And as you know, in our business, it's not really what happened last month or last quarter. It's sort of the 12 months prior versus the prior and also the quarter's net member growth versus the net member growth in the prior quarter. And Q1 being so such a big piece of that net member growth change for the year, it kind of has an outsized impact that works its way through. So I think the split -- rate volume split in Q1 was 90-10, 90 rate, 10 volume. And I think, as Colleen said, really doubling down, zeroing in on the primary goal of driving net member growth. we've got to get that split to be different than 90-10. It's kind of unsustainable. And in our business, you can spend a lot of money to drive -- because net member growth is profitable almost no matter what you do, unless you spend an incredible amount of money very efficiently. It's almost impossible not to make net member growth profitable. So that's really what's the beauty of the model, and I think what we want to rebalance. But the way we're calling the year is really based on the lack of the Black Card price increase that I mentioned, which was in our original outlook, not rolling that nationally, as well as just what we've seen as Colleen and I just mentioned on the last couple of questions about what happened through March that we expected more and didn't get it. So we've got some work to do, and I think it will take a little bit of time to redirect it, but we're very confident that this is the right approach. And again, given our outsized spend and position in the industry and the fact that no one really goes after who we go after, we're confident that, that will fall into place and start to reaccelerate member growth and ultimately, comps. It's just going to take a while. Colleen Keating: Maybe I'll bolt on for a minute, too, just because I know you're going to -- you're looking to model, and I think -- so we get asked the question, well, we can share it broadly. The Black Card price was about 150 basis points of the comp for the year, right? And then I would also say kind of the seasonality and the subscription nature of the model. A miss in Q1 is harder to make up over the rest of the year. January join represents 12 months of revenue. If we -- the marketing engine starts kicking at a higher efficiency later in the year, it will take 2 joins in January -- or 2 joins in July to make up a January join because of the seasonality in the subscription model. And the other thing I'll just remind you is, while we had a very, very strong unit openings year last year, at 181 unit openings, 104 of those were in Q4 and many of them late Q4. So they won't actually come into the comp until the 13th draft cycle. Maksim Rakhlenko: Got it. Okay. That's helpful. And then, Colleen, a lot of your comments are around marketing, but there certainly was a lot less color on how you're dealing with a more competitive peer set that, as we all know, it's going to become even more of a challenge over the coming years. So should the takeaway be that in your view, marketing is the biggest issue and not the actual value proposition itself even with an increasing number of peers that arguably offer more for a similar price? Colleen Keating: So I think I would say offer different, not offer more. What -- where we're really doubling down is on the 70% who are not a member of a gym or a club today and are gymtimidated. And we know one of the biggest barriers to joining a gym is that fear of walking through the front door. And I've said that before, our biggest competitor is fear of walking through the front door. As I called out in my remarks, we did see competitive pressure in a couple of very specific geographies. So I called out Southeast, I called out South Central. But do keep in mind, we are 5 to 6x the size of our next largest competitor. So we can't say competition broadly and holistically across the estate is the driver of the softer join momentum in Q1. We do believe, and what we've seen in the brand health track, the data that we've reviewed, is that we're resonating with a more fitness-minded consumer, but that is not as representative of our unique value proposition and the value that we do bring to the table, which is that welcoming all fitness levels, anyone of any age, any fitness level, any body type, you're going to walk into a Planet Fitness and you're going to see somebody who looks like you and feel comfortable in our nonintimidating environment. So we're going to amp that up in the marketing communications to ensure that we're penetrating our core prospective customer base. Maksim Rakhlenko: But on -- any changes to the box or anything like that, is that more a longer term? Colleen Keating: What we've seen is the form in -- the consumer feedback on format optimization is resonating. And Bill Bode shared that at our Investor Day, where our NPS indicates that our members are appreciating the more balanced complement of strength in cardio. So that-ish 50-50 mix of the gym floor having a balance of strength and cardio and also the fact that we've opened up more floor space for people to kind of drop a mat and do their workout their way, that is resonating. We think the creative -- and candidly, we got exactly what we set out to do. We wanted to convey that you could get strong at Planet Fitness, but when we think about the creative, we dialed up a little bit of the sweat level of our talent in the creative and some of our messaging, and we need to bring back a little bit of the lightheartedness and convey the approachability and the no gymtimidation that makes us so unique and special. Operator: Your next question comes from the line of Joe Altobello with Raymond James. Joseph Altobello: I guess first question, I'll piggyback off of the competitive pressures question in terms of the quarter. It sounds like it was regionally confined. But what was it about those competitors or maybe those regions that drove that? Thomas Fitzgerald: Yes, I'll start. Joe, I think it is concentrated. And I think one of the things that we've seen historically is -- and some of them are opening boxes in certain markets fairly aggressively, the newer formats. And sometimes we've seen this historically with Planet, a new gym opens up near one of ours, we lose some members. But over time, we tend to gain them back because they're not comfortable in those environments. And I think back to what Colleen was saying, that's really the -- one of the key things about Planet is we're trying to get you, primarily, the 70% now who don't belong to a gym, to start your journey. And then when you get in, it should feel like -- it should feel very different than any other gym would feel, where it's not intimidating, it's welcoming no matter your fitness level. And we just don't think they have the ability to do that. I'd say the second thing is, candidly, when we took the Classic Card up from $10 to $15, we thought some of them would follow. And in some markets -- in some of these key markets that Colleen mentioned, they haven't. So the headline price is better than ours. And now when you get inside, there's all kinds of extra fees and add-ons and commitments you have to make. But when you're there, you're there. So we think as we reconsider the approach forward, I think, primarily, to compete, we need to make sure our environment is even less intimidating than it is. That's a never-ending quest. We'll never be satisfied with that. And I think the second piece of it is, redirecting to primarily target the people who aren't -- who don't have a gym membership today. Joseph Altobello: Got it. That's helpful. I appreciate it, Tom. And maybe secondly, on the macro pressures on member growth. I'm curious when you started to see a shift there because the testing that you did last year, obviously sounded relatively encouraging and allowed you to move forward with the price increase. But I'm curious what the timing was there. And just as a follow-up to that, it looks like it's still $30 in many markets. So is that going to get rolled back? Colleen Keating: So I'll start. The testing really started in -- back in 2024. So it was a different consumer environment when we initiated that Black Card test. We started that test almost immediately on the heels of the Classic Card price rollout, which was June 28 of 2024. So we're going back now nearly 2 years and a bit of consumer environment. The second part of that question? Thomas Fitzgerald: Yes, I'd say -- I'll pick it up. So we do have some markets still at $29, Joe, if that's what you were asking. And I think we've got -- where we have it, we want to let it run a little longer in part to see how that Black Card and Classic Card mix shifts over time. And also, in some of those markets, the price that other people offer is significantly higher. So we -- and the cost of doing business is significantly higher. So we're going to let them run for a little bit and continue to read, but we don't have any plans at the moment to pull those back. Colleen Keating: I think that's right. I think we've got a number of tests in market, but we're not -- there are no -- and we said no nationwide rollout for the Black Card price elevation, but we don't have any imminent plans of a price rollback there either. Operator: Your next question comes from the line of Jonathan Komp with Baird. Jonathan Komp: Just a broader question. With nearly 3,000 units and your typical approach of testing and learning, is there anything that holds back your ability or speed to which you can test new initiatives, outside of marketing maybe? And when you think about changing the trend in member trends, could you give us a little more concrete, just your specific plans and maybe confidence levels and any thoughts on time line? Colleen Keating: Sure. I'll start with maybe the ability to test. Certainly, we own about 10% of the fleet, and we can move very quickly with great agility to run tests in our own corporate clubs. So that's a test accelerant. The other thing I'll say is we've got a super engaged franchisee base. And even some of the tests that are in flight right now, we reached out to a number of franchisees and have had great participation. And that tends to be true in our system. When we reach out to franchisees and ask them to participate in a test, we find a lot of engagement and strong participation. So we can move with speed and agility in testing. I will say we may tend to test longer because of the size of our estate to make sure we're really pressure testing and because of the seasonality of our business. So we can launch a test quickly and with agility, we may tend to test a bit longer to make sure that we're capturing regional nuances, really understanding the difference in the control group and capturing some seasonality in the test as well. Anything you want to add to that? Thomas Fitzgerald: No. John, maybe I'll take the second part of your question, and Colleen may add. I think the confidence we have in the actions will improve net member growth trends once we get them in place. I'd say it's pretty high. I mean we're going back more to -- in an evolved way, not exactly the same way, but going back to what we did and targeting who we did, and it was successful. I mean we grew faster than the industry for years. We used to talk about a higher percentage of people who don't belong to a gym is now lower. That's really due to us. And the power of the marketing. And I think, to Colleen's point, we got what we were trying to do in a way. That also shows the power of the marketing. Colleen Keating: That's right. Thomas Fitzgerald: So I think putting the big bazooka on the right target with the right messaging, it's not a new idea. It's an evolved idea that we used to run for a long time in our playbook that had a lot of success. So that's primarily what gives us the most confidence. Jonathan Komp: Okay. Great. And then my follow-up, Colleen, in the press release, I think you mentioned confidence in driving enhanced top and bottom line results in 2027. Any more context to that comment and your confidence in driving some re-acceleration after this year and a bit of a reset? And do you see any risk that the trends you're updating guidance for this year creep into less willingness from franchisees to build units? Colleen Keating: Yes. So I think when it comes to a shift in marketing and marketing messaging, it takes a minute to work with the agency and develop the new messaging and the new creative and shoot the creative. And then, of course, we've got to test it. And at the end of the day, the biggest quarter -- the biggest joint quarter where we're going to really see the greatest return on these initiatives, while we're moving on them very quickly this year, we'll best evaluate the benefit when we get into a join quarter like Q1 of 2027. So we see this year as a building year for some of these -- and we communicated some of the things we're investing in at Investor Day, and those are moving forward as well. We've just went into pilot, early pilot, in the launch of our AI-enabled predictive churn model. So that was something that we talked about at Investor Day, that just went into pilot. We're in the short strokes of selecting our partner for the DCO engine. And we're making very good progress on the AI-enabled CRM next best action model that will be in market or be in flight in the back half of the year. That's in the second half that we'll go into pilot in lockstep and in tandem with our new app, our revitalized app. So there's a lot in flight this year. And we communicated that, right, that this was going to be a year where we were building and investing in some new tools that will help us to drive, particularly, top line in the future. And when that top line grows, because of the flow-through, particularly on member revenue, it has an outsized impact on EBITDA. Operator: Your next question comes from the line of Arpine Kocharyan from UBS. Arpine Kocharyan: Your ADA pipeline came down further from 800 to closer to 750 in your latest 10-K. And I think it says including more than 500 clubs over the next 3 years. Could you just maybe address if you're looking at kind of further pruning ADAs, how that's going? And I understand the more accelerated unit openings would bring that number down faster, but wondering what else is driving that lower? Colleen Keating: Yes. I'll start and then, Tom, if you want to chime in. So certainly, part of the diminution on the pipeline is the fact that we had such a strong openings here last year, right? So we had 181 new clubs opened last year. At the same time, and Chip talked about this, there's a slide in our Investor Day deck about this as well, about the ability to take back some territory and resell it. So we've got a new team member on our development team that's actively engaging with franchisees and prospective franchisees. And we're seeing opportunity where we may be able to sell some new territory as well. So we also have talked about population growth and kind of de-urbanization and where -- when transactions happen, we have the ability to recast ADAs, which then in turn kind of fills that pipeline as well. So as we've had transactions occur in our portfolio, we look at the territory. We recast the ADA based on where the population growth has taken place, where there may be another opportunity to support another club in that geo and adjust the ADAs accordingly with a new transaction. Thomas Fitzgerald: Yes. I maybe just add to that, Arpine. I think over time, we've somewhat shortened the number of years in an ADA. So what happens -- and part of it is we want to see how it's going before we commit so much. It gives us more flexibility, more agility -- and so that -- sort of by shortening the tail, if you will -- or not the tail, but the... Colleen Keating: Time line. Thomas Fitzgerald: Yes, the time line and the number of years on average in an ADA, that has a natural sort of reduction there in total opportunities. Operator: Your next question comes from the line of Chris O'Cull with Stifel Financial Corp. Christopher O'Cull: I had a follow-up on the Black Card pricing. And I apologize if I missed it, but are you -- are there any new Black Card pricing structures you're testing? Thomas Fitzgerald: Chris, it's Tom. Good to talk to you again. We -- as Colleen said in her -- on the call, we're going to be testing some things. We're going to be talking to our franchisees about what we want to test. As we typically do, we'll share that what it is, where it is and how it's doing at the appropriate time, but it's premature to talk about that. But I think as we think about really putting net member growth front and center in all that we want to do, I think it does make sense to step back and say, "What are we doing today? And what else do we want to think about and potentially test going forward?" More to come, but... Colleen Keating: It's price and it's the price value relationship. Thomas Fitzgerald: That's right. That's right. Christopher O'Cull: Okay. And then, Colleen, my question -- my main question is about just the marketing changes. And just wondering how you envision reworking the message to reach both nonusers and current fitness-minded gym users. I'm just trying to understand how you manage the risk of trying to be a gym for everyone without losing kind of the simplicity and clarity of a message to like a single group. Colleen Keating: Yes. I think we've long been kind of the opposite brand, and it's been our sweet spot to target that very large 70% of the population that is not a member of a gym today. And we want to ensure that our marketing messaging is reaching and resonating with that population. Thomas Fitzgerald: Yes. And I might add, Chris, over the years, when we were targeting the folks who don't belong to a gym, we also had people who were pretty darn ripped in our gyms. You knew one well. And I know that I see him when I go in the gyms that we have. Now they -- and part of the non-intimidation, too, is just because they are body builders, doesn't mean they act like lunks. And I think that goes back to the no gymtimidation, really making sure our members are comfortable. And those are the folks who are wiping down the equipment after they use it, they put it away, and they're not banging it on the floor, there, you can't clap chalk and all that stuff in our place. And that's what you get in the other places. So that is hard for them to replicate because that's a very hard thing to change given who they've attracted compared to who we've attracted. Colleen Keating: I think the importance is and what has been our sweet spot is that we attract members of all age cohorts, all fitness levels. And we want to ensure that our marketing is conveying that, that environment exists at Planet Fitness. Operator: Your next question comes from the line of Sharon Zackfia with William Blair. Sharon Zackfia: I guess as we think about the impact on more of those new-to-gym members, is there anything you can share on kind of what the membership mix was in new joins of those new-to-gym versus what you've seen historically? Thomas Fitzgerald: Yes, Sharon. Without being super specific, the last couple of quarters, it's been down a little bit. Sharon Zackfia: Okay. And then, Tom, as I think about kind of the impact of this tough first quarter, it kind of implies flat comps for the rest of the year. Is there any curve to that comp for the rest of the year? And how do we think about member growth? I mean, do you think there is an opportunity to end '26 with more members than you currently have? Thomas Fitzgerald: Yes, sure. So we'll stick with our practice of not projecting and providing an outlook on membership. But I do think you're right, Sharon. We see kind of a gradual step down across the quarters without -- we don't provide quarterly guidance, as you know, but it's just based on that subscription model that you know and Colleen and I touched on earlier. That's how we see it. Operator: I will now hand the conference off to Colleen Keating for closing remarks. Colleen, please go ahead. Colleen Keating: Thank you. Planet Fitness is a market leader, and the underlying strength of our brand and our business model remains in place. We have a proven track record of successfully navigating market pressures and near-term headwinds. More than 30 years ago, we entered the category as a disruptor, built on a differentiated offering and an unmatched value proposition at an accessible price point. That foundation continues to guide how we operate today, and we look forward to updating you on our progress as we move ahead. Thank you. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Honest Company's First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference call over to Chris Mandeville, Interim Head of Investor Relations at the Honest Company. Please go ahead. Chris Mandeville: Good afternoon, and thank you for joining our first quarter 2026 conference call. With me today are Carla Vernon, our Chief Executive Officer; and Curtiss Bruce, our Chief Financial Officer. Before we begin, I will remind you that our remarks today include forward-looking statements subject to risks and uncertainties. We do not undertake any obligation to update these statements, and actual results may differ materially. For a detailed discussion of these factors, please refer to our safe harbor statements in today's earnings materials and our recent SEC filings. We will also discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in our earnings release and accompanying presentation, which are available at investors.honest.com. Finally, please note that all consumption data included in our discussion today, unless otherwise noted, will reflect Circana MULO+ measured channel data for the 13 weeks ended March 29, 2026, as compared to the prior year. With that, I'll turn it over to Carla. Carla Vernon: Thank you, Chris, and hello to everyone joining us. Today, I will provide a high-level look at our first quarter performance and offer insights into how we are successfully executing our strategy to profitably scale the Honest brand. Following my remarks, Curtiss will provide greater detail on our Q1 financial results and discuss our reaffirmed full-year outlook. We are pleased with our start to 2026 as our recent actions to optimize our portfolio are bearing fruit. Our Q1 results demonstrate that Powering Honest Growth is leading to an enterprise that is more strategically focused, growth-driven and structurally profitable. Let me begin with our first quarter results. By bringing a sharpened focus to our right to win categories and channels, we delivered organic revenue growth of 3.9% Delivering this growth on top of double-digit growth in the prior year underscores the momentum across our portfolio. As we continue to increase the availability of Honest products, we are also expanding our business across a broader set of households. Over the last 3 years, we've been disciplined in our focus on driving shareholder value through top line scale and bottom line expansion, and in Q1, we did exactly that. In addition to delivering organic revenue growth, our adjusted gross margin of 43.5% was the strongest in our history. This year-over-year gross margin expansion of 480 basis points demonstrates the impact of our Powering Honest Growth initiative. By streamlining the focus to our right to win categories, we have ignited a virtuous cycle that allows our teams to successfully execute against our 3 strategic pillars of brand maximization, margin enhancement and operating discipline. In Q1, our brand maximization strategy of growing revenue scale and consumer strength of the Honest brand was evident. We delivered 8.3% consumption growth significantly ahead of our comparative category average growth of 2.6% and a notable acceleration from the 3.4% we delivered in Q4 2025. Best of all, our momentum continued to be volume-led with unit consumption up 20%. As I shared last quarter, the Honest brand benefits from 2 powerful dynamics. The first and most foundational is the growing consumer interest in cleanly formulated and effective products for people with sensitive skin. The second dynamic is the unique competitive advantage of the Honest brand, which drives our commitment to upholding the highest standards in everything we do. This gives us the ability to build deep consumer trust and loyalty across a diverse range of households. This spans families with babies and toddlers to those with big kids and teenagers and even households with no kids at all. In the United States, 89% of U.S. households do not have any children under the age of 6, while 75% of U.S. households have no children at all. This is why we are purposeful in designing a growth strategy that provides a broad range of products developed with a wide range of ages in mind. As a reminder, according to Numerator, over half of Honest's current buyers are for no kid households. Across all household types, the love for our cleanly formulated and sustainably designed personal care products continues to grow. At Honest, every product must meet our industry-leading Honest standard, which is a set of guiding principles that includes a list of over 3,500 ingredients we do not use and that shapes every step of product innovation and development to ensure our high expectations for safety, efficacy and design. This appeal is evident in our growth. In Q1, our total household penetration reached a new all-time high of 8.1%, up 50 basis points from year-end. We're proud to have welcomed 1.6 million new households over the past year. As we look at the opportunity in household penetration, we still have significant runway ahead. For example, in Baby Personal care, key branded competitors hold household penetration anywhere from 2x to 6x greater than ours. In all purpose wipes, larger brands have as much as 5x to 7x the household penetration of Honest. This considerable market opportunity presents a clear line of sight to our next phase of growth with a focus on transitioning existing category buyers to Honest and welcoming entirely new households into these categories. Now allow me to share more on each of these portfolios, beginning with wipes. In Q1, our total wipes portfolio delivered consumption growth of nearly 25%. With a wide and growing array of formats, Honest wipes are expanding throughout the store and across household types with products ranging from adult flushable wipes and hand sanitizing wipes to toddler flushable wipes and all-purpose baby wipes. The consumption of our all-purpose baby wipes grew 14% this quarter, reflecting just how much our community loves having a stylish pop of design on their changing table, countertop or in their bag for those everyday cleanup moments. This quarter was the national rollout of our updated more shopper-friendly packaging for our all-purpose wipes. With this new bolder, more shoppable package design, it is much easier for people to discover these wipes on store shelves. We introduced our largest packaging format to-date, a mega pack that allows parents to maximize value and stay fully stocked on our wonderful sensitive skin safe wipes. Our Honest flushable wipes are a clear standout in our portfolio, delivering Q1 consumption growth of more than 200% off of a still emerging base. These plush moist and plumbing safe flushable wipes have now grown at more than 10x the category rate for 3 consecutive quarters. As a result, we are now the #4 flushable wipe brand in the category, up from the #5 spot in Q4 2025. This momentum illustrates how our growing Honest community loves the unique combination of fashion, function and flushability we bring to the category, and we're just getting started. A few weeks ago, we adopted a very stylish and thoroughly modern new approach to our marketing of flushable wipes. We kicked things off with a high-profile social media campaign in March, partnering with mega influencers specifically chosen to resonate across our target households. Whether you love an intimate conversation with Tia Mowry, a besty moment with Kat Stickler or a freestyle wrap by Hannah Berner, we had something for you. The response from followers was immediate and the algorithm did its thing. In fact, 1 post amassed 1.5 million views across Instagram and TikTok in just its first 12 hours. Building on that incredible digital engagement, we launched a national campaign in April across a broad media landscape of video, social, out-of-home, festivals and more. The ads, posts and videos put the spotlight on the moments when even the most stylish and glamorous women get honest about why they love our flushable wipes. We didn't stop there. This quarter, we also refreshed our collection of hand sanitizing wipes. In Q1, we relaunched our Lavender and Grapefruit scent in updated counterworthy packaging and rolled out our pocket packs in those 2 fresh scents. For the quarter, we saw a consumption increase of more than 60% on our hand sanitizing wipes, maintaining our position as the #2 brand in the category. Now shifting to Personal Care. Our Personal Care collection delivered consumption growth of 16% in Q1. Our shampoo, body wash, bubble bath and lotion have long been a trusted choice in the 11% of U.S. households with children under the age of 6. In fact, with consumption growing 7x faster than the category, Honest has officially become the #2 brand across total baby personal care, jumping from the #4 position last year. Now to build on that momentum, we are expanding our reach. We are pleased to have introduced our new Pixar Toy Story collection, bringing the Honest standard to the 89% of U.S. households with big kids and kids at heart. Initially, we launched the collection, both in-store and online at Walmart. As of a few weeks ago, I'm excited to announce that we added the collection to Amazon, which will meaningfully expand our reach just in time for the Toy Story 5 movie release next month. Speaking of going to Infinity and Beyond, our brand literally reached new heights recently. During the live stream of the NASA Artemis II mission in April, astronaut Christina Koch radio Houston to ask Mission Control for help in tracking down the Honest lotion the crew had packed on board. It was incredible. It was an organic moment that highlights just how essential our products are to our community even in orbit. Not only was this an incredible affirmation that Honest products are for everyone, but because my own mother was a NASA hidden figure, this was a full circle moment in more ways than one. Finally, let me share an update on our diaper portfolio, where we have seen progress on our performance. Our consumption declines in diapers were nearly cut in half, moderating to negative 9.6% in Q1 from 18.3% in Q4 2025 as we lapped the distribution losses of gender-specific prints at a key retailer late in the quarter. However, our outlook for the broader diaper category remains cautious. We are navigating a highly competitive and promotional environment that we expect will continue to pressure the category. While diapers remain an important option for families looking for the Honest standard of clean, we will prioritize our growth in households with babies and families with little kids through our higher growth, higher-margin wipes and personal care platforms. Despite these localized category pressures, the broad strength of our portfolio is shining through. Our positive Q1 results show that we are financially stronger and on the right path with great possibilities ahead. With that, I will now turn the call over to Curtiss to provide more detail on our Q1 financial results and walk through our reaffirmed full-year 2026 outlook. Curtiss Bruce: Thank you, Carla, and good afternoon, everyone. As Carla mentioned, our first quarter results are a clear indication that the structural improvements we made to our business last year through Powering Honest Growth initiative are driving our growth and profitability today. We are pleased with our start to the year. Before diving into the financial results, I want to provide a brief update on this transformation. We are seeing the immediate accelerated benefits of a highly favorable margin mix, driven by our sharpened focus on our right to win categories alongside the positive impact of our rightsized SG&A. As we look to the balance of the year, we remain firmly on track to realize our expected supply chain efficiencies in the second half of 2026. As a reminder, we expect Powering Honest Growth to deliver between $10 million to $15 million in annualized savings, serving as a powerful catalyst to further fortify our bottom line health and generate the fuel needed to reinvest in our growth. Now turning to our first quarter performance. Revenue was $78.1 million compared to $97.3 million in the prior year period, primarily reflecting the impact of our strategic Powering Honest Growth category and channel exits. On an organic basis, revenue grew 3.9% to $78.1 million. This growth is particularly notable as it was achieved over a difficult prior year comparison, which was bolstered by retailer inventory buildup ahead of the 2025 tariffs. Our performance this quarter reflects strong momentum behind our higher growth, higher-margin wipes and personal care platforms, partially offset by moderating diaper sales declines. These diaper results were driven by the initial lapping of previously disclosed headwinds related to a key retailers transition to gender-neutral prints. Q1 reported gross margin came in at 42.6%, a 390 basis point improvement compared to the prior year period. On an adjusted basis, our gross margin of 43.5% was historically strong, reflecting favorable freight costs as well as mix from our higher growth, higher-margin wipes and personal care platforms, which was accelerated by Powering Honest Growth. These items were partially offset by tariffs. Total operating expenses decreased $1.2 million year-over-year, including a modest restructuring charge related to Powering Honest Growth. Excluding this transitional cost, our adjusted operating expenses declined by $1.8 million. This reduction was driven by our structural SG&A improvements, which more than offset our plan to drive double-digit increases in marketing investments directed specifically toward our higher growth, higher-margin wipes and personal care platforms. Coupling these structural cost savings with our meaningful adjusted gross margin expansion creates a powerful financial engine, underscoring our capacity to strategically reinvest in our brand while rightsizing our SG&A at the same time. Looking at our bottom line, we reported a net loss of less than $0.1 million for the quarter. Q1 adjusted EBITDA was $4 million, representing an adjusted EBITDA margin of 5.1%, down from $6.9 million and a 7.1% margin in the prior year period, largely due to lower reported revenue. Regarding our balance sheet and cash flow, we continue to be in an exceptionally strong position. We ended the quarter with $90.4 million in cash and cash equivalents and 0 debt, while Q1 free cash flow was $3.8 million, a substantial improvement compared to the negative $3 million in the prior year period. This year-over-year increase was primarily driven by continued working capital improvements stemming from Powering Honest Growth and our rigorous focus on operating discipline. During the quarter, we utilized $3 million of our newly authorized $25 million share repurchase program with an additional $8.3 million deployed subsequent to quarter end. In total, these repurchases were executed at an average price of $3.26 per share. These actions reflect our confidence in the structural improvements we have made to our business, the significant financial flexibility generated by our asset-light operating model and our commitment to balancing aggressive reinvestment in our growth initiatives with returning meaningful value to our shareholders. Moving to our outlook. While we are encouraged by our start to 2026, we are also mindful that it is still early in the year, and we are navigating an environment where several macroeconomic uncertainties remain. That said, the actions we've taken to optimize our portfolio have created a much stronger foundation for profitable growth. We have effectively shifted our resources toward the categories where Honest has the clearest competitive advantage, and our 2026 framework reflects both the early returns of that discipline and our prudent approach to the balance of the year. With that context, we are reaffirming our full-year 2026 outlook. We continue to expect the following: reported revenue declines of 18% to 16% due to our strategic exits, organic revenue growth of 4% to 6%, in line with our long-term algorithm, adjusted gross margins in the low 40s and adjusted EBITDA of $20 million to $23 million. As I wrap up, I want to emphasize how pleased we are with our start to the year. We believe our first quarter results clearly demonstrate that sharpening our focus on our right to win categories has built a resilient financial foundation. We are executing with strict operational discipline and maintaining a clear line of sight towards sustainable, profitable growth. With that, I will turn it back to Carla for final remarks. Carla Vernon: Thank you, Curtiss. As we shared last quarter, Powering Honest Growth was about unlocking the full potential of our business model by serving as a force multiplier to our strategic pillars. We believe that our Q1 results confirm that the heavy lifting we did in 2025 is paying off. I'd like to thank our team of Honest Butterfly for their commitment and diligence in building our shared vision for Honest. Now more than ever, Honest is well positioned to deliver strong value creation for investors, expand our Honest community and build the enduring strength and meaning of the Honest brand. With that, I will now turn it over to the operator to open the line for questions. Operator: [Operator Instructions]. Your first question comes from the line of Aaron Grey with AGP. Aaron Grey: First question for me, I just want to talk a little bit about the reiterated guidance. I can certainly understand the commentary in terms of wanting to have to take a prudent approach for the remainder of the year. Just given if you take the run rate for 1Q, that kind of takes you to the high end of your guide now. Curious if there's any shipment timing that hadn't impacted the Q or any type of seasonality we should be thinking about ahead just given some of the other top line initiatives we talked about right now -- earlier on the call that should obviously lead to some nice sales trajectory. Curtiss Bruce: Aaron, this is Curtiss. We are certainly pleased with the revenue growth in Q1. It represents a very good start to the year and in line with our expectation and I say we're equally pleased with the consumption of 8% growth as well, and that was on our higher growth, higher-margin portfolios in Wipes and Personal Care. As you think about the full-year, we're just reiterating our guidance, right? We are still expecting to be able to deliver on the 4% to 6% organic growth. We don't have any concerns coming out of the quarter that there was any dislocation in revenue performance and the consumption performance. Aaron Grey: Second question for me is in terms of marketing spend, some uptick there sequentially to about $14 million. Maybe talk about some of the strategy that you have. You talked about it a little bit, Carla, in your prepared remarks. I'd love to hear in terms of some of the initiatives you have to help support the growth for some of the brand launches and expansion there. Carla Vernon: Sure. Why don't I get started? Aaron, we really believe that marketing is a force multiplier here at Honest, and it has always been an important piece of the fabric of building this powerful brand. We think we've got a strategic advantage because ever since our beginning, we've been very brand forward, very consumer forward. We know that this investment we're making in marketing is going to be a very powerful driver of this improved awareness that's key to our growth strategy. As you know, we have -- the success we've demonstrated on household penetration gains have been very balanced across our products and our consumer types, and that's because we've been very intentional as we allowed ourselves to be more focused coming out of Powering Honest Growth. That degree of focus is allowing us to point our marketing dollars and our marketing strategies strongly towards our key categories. In this quarter, what you've already seen is we kicked off a fantastic marketing campaign against our flushable wipes business. You remember in my comments, we are now the fourth largest brand in flushable wipes, and we delivered more than 200% consumption growth in the quarter. We just about 4 weeks ago, started kicking off a very groundbreaking campaign. You can see some images from that campaign in our investor slide presentation, our social media feed as always. This campaign really takes a different approach than other flushable brands in the category. We are living up to our name of being honest, right? We've got these really glamorous, beautiful women talking about the role that a flushable wipes plays in their life and why they love our particularly soft and plush and cleanly formulated wipes. We've got that campaign off to a very strong start. It includes a social media lens where we've got mega influencers across different demographics. Also, what we have going now is, as I mentioned, our Toy Story 2 launch behind our new portfolio of kid personal care kicked off as Pixar began the early initial rounds of driving buzz against that movie. That movie launches in June. We're really just getting into the window where our own awareness driving of that portfolio is heating up as well as Disney's. We've got some other great stuff planned for later in the year that I look forward to coming back and talking to you about. Curtiss Bruce: Yes. Aaron, let me just reiterate and maybe add on to Carla's comments. We definitely believe that brand building is a strategic advantage for us here. We're going to continue to invest in marketing as we look to strengthen the business and create a sustainable growth platform. This is why it was so important for us to execute Powering Honest Growth. The gross margin acceleration, the gross margin expansion is really the fuel that we need in order to continue to invest in marketing to have a long-term sustainable business. Operator: Our next question comes from the line of Anna Glaessgen with B. Riley Securities. Anna Glaessgen: In the past, I think the classical brand discovery was talked about through diapers and then expanding through the broader categories that you guys offer. Now while we've seen diapers declining, we're also seeing continued nice gains in household penetration. Can you speak to how consumer discovery of the brand has shifted and how your go-to-market has shifted in response? Carla Vernon: Wonderful. I'll give that a try. You are right, Anna. We are at our all-time highest household penetration, which is such an affirmation that we have picked categories where consumers love what we have and where our portfolios are very expandable across demographics and across types. A few things drive that. I've talked a lot about the fact that the largest percent of households in America are not, in fact, the littlest baby households, but they are both those bigger kid households and the households like my own, my daughter ought to go off to college where maybe there was a kid in the household and there isn't anymore as well as households where maybe there were never any children in the household. What we found is that the benefit of Honest, which is that clean formulation, sensitive skin safe, that is relevant, not just for babies, right? That is relevant. We know that a degree of adults describing themselves as having sensitive skin is as high as 50% to 70% based on certain research. Honest products that we make have been relevant to a broader set of households for a while. We already sell more than half of our -- or excuse me, more than half of our consumers are already in these households. What we're doing now is really putting the strategy and product innovation road map together with that consumer base and making sure we talk to them. This Flushables wipe campaign that I just talked to you about is a great example. We are talking to adults about why they will love Honest products. That is really a new form of expanded investment, and we're seeing it work because, of course, those businesses are -- the growth of those businesses is outpacing the pressures we're seeing in the diaper category. We feel really good about what that shift in mix and shift in focus has done for our business model. Anna Glaessgen: Then one follow-up on marketing. Nice to see the investment in Wipe and the activation there, as you noted in the first quarter. Should we take that level of spend and assume that continues? Or was it elevated given the launch cadence that hit that quarter? Curtiss Bruce: Yes. I'll take that one. This is Curtiss. As we think about marketing, we -- you're correct, we did have an increased level of investment in Q1. That was behind the activity that Carla previously mentioned. Like I said in the earlier remarks or the earlier question from Aaron, we are going to continue to invest in marketing. We're not going to sort of guide expressly to that line item, but the investment in marketing is going to be fueled by Powering Honest Growth, and then our -- both the revenue guidance and the EBITDA guidance reflect that increased investment. Operator: Our next question comes from the line of Andrea Teixeira with JPMorgan. Andrea Teixeira: Amazing story about your mom. Carla, I was just hoping Curtiss to talk about like the competitive environment we hear in general. I guess you're above and beyond that in terms of like your premium positioning. But on the diaper segment, there has definitely been a more competitive stance from a lot of the players. If you can comment on that. Conversely, I know you've been getting a lot of new products in and distribution, and you clearly accelerated the delivery this quarter. I was just hoping if you can comment about like what are the learnings and what is the -- what are you seeing towards the back end of the year, as Aaron was saying in his question, right? I mean, you probably would have a potential to raise the guidance. I understand that, obviously, it's early in the year, but how we should be thinking of what's happening -- what has happened in the quarter and what it informs you through the rest of the year? Carla Vernon: Great to hear from you, Andrea. Let me begin with the diaper portion first, and then I'll move on to the new product and distribution learning and our approach to that. Yes, we agree. The diaper category is under an enormous amount of pressure. That pressure is multifaceted, as we know, with macroeconomic pressures facing consumers, along with just increased competitive landscape that is more heated up than we've seen it in previous years. For us, where we feel encouraged is that as we modeled our diaper business, we knew it was important to get past these distribution losses. Now that we are really lapping those distribution losses that we've been talking to you about, and we saw our own declines cut in half then that told us that as we've been looking at the category, things are playing out according to what we've built into the model and according to what we expected. With that said, we know that those baby households are important, and so we think we show up differently than most of the other brands in the baby aisle in the baby category because we have the power of a single brand that applies broadly across even when just in the baby set with great meaning because people trust our products to really do what they say. As we are seeing, there are places where people feel that is very important and worth it to them, right? That is because I think that's clean trust we've always had. We love to think it has to do with also our beautiful design. It just they're beautiful products to use as we know, as well as making sure that they deliver on their sensitive skin friendly benefits. We've got the power of a brand that can press multiple different ways in the aisle. That's why we're still seeing our growth is offsetting those declines that we're managing in diapers. When I think about new products and distribution, I guess I'll pick up on that same storyline, which is the Honest brand was always built broadly even from its beginning. What we have learned is that as we bring the brand into things like kid personal care, adult flushable wipes, hand sanitizing wipes, makeup remover wipes, trial and travel, we are finding the brand is a fit no matter where we take it to new spaces in the store, we take it to new rooms in anybody's household, we take it to new consumers. That does come with the need to invest in each of those categories. We have to show up and talk to that consumer group in that particular category against that job to be done. That's why you've seen that the team has built a financial model that allows us to go after these higher-margin categories while reinvesting. Curtiss Bruce: Then let me just add because we're talking about innovation, we're certainly pleased with the start to Q1, particularly around the innovation. Our 2026 plan and our 2026 guidance on organic revenue was really balanced. It was innovation, velocity and distribution, and so this was not a singular one driver plan. We are still very confident in our ability to deliver with the success that we had with innovation and the distribution that went into the market in Q1. Andrea Teixeira: If I can squeeze one about e-commerce and how you are potentially outperforming. I think it was always the case, but I just wanted to check in, in terms of a channel performance against Biggs? Carla Vernon: I think you're talking about broad national e-commerce. Is that right, Andrea? Andrea Teixeira: Yes. Carla Vernon: Yes, we are continuing to be very pleased. First of all, we're seeing that across the board, whether it's your traditional brick-and-mortar retailers as they continue to build out their own focus in e-commerce in AI-driven purchases and shopping behavior or where you're looking at the sort of original pure-play e-commerce brands. Our brands, they really fit those models. We know that everyday essentials and consumables do very well in e-commerce. We're seeing a lot of strength for HTC in e-commerce in general. Honest was -- we love to talk about this, right? We were born digital. We were one of the original DTC brands. We were built by the digital generation, and we were built for the digital generation. Our products really come to life very well in an e-commerce channel, and we're seeing that the algorithm plays out very strongly. with that being certainly one of the fastest places we deliver growth. Operator: [Operator Instructions]. Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Dana Telsey: Two questions. One, as you think of the tracked channel consumption, which is up, I think, 8.3%, a real acceleration from the fourth quarter. As you think about going forward, how do you see the levels of demand? Is it new product drivers? Is it category drivers? How would you -- how are you planning go forward? Then on the margin side, with the change in energy prices, how is it impacting your pricing, your customer? Any shifts that you've been seeing? How has it adjusted by channel? Carla Vernon: Dana, let's start with that consumption acceleration. As you noted, when we exited the previous quarter, Q4, we reported consumption growth of 3%. In this quarter, we reported consumption growth of 8%. That growth is very encouraging to see given all of the complexities we've been talking about in the macroeconomic environment. The way I think about the drivers and how that would play out for the rest of the year, this lapping of the distribution declines in diapers is certainly one of the components of why it is sort of more wind at our back on a consumption basis with regard to that piece of our portfolio. We should still see that in the year, but as we've talked about, the diaper category has a lot of pressures. That's why we want to make sure our guidance has got that consideration for the unknowns in the diaper category. We also -- well, let me step back and say, Curtiss talked about our growth based on 3 very balanced drivers, right? We've got innovation as a driver. That includes innovation we launched last year, like flushable wipes entering brick-and-mortar for the first time last fiscal year. That stuff takes a while to catch on and drive awareness. The fruit continues to pay out and grow. Now we've got the awareness driving campaign to act as continued wind in the sales for that type of business. Remember, I also mentioned last quarter, we did a considerable amount of our innovation launches for the year in the first quarter intentionally so that we have the ability to drive that all year. New items are a piece of our growth for the year. Then you've got the velocity and the continued availability increases. Those make out really the 3 ways we look at our growth: innovation, the velocity, velocity that consumers -- when they try our products, they love it. We have great repeat rates, and we are driving a lot of marketing to drive awareness. Then the distribution growth. There are a lot of drivers for us on distribution growth. Sometimes our brand is already in a retailer, but we might only be in the baby set. When we enter and step our way into the flushable lifestyle, that drives a lot of distribution for us even in a retailer we're already in. Think of the kid personal care business the same. We were already in Walmart. We were already in Amazon, but that was an entirely new sort of branch to our tree, if you will, that we are now able to get the benefits of as we launch innovation and expand even in retailers we're already in. Curtiss Bruce: Then I will take the inflation and fuel question here. We continue to monitor and evaluate the impact that the volatility in our macroeconomic environment could have on our business. This is where our asset-light model, our inventory position and the cost mechanisms we have with our suppliers enable us to manage risk in the short term. As we think about 2026, we are confident in our ability to still deliver against our expectations. Operator: Our next question comes from the line of Owen Rickert with Northland Capital Markets. Owen Rickert: Just quickly for modeling purposes, last quarter, you mentioned guiding to organic growth improving sequentially throughout the year. Is that still the right way to think about guidance right now? Curtiss Bruce: Yes. Owen, it's a good question. We are pleased with our start, both on net revenue and on consumption. That was the sequential improvement that we talked about, and so that's in line with our expectations. We are still very confident in our ability to deliver the annual guidance, but we're not offering any updates on the cadence. Owen Rickert: Then secondly for me, what early reads are you seeing from some of those newer product launches like the Sensitive Rich cream, Send Wipes and Hydro Rich cream just in terms of potential velocity and repeat? Carla Vernon: A lot of those items launched in Q1, and so often in my experience, Owen, it is still early to have a true velocity run rate on new items like that. What becomes important is making sure that the shelf sets are all settled in so that we really have a clean read on that data and then driving that awareness. What I would really anchor us on is that in almost any category where you look at Honest, our household penetration is so low that each of these new products really gives us an opportunity to reach into a new household and introduce the brand. For example, you brought up some of our baby items, Sensa Rich Cream, and that is in our Personal Care portfolio. Our Personal Care portfolio is still only at 2% household penetration, whereas what we see in brands that have been around the category longer, we see those with anywhere from 5 to 7x as much penetration as we have. As we continue to make our way in these categories, drive familiarity with the awareness that the Honest brand is there, we feel very, very confident that there is so much runway from our loyal consumers as we continue to drive that growth. Operator: I'm showing no further questions. With that, I'll hand the call back over to CEO, Carla Vernon, for closing remarks. Carla Vernon: Well, thank you, everybody, for joining us this quarter as we continue to go to Infinity and beyond. We look forward to talking to you next quarter. Operator: Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.
Operator: Good morning. Thank you for attending the Aspen Aerogels, Inc. First Quarter 2026 Financial Results Call. [Operator Instructions] I would now like to turn the conference over to your host, Neal Baranosky, Aspen's Senior Director, Head of Investor Relations and Corporate Strategy. Thank you. You may proceed, Mr. Baranosky. Neal Baranosky: Thank you, [indiscernible]. Good morning, and thank you for joining us for the Aspen Aerogels First Quarter 2026 Financial Results conference Call. With us today are Don Young, President and CEO; and Grant Thoele, Chief Financial Officer and Treasurer. The press release announcing Aspen's financial results and business developments and the slide deck that will accompany our conversation today are available on the Investors section of Aspen's website, www.aerogel.com. During this call, we will refer to non-GAAP financial measures, including adjusted EBITDA and adjusted net income. The reconciliations between GAAP and non-GAAP measures are included in the back of the slide presentation and earnings release. On today's call, management will make forward-looking statements about our expectations. These statements are subject to risks and uncertainties that could cause our actual results to differ materially. These risks and uncertainties include the factors identified in our filings with the SEC. Please review the disclaimer statements on Page 1 of the slide deck as the content of our call will be governed by this language. I'd also like to note that from time to time, in connection with the vesting of restricted stock units and/or stock options issued under our long-term equity incentive program, we expect that our Section 16 officers will file Form 4 to report the sale and/or withholding of shares in order to cover the payment of taxes and/or the exercise price of options. I'll now turn the call over to Don. Don? Donald Young: Thanks, Neal. Good morning, everyone. Thank you for joining us for our Q1 2026 earnings call. My comments will cover an April event in our manufacturing facility in East Providence, our growth outlook for the Energy industrial segment, the evolving demand environment for electric vehicles and our progress in developing a battery energy storage systems segment. I will also provide an update on our strategic review process. Grant will amplify these points with his comments. On April 8, we experienced an operational disruption in our aerogel manufacturing facility in East Providence. The incident involved an explosion in a high temperature oven and resulted in plant damage confined to that specific area of the facility and the temporary cessation of operations. We are immensely grateful that no employees were seriously injured in the incident and want to recognize the Aspen team for their tireless work towards a safe and disciplined restart of the facility. We currently expect a staged restart of operations to begin in May, subject to continued progress in our mechanical, operational and safety reviews as well as ongoing coordination with local and state agencies. To date, we have mitigated any significant commercial impact of the disruption by working through inventory and by leveraging the capacity of our external manufacturing facility. It will take time to restore full capability to the EP plant a task that will receive our full attention once we complete the restart phase. We are also closely -- we are also working closely with our external manufacturing facility to enhance its capabilities to support our Energy, Industrial and Thermal Barrier segments and to enhance short- and long-term supply flexibility, all of which is intended to strengthen our operational resilience and commitment to customers. Turning to our Energy & Industrial segment. Even with a messy start to the year due to the EP disruption and delivery delays in the Middle East, we still have our sights set on 20% revenue growth for the year. We believe we will gain considerable momentum in the second half of the year, leading to further growth in 2027 and 2028. With energy security and supply diversification paramount and structurally higher energy prices projected, our customer base is gearing with urgency for a multiyear investment cycle in global energy infrastructure from which we expect to benefit. These dynamics are translating into 3 clear growth drivers for our business. First, Subsea. We continue to build a strong pipeline of opportunities that extend through the decade. We were recently awarded a second subsea project deliverable in Q3 and with the win announced earlier this year, positions us in 2026 to be within our historical annual revenue range of $10 million to $20 million. Second, LNG and natural gas infrastructure. LNG has become one of the clearest and most dynamic growth lanes for us. We are seeing positive developments in the United States and in the Middle East with large-scale LNG infrastructure activity moving from market interest into executable commercial opportunities. Our confidence is not based only on the LNG macro cycle but also based on our concrete engagement with project level execution. We are actively working with customers, EPC contractors and construction teams and believe we have the potential to increase our scope on several projects, which would increase our 2026 opportunity and extend visibility into 2027. We believe this supports our expectation that LNG-related activity can approximately double in 2026 versus 2025 and provide continued momentum into 2027. Third, maintenance and turnaround work remains an important deferred demand opportunity. Refiners have continued to prioritize uptime and operate at high utilization, which has compressed some maintenance windows. Over time, reliability requirements should bring that work back into scope, and we remain well positioned to support customers as turnaround activity normalizes. Taken together, we believe these drivers support our expectation of approximately 20% growth in energy industrial in 2026. We anticipate building momentum through the second half of the year and remain focused on scaling this segment into a $200 million high-margin business without the need for incremental capital investment. Turning to our PyroThin thermal barrier business. The EV market in the United States remains in reset mode. Market share for EVs in the U.S. appears to be settling at approximately 5% to 6%, roughly half the level of when incentives and regulation favored EV adoption. GM's monthly market share for EVs this year has averaged 14.1%, which would suggest a sales rate over 100,000 EVs in 2026. GM produced EVs in Q1 and in April at levels below current sales volume, resulting in lower finished vehicle inventory levels. We anticipate GM will begin aligning production rates more closely with sales volumes, consistent with its stated objective of operating in a demand-driven manner and adapting to current market conditions. GM has maintained its full line of EV nameplates and has stated that it remains dedicated to its long-term EV success, including in its Cadillac division, where EV sales represented 28% of total sales in 2025 and over 30% in Q1 2026. We see a different dynamic in Europe where battery electric vehicles now account for more than 20% of new vehicle registrations and where stronger structural drivers are supporting the early stages of production ramp-up among the OEMs with whom we have design awards. Our EU thermal barrier revenue in Q1 increased more than threefold versus the prior quarter -- prior year quarter and we believe this momentum could translate into 2026 revenue in the range of $10 million to $15 million. Across these European awards, we are supporting programs that incorporate battery cells from a diversified global supply base, including European, Korean, Japanese and leading Chinese manufacturers. We are encouraged by our momentum in Europe and again, believe the region will be an important contributor to our revenue in 2027 and beyond. Looking beyond our current segments, we are also advancing new growth opportunities. In battery energy storage systems, we are actively engaged in multiple qualifications and commercial discussions with developers serving grid infrastructure, data centers and other high reliability applications as system architectures evolve toward higher energy density, the thermal challenges increasingly resemble those we have already solved in EV platforms. With proven performance and domestic manufacturing capability, we believe we are well positioned to enter this market and generate initial revenue in 2026 following a period of market change and internal restructuring, we initiated a strategic review in Q4 last year. Our goal was to execute a disciplined evaluation of our strategic options to ensure our growth strategy and capital allocation priorities were aligned with maximizing long-term shareholder value. The process allowed us to open the aperture to compare our existing opportunities to a wider array of strategic alignments and capital structures. While optimizing strategy is an ongoing endeavor for all good companies, we are confident that our current approach, scaling energy industrial, driving new growth and diversification for PyroThin thermal barriers, expanding into adjacent markets and continuing targeted R&D to create breakthrough opportunities represents the best path to deploy our financial strength and deliver long-term value for our shareholders. Grant, over to you. Grant Thoele: Thanks, Don, and good morning, everyone. I'll cover our first quarter 2026 results and Q2 outlook, along with drivers for the remainder of the year. As we signaled on our last earnings call, Q1 2026 was projected to be the lowest revenue quarter of the year, and we remain confident that it will be. We also anticipated sequential revenue growth each quarter through 2026, which we continue to track towards as expected. First quarter revenue was $37.9 million, including $21.6 million from Energy Industrial and $16.3 million from thermal barrier. Total revenues declined 8% quarter-over-quarter. Energy Industrial revenues came in below expectations, declining 15% quarter-over-quarter. Customer demand was constrained by ancillary impacts from the conflict in Iran, creating logistics and inventory challenges. Our supply chain and commercial teams have taken targeted steps to mitigate further disruption. On the positive side, we have secured 2 project awards in Q1, both expected to contribute revenue this year. Thermal barrier revenues were in line with expectations and flat quarter-over-quarter, although we did see softer GM production volumes as they continue to destock inventory, encouragingly, GM's market share grew during the quarter, a positive commercial signal. In Q1, we received $37.6 million in claim proceeds from GM. The GAAP treatment of the claim is informed by ASC 606. This payment is recognized as revenue ratably through the end of 2027, with $3.5 million booked as revenue for Q1 and approximately $4.9 million revenue per quarter thereafter. Gross profit of $4.3 million or 11% gross margin reflected the impact of lower production volumes being unable to fully cover fixed manufacturing costs. Gross margin at the segment level was 15% for energy, industrial and 6% for thermal barrier. Adjusted operating expenses, excluding impairments, restructuring charges and other onetime items remained relatively flat from $21 million in Q4 '25 to $21.2 million in Q1 '26. Q1 results included a few onetime items, a $2.2 million property tax charge related to Plant 2 and approximately $1 million of charges related to nonrecurring professional services. GAAP net loss was negative $23.7 million in Q1 versus negative $72.9 million last quarter. And adjusted EBITDA was negative $12.7 million in Q1 versus negative $18 million last quarter, representing a 29% improvement despite slightly lower revenues. Moving to liquidity. We generated $17 million of cash in Q1 and ended the quarter with $175.6 million in cash and cash equivalents versus $158.6 million at the end of 2025. The increase in cash was driven by the receipt of $37.6 million GM claim proceeds, along with a working capital benefit of $8 million, while CapEx of $1 million and debt payments of $15.6 million represented the primary uses of cash aside from Q1's operating loss. Debt payments in Q1 were driven by $6.5 million in principal amortization connected to the term loan and a $7.6 million reduction in the revolving credit facility. Our term loan balance at the end of Q1 was $86 million. Our sole financial covenant under the MidCap facility requires us to maintain cash equal to at least 100% of the term loan balance with $175.6 million of cash against an $86 million term loan, we have substantial covenant headroom. Turning to Slide 6. For the second quarter of 2026, we expect increased revenue and profitability relative to Q1, with total revenue expected to be between $40 million and $48 million. This range represents between 5% to 28% growth quarter-over-quarter. Our Q2 guidance assumes GM production at an annualized rate of approximately 55,000 to 65,000 vehicles in the quarter, an increase versus Q1 where GM sourced the equivalent of 43,000 vehicles annualized. The current IHS forecast has GM producing nearly 100,000 vehicles for 2026, which points to more production weighted to the second half of the year. Given the product mix included in our range, we expect adjusted EBITDA to be between negative $10 million and negative $4 million for the second quarter. This profitability range is dependent on supply mitigation efforts. So all the variability resides above the gross profit line. A few items worth noting here, mainly around production and supply. The incident at EP is creating near-term cost pressure. Our teams are doing an exceptional job managing supply continuity, but expedited freight, expedited repair costs and inventory build across both EP and EMF will all result in elevated costs in Q2 and potentially Q3. Elevated costs in this circumstance are difficult to estimate as production evolves by product, location and customer, particularly as we balance safely restarting EP. Protecting supply and meeting customer expectations is our clear focus during this time. As a reminder, our restructuring actions were designed to achieve EBITDA breakeven at $50 million of quarterly revenue. Our Q2 guide reflects progress toward that target, and we expect to reach it in the second half of the year, assuming success of our ongoing production and supply mitigation efforts. All estimates reflected in our guidance assumes that the staged restart of our East Providence plant proceeds as we currently expect. Turning to our liquidity outlook. Let's start with what we can control. CapEx and scheduled debt payments should total less than $12 million in Q2. And Alternatively, working capital will be more variable depending on where we produce inventory and ultimately sell finished goods. Additionally, we will build to higher inventory targets for safety stock at quarter end, depending on the pace at which EP comes back online. We will continue to be prudent with cash during this period, but want to strive for the high end of our Q2 revenue range. As a result, we could see total cash outflows of $20 million to $30 million for Q2, which includes $12 million of CapEx and scheduled debt payments, again, highly dependent on our ongoing production and supply mitigation efforts. With Q1 as our base, we anticipate sequential revenue growth through 2026, supported by 3 primary drivers. First, GM production continues to recover as inventory levels normalize and destocking subsides. Second, the continued ramp of our European OEM programs which we expect to contribute approximately $10 million to $15 million of revenue in 2026. We see activity picking up here. Third, we expect approximately 20% growth in energy industrial with a greater concentration of project activity in the second half. As volumes increase, while we continue to lower our cost structure we expect improved operating leverage and margin expansion throughout the year. Full year capital assumptions remain unchanged from the last earnings call. We continue to expect less than $10 million of capital expenditures and approximately $26 million of scheduled debt payments. Proceeds from the potential sale of Plant 2 assets are most likely a Q4 event rather than Q3. We and would be applied directly to reduce our term debt on a dollar-for-dollar basis. Combining these assumptions with our profitability expectations for the rest of the year, we anticipate ending the year with a strong net cash position. As a result of restructuring by reducing our fixed costs, we've built a financial framework that supports both resilience and growth as evidenced by our progress reducing EBITDA breakeven levels from $330 million revenue in 2024 to our $200 million revenue target in 2026 and even further to our $175 million revenue target by the end of 2027. With ample levels of liquidity, we still see flexibility to further delever the business, and we're evaluating a host of options while staying nimble to opportunistically invest in strategic growth initiatives. As we continue to navigate 2026, driving incremental profitability with new commercial activity and maintaining balance sheet strength remain top priorities. Don, back to you. Donald Young: Thanks, Grant. To close, while the first half of 2026 has been shaped by temporary disruptions and evolving market conditions, we believe the fundamentals of our business are solid. We see market signals -- positive market signals across our energy and industrial platform alongside growing diversification and new growth in thermal barriers. As we move through the year, we expect to build momentum and further strengthen our positioning for sustained growth into 2027 and beyond. With that, we'll open the call to your questions. Operator: [Operator Instructions] Your first question comes from the line of Eric Stein of Craig-Hallum Capital. Unknown Analyst: This is Luke on for Eric. So I guess, first, just on the European demand for thermal barrier, just following the record quarter on that front. I mean do you think OEMs are looking to accelerate production in part just because of the volatility in energy markets? Could you just talk about what you're hearing from customers in the pipeline? And also, would you expect to be leaning on the EMF to meet that ramp just with everything going on in Rhode Island right now? Donald Young: In terms of the ramp, I think it's a little too early to associate their active first quarter and the levels of activity that we're seeing here in 2026 with higher energy prices and switching from ICE vehicles to EV vehicles. I think more broadly, though, this has been building for some period of time. We've seen significant EV market share gains in Europe and the OEMs with whom we have won awards are beginning to benefit from that. In terms of supply, look, we want to be sure that we have as much flexibility as we can and make sure we're capable of meeting expectations of our customers. And everything that we can do to assure that we're going to do. And that does include having capability in our East Providence facility and in our Chinese EMF supplier. Unknown Analyst: Got it. So I guess just for my follow-up, switching gears here to EI. I mean you've talked about ultimately scaling that business to, let's say, a $200 million annual business. Do you have line of sight into just some of the subsea and LNG opportunities that could really make that a real possibility before the end of the decade? And just what are some of the factors that ultimately would get you there? Donald Young: Yes. I really think it's the 3 things that I touched on in my earlier statements. And certainly, Subsea is one of them. If you think back, as I cited, our historic range for a long time going back, I want to say, to 2008 or so, has been in the range of between $10 million and $20 million in '23 and '24, we had numbers that were closer to $30 million. And in '25, we had a very quiet year, a number less than $5 million. So we see a lot of activity going on, and it's not just the 2 awards that we've won to date, but the roster of opportunities. I can't remember when it's been stronger. And again, our value proposition and our record serving that market is outstanding. So that is definitely one component. And then LNG, as I said again in my statements, we're not just looking at the LNG kind of macro cycle. Our teams are engaged with the owners, with the EPC contractors in the field accelerating projects and expanding some of the opportunities that we have there. So that has a good opportunity. I have said that we have the opportunity to double the size of that business compared to 2025, both in number of projects and in dollars, and we are aiming to do that. And then the third area has been kind of a quiet area for us. It's our day in and day out maintenance work, turnaround work that we do in refineries and petrochemical plants around the world. These refiners have been running their plants pretty hard, and they've had relatively narrow maintenance windows. And we know that reliability is critical to them, and that cycle will move and create opportunity for us in that nice baseload day in and day out revenue that we're accustomed to in that area. So if you add those 3 things together, we believe that, that $200 million mark is a very realistic opportunity for us. Operator: With no further questions, we have reached the end of the Q&A session. I will now pass the call back over to Don Young for closing remarks. Donald Young: Thank you, [indiscernible]. We appreciate your interest in Aspen Aerogels and look forward to reporting to you our second quarter results in August. Be well. Have a good day. Thank you. Operator: This concludes today's call. Thank you for attending. 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.