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Operator: Good morning, everyone, and thank you for joining us, and welcome to Mach Natural Resources LP First Quarter 2026 Earnings Call. During this morning's call, for the reconciliation from non-GAAP financial measures to the most directly comparable GAAP measures, please reference the press release and supplemental tables available on Mach Natural Resources LP’s website and their 10-Q, which will also be available on their website when filed. Today’s speakers are Tom L. Ward, CEO, and Kevin R. White, CFO. Tom L. Ward will give an introduction and overview, Kevin R. White will discuss Mach Natural Resources LP’s financial results, and then we will open the call for questions. With that, I will turn the call over to Tom L. Ward. Tom L. Ward: Thank you, Daryl. Welcome to Mach Natural Resources LP’s first quarter earnings update. Each quarter, we reiterate the company’s four strategic pillars that have guided us since our founding in 2017. The first pillar I will discuss is disciplined execution. We bought only free cash flowing assets at discounts to the producing properties’ PV-10. This allowed us to purchase producing assets without paying for any upside, even though over time we have proven significant upside exists. Each year, Mach Natural Resources LP publishes every well we have drilled and the overall IRR based on the year’s price for oil and gas. We have averaged approximately 50% rates of return on our drilling program since it started in 2018. Said another way, we have invested more than $1.3 billion in properties that others would give no value to and returned excellent results. You can see on Page 9 of our investor presentation that our free cash flow breakeven pricing is best in class for both oil and natural gas. It is rare, if not unheard of, to be a leader in both. It would be difficult to duplicate what we have built. In 2017, we had a strong opinion that the market was entering a time of distress. We focused on buying free cash flow at valuations most sellers would not even consider at first. We called it the stages of grief. Ultimately, we did not deal with management teams but their lenders, either through forced sales or the March bankruptcy process. We did not anticipate the COVID event, but we did anticipate investor rejection of our industry from the poor results of the previous decade in chasing growth with high debt. The result was that our initial unitholders prospered by receiving more than twice their investment through distributions and still owning a company with an enterprise value of more than $3 billion. The purchases we have made continue to bear fruit through their cash flow streams, midstream systems, land that is held by production, and continued drilling on properties we did not have to pay for. Even our purchases since the IPO have been contributing to our drilling program. One would have thought that post the 2022 run-up in prices it would be hard to purchase any viable drilling locations without paying for upside. However, as we review our potential 2026 locations, we are drilling on acquisitions from XTO, Paloma, Cheyenne, Flycatcher, Sabinol, and iCAV, which were all made post December 2023. The second pillar to discuss is disciplined reinvestment rate. We maintain a reinvestment rate of less than 50% of operating cash flow to optimize distributions to shareholders. We did not establish Mach Natural Resources LP to grow our production through drilling; our drilling program is set to stabilize our production. As I mentioned, our inventory is best in class for both oil and natural gas reinvestments. In 2026, a move down in natural gas is being offset by a move up in oil prices. Mach Natural Resources LP has a unique ability to react to these commodity price changes by pivoting from one commodity to another to maximize rates of return. Therefore, we have prioritized our drilling schedule to take advantage of these price changes. Starting May 1, we moved in our first rig to start drilling for oil in the Oswego formation in Kingfisher County, Oklahoma. This is an area that is well known to us. We have drilled more than 250 Oswego locations since 2021 with very good results. In the presentation, we are showing that at $75 flat oil, the changes in 2025 Oswego rates of return move from 39% to 90%. At $85 flat oil prices, the program returns move to 145%. We let pricing dictate where we spend capital. We will also move in a rig to drill Southern Oklahoma Ardmore Basin assets that we acquired from Cheyenne and Flycatcher purchases in 2024. The third oil-weighted rig will be moving into the Red Fork sand of Western Oklahoma. The majority of Red Fork locations were acquired by our limited leasing program and trades with others from our Cimarex acquisition in 2021. This shift in drilling will amount to adding three oil-weighted rigs by postponing the Deep Anadarko dry gas program. We may also delay the completion of our San Juan Mancos program until 2027 to add another rig in the Clear Fork formation from the Sabinol acquisition. By making these changes, we can keep our reinvestment level below 50% of operating cash flow in 2026 even though we remain optimistic about the long-term potential of our natural gas assets in the Deep Anadarko Basin and San Juan Basin. We now have five wells with more than 90 days of production in the Deep Anadarko. These five wells have averaged 90-day cumulative production of more than 12 MMcf of gas per day while our 15 Bcf gas type curve is projected to be 10.6 MMcf of gas per day. In the San Juan, we have begun our 2026 drilling program where we have one rig working drilling Mancos shale wells. The San Juan Mancos is fast becoming known as a world-class natural gas asset with potential for meeting the growing demand that we expect to see in the Western markets over the next five years. We have 575 thousand acres that are held by production that can be developed at any time the market allows. Currently, we will drill seven wells during the summer’s drilling window. We continue to believe that we will be substantially lower than historical drilling costs as we bring in new service providers from the Mid-Con and work with existing service providers in the San Juan alongside our dedicated staff. Our San Juan drilling program in 2025 was exceptional. We drilled five wells that came online last fall and have produced more than 14 Bcf of gas and continue to produce over 60 MMcf of gas a day. These wells have been compared to the best set of wells drilled in the U.S. The San Juan gives us long-term natural gas optionality. When we acquired iCAV, we inherited a volumetric production contract that runs through 2030. Given our limited drilling program, we can keep our production in the San Juan flat at approximately 300 MMcf of gas per day. We currently have approximately 65% of the volumes from the San Juan on this contract at a price of $1.72. If basis continues to be low, we have an effective hedge, and if basis moves higher, we will benefit from our drilling program as the production payment amortizes. This is one of the larger volumes of natural gas headed to the growing Western markets as they develop. Mach Natural Resources LP has 3 million acres of land that are not going anywhere. We have time because our assets are held by production, with few lease expiration dates. This large inventory of investment opportunities was the result of acquisitions made over time since 2018 and gives us maximum flexibility to choose where and when to drill to deliver best-in-class results. Our third pillar to discuss today is to maintain financial strength. This pillar is designed to keep our leverage in check. Historically, we have kept our leverage at or below 1x. The iCAV and Sabinol acquisitions last September have moved our leverage up to approximately 1.3x. Our goal is to move that ratio back to our desired level before we make any more acquisitions that require substantial debt. Therefore, our acquisition strategy is currently on hold unless we find an acquisition that is accretive to our cash available for distribution using equity to lower our debt levels. In the meantime, we can continue with our drilling program and let time move our leverage ratio down. We continue to have interest by sellers to exchange production for equity where we might be able to lower leverage by increasing our cash available for distribution to maintain the status quo. Our goal is to not move away from our current method of distributions unless we feel it is necessary. In that case, we can always use some of our distribution for debt reduction. It is safe to say that our debt levels are very manageable, but they are a pebble in my shoe that I would prefer to move away from and get back to 1x leverage. Our final pillar continues to be the most important: maximize distribution to equity holders. This pillar is the culmination of all we work for. Since inception, our goal is to find and acquire cash flowing assets at distressed prices, reinvest less than 50% of our operating cash flow, keep our leverage low, and maximize this pillar. We have been and continue to be successful. The evidence is in our industry-leading distribution. You can see this in two ways. Our company has had a cash return on capital invested of more than 20% every year since our inception. We have averaged 35% CROCI over the last five years. I believe we are in rare air here. Only a few tech companies can match our CROCI. We have also averaged a 15% yield since 2024. Both are industry leading. I will now turn the call over to Kevin R. White for the financial results. Kevin R. White: Thanks, Tom. The quarter, our production of 158 thousand BOE per day was 16% oil, 70% natural gas, and 14% NGLs. Our average realized prices were $69.73 per barrel of oil, a 20% increase from the fourth quarter, $2.74 per Mcf of gas, and $23.75 per barrel of NGLs. Of the $366 million total oil and gas revenues, the relative contribution for oil was 42%, 45% for gas, and 13% for NGLs. On the expense side, it is worth pointing out our lease operating expense was $101 million, or only $7.12 per BOE. Cash G&A was approximately $5 million, or only $0.37 per BOE. We ended the quarter with $53 million in cash and $305 million of availability under the credit facility. Total revenues including our hedges and midstream activities totaled $286 million, adjusted EBITDA was $195 million, and we generated $170 million of operating cash flow, spent $75 million in development CapEx, which represents 40% of our operating cash flow after interest. In the quarter, we generated $107 million of cash available for distribution, resulting in a distribution of $64 per unit, which will be paid on June 4, 2026 to holders of record on May 21, 2026. With that, Daryl, we will turn it back to you. Operator: We will now open the call for questions. Analyst: I want to see if your shift back to the oilier Oswego drilling program can move the needle. You are maybe at 16% oil now. Can that get to 20% to 25% oil over the next few years? Or does the productivity from your gas assets offset that with higher volumes but at the same mix? Tom L. Ward: It basically keeps our oil production from declining. By moving to the oil side of the business, we might grow a percent or so a year, but really it is maintaining oil production rather than continuing to see a decline. Analyst: That makes sense. And then the second one, your low CapEx requirements continue to impress. I want to understand if there is inflation built into that or maybe built into your LOE given some cost changes we are seeing as a result of the Iranian conflict. Do you have some of that locked in with your vendors and maybe over certain durations? Tom L. Ward: We do not have anything really locked in. We can move rigs at 30- to 45-day intervals, so we really can move back and forth from different areas as needed for higher rates of return. We are seeing some oilfield inflation, thus why it is important to move quickly before inflation hits. As always, oilfield services’ job is to get our rates of return down to 20%, and we want to drill wells that still have high returns. In fact, the lowest we have on the 4/30 curve of the oil wells we will be drilling this year as of the 4/30 curve was 80%. So it is really just chasing the best areas and spending CapEx as our operating cash flow allows us to. The goal of the company is that we will allow growth if it happens, like if prices move up, but not spending more than 50% of our operating cash flow. So it is not that we are restricting growth; our high rates of return allow us to grow by spending less, and that is what we anticipate continuing to do. Remember, that is really because of all the assets we bought during the darker days. They continue to throw off free cash flow. Anytime you are making acquisitions at $20 oil, it pays big dividends in later years. We will reap those benefits for decades. Analyst: That makes sense. Sounds like you are staying flexible. Thank you, guys. Operator: Thank you. Our next questions come from the line of Michael Scialla with Stephens. Please proceed with your questions. Michael Scialla: Good morning, guys. With the new plans, do you maintain your guidance, and do you anticipate putting out any new guidance with the shift in the drilling plans? It sounds like you might change your completion plans in the San Juan Basin. When would you make that decision if you do decide to hold off on completing those wells? Tom L. Ward: We are going to delay—we are planning on delaying the Mancos—but go ahead, Kevin. Kevin R. White: Sure, just to answer your question around guidance, we think the CapEx guidance holds. As you noted, as we shift to oil, we may actually see an acceleration of production versus spending the CapEx on gas drilling, particularly in the Mancos. We will look to revise guidance as we move to the oil program, probably midyear if and when it is appropriate. As we look at the model, cycle times on these wells are shorter than some of our deep gas drilling, so it should actually help this year’s cash generation. Tom L. Ward: And it is not that hard of a decision. Usually, once we spend the capital to drill a well, I would want to not leave it as a DUC. But whenever we can move to a Clear Fork location that at today’s prices is going to have a 100% rate of return, it is just really difficult not to defer the gas whenever basis today in the San Juan is low. We think it will improve, but still we do not want to just guess going into the winter. So we will probably move that until after the first of the year. Then in the Mancos it will really depend on weather for when we can frac. We cannot do anything on the New Mexico side until April, I believe, but we can on the Colorado side as long as we are on the Southern Ute Tribe, weather permitting. And sorry, Mike, if I did not catch all your questions, please ask again. Michael Scialla: That addresses it. It sounds like even with the shift, there is no change to CapEx; it is going to remain the same. You probably anticipate some minor shift in mix of production and certainly leave some upside for cash flow with the higher oil mix. I wanted to follow up on the Mancos. The five wells that you completed last year, it looks like they are performing extremely well. I think iCAV completed a couple of those and you guys completed three of them. Did you, in fact, cut back on the proppant on the wells that you completed? You had said you felt like they were being overstimulated and you could save some money there. Did those results play out the way you thought? Tom L. Ward: We did not change the amount of proppant that was used. iCAV did use—and we will use—less proppant than the industry was using earlier. I think that is the direction we are moving. In the San Juan in general, there were proppant sizes up to 3 thousand pounds per foot; we were using closer to 2 thousand pounds, and I think it was totally adequate. We were able to save some money even last year through a few other different methods, but not in the proppant size. Michael Scialla: Okay. So that line of sight to savings—what did you save per location? Tom L. Ward: I think we are saving about $1 million per location. Kevin R. White: Yes, $1.5 million per location, just from the changes that we made, but it was not in proppant. Michael Scialla: Got it. So you still feel good about that $15 million target that you talked about? Tom L. Ward: Yes, I feel good about something lower, but we will see. Yes, I feel good about $15 million. There is no reason to spend $15 million drilling these wells. Michael Scialla: Sounds good. Thank you, guys. Operator: Thank you. Our next questions come from the line of Jeffrey Grampp with Northland Capital Markets. Please proceed with your questions. Jeffrey Grampp: Good morning, thanks for the time. Tom, a question on the distribution strategy. It seems like in recent history you have been comfortable maintaining the 100% payout with current leverage mid-1x, but the pebble-in-your-shoe comment makes it seem like perhaps you are reconsidering that just to retain some cash for debt paydown. Is that a fair comment, and how do you think about payout ratio over the next few quarters? Tom L. Ward: I hope not. I do think that over time it takes care of itself. If you were to look at our model, actually the EBITDA goes down as oil prices have moved. If oil prices move higher and gas goes where I think it will, it naturally takes care of itself. Private credit really likes us because we have so much free cash flow. If you have a 19% yield and you might get 10% for a while as you pay down debt, it is not the worst thing. But I am a holder just like the rest of the unitholders, and I like having Christmas four times a year. Jeffrey Grampp: Fair enough. For my follow-up, it sounds like the bias based on today’s commodity price dynamic is to defer those gas completions and add that Clear Fork rig. When are you targeting potentially adding that Clear Fork rig, and is it as simple as looking at gas and oil prices over the next few months and the strip to make that decision? Tom L. Ward: We have fairly well made it—just yesterday. The Clear Fork is clearly superior rate of return at today’s prices than completing the Mancos. We could start that July 1 and have kind of a 30-day turnaround. So more than likely, unless something changes fairly dramatically between now and a month from now, we will delay the Mancos and bring on a Clear Fork rig. Jeffrey Grampp: Got it. Understood. Thank you, guys, for the time. Operator: Thank you. Our next questions come from the line of Carson Coronado with Raymond James. Please proceed with your questions. Carson Coronado: Good morning. Are you going to continue to focus M&A in the current basins you operate in, or is there a willingness to step into new basins? And does the current commodity price environment make it harder to get deals done with bid-ask spreads potentially widening? Tom L. Ward: I do not think it is any harder to get deals done in the ones that we have a niche in, which is really staying away from asset-backed security projects where they can fund. Larger deals are not so good, and areas where you pay for a lot of upside are not so good, like the Marcellus or Haynesville or now even the San Juan. The areas where we are pretty good are assets that are $100 million to $300 million in size that others are not chasing, where we can see some distress for whatever reason. It might be that gas goes to Waha where an ABS really cannot go in and hedge very well over a period of time and they cannot compete with us. There is always a way to find things that work. Our issue right now is that we have too much debt to really take on more debt. We want to move down our debt levels so that we can get back into making those $100 million to $300 million acquisitions. We can be more aggressive—not on paying for upside—but more aggressive in size if the seller would want to take equity. That is the only way we could really compete in size right now. Carson Coronado: Thank you. I also had a follow-up question on maintenance CapEx. The low decline rate helps keep the reinvestment rate under 50%. What would be a reasonable maintenance CapEx estimate for us to use? Kevin R. White: I think looking at our existing CapEx guidance is appropriate. If we are measuring based on volume, then when we are drilling gas wells, there is more volume that comes into the system, and if we are drilling oil wells, the equivalent volume is a little bit lower. But as you mentioned, our base decline rate is probably among the lowest, if not the lowest, among the independents. That gives us the ability to essentially stay the same size, grow a little bit, or shrink a little bit based on just half of our operating cash flow after interest. I would largely equate our guidance CapEx with being kind of maintenance CapEx, if not a little bit more productive than CapEx. Tom L. Ward: Yes, that is right. Our drilling program is designed to keep our production flattish. That could be down three or four to up three or four percent depending on what prices are. You will not see tremendous growth from drilling; that allows us to distribute more back to unitholders. Carson Coronado: Great. Thank you. Operator: Thank you. Our next question comes from the line of Ron Sanchez. Please proceed with your questions. Ron Sanchez: I was wondering what your average breakeven price on natural gas would be, and do you have hedging? Kevin R. White: It is basically around $1.72, and we have just today posted a new investor presentation with a slide on that—Slide 9—where we show our breakeven for both gas drilling and oil drilling. It is among the best in the peers. For us, as Tom has mentioned many times before, those are good numbers that we are able to achieve with good cost control, but we are generally just chasing the highest internal rate of return in our portfolio. Ron Sanchez: Thank you. Operator: Thank you. Our next questions come from the line of Derrick Whitfield with Texas Capital. Please proceed with your questions. Derrick Whitfield: Good morning and thanks for taking my questions. Going back to your 4Q commentary on divestitures, does the current higher crude price environment change your view on the need to pursue some of the monetizations you were talking about during 4Q? Tom L. Ward: Yes, Derrick. We were talking about maybe having a partner in the Deep Anadarko. I do not know if that is going to happen or not. We did go out to a few parties. Gas prices have been lower. I am not sure that we would get paid enough to give up any production that is already flowing now, and I am not really a seller at today’s gas prices. So it becomes harder to do until prices move. We really were not looking at selling any oil projects. It was more around whether we could sell some non-EBITDA-generating assets like leases in order to pay down some debt. I doubt that happens, but we will know more next quarter. Derrick Whitfield: That makes sense. Then with respect to the Permian, while not as economic as your Oswego, are there levers there you are considering to increase production in the current environment? Tom L. Ward: Yes. The Clear Fork is in Robertson County, on the shelf. Having a rig there, depending on what our operating cash flow looks like and how close we can get to 50%, we could keep a rig there for the rest of the year. We will see how it all looks, but right now, we are going to have a rig there moving down from Oklahoma by the first of the year. That is in the Permian and those wells are right at 100% rates of return. Derrick Whitfield: That is great. One more on service cost. Could you speak to what you are seeing in the Anadarko at present and your expectations if oil prices remain elevated? Tom L. Ward: If oil prices stay where they are, it would take a fairly high gas price to make us move back to drilling gas wells. Last year that happened as oil prices fell, but today, even at the Cal ’27 strip of $72, that is good enough for us to keep rigs working. The flexibility of moving between oil and gas is good. We have a tremendous backlog of oil locations. We can move in several rigs and drill different locations across Western Oklahoma and in the Permian. It is really price dependent, but it is astounding that we were able to put together 2 million acres without having to pay for it in one of the most oil- and natural-gas-rich basins in the world, the Anadarko Basin. Like our production, it will pay dividends to us for decades. Derrick Whitfield: And on service costs specifically in the Anadarko if we remain in this higher oil price environment? Tom L. Ward: Bits are going up, steel is going up, labor costs are going up, and fuel surcharges are going up. We are starting to see the effects of inflation. We know from 2022 that it comes fairly quickly. It all has to be put into the calculation for how much we can drill depending on what prices we are paying. We are still using our current AFEs; we change AFEs every month depending on where prices are. We price out every well and series of wells we do, so we are fairly quick to react to both oil and gas prices and service costs. Derrick Whitfield: Great update. Thanks for your time. Operator: Thank you. Our next questions come from the line of Charles Meade with Johnson Rice. Please proceed with your questions. Charles Meade: Good morning, Tom and Kevin. Tom, you mentioned four oily plays today: the Oswego, which you gave a lot of detail on, the Ardmore (really more the location than the play), the Red Fork, and the Clear Fork. Can you give us an idea how those plays rank in your appetite for more drilling and how much running room you have in those? Tom L. Ward: Sure. The Sycamore, which is a Mississippian member of the SCOOP in what we call the Ardmore Basin at the Sho-Vel-Tum field, basically in Stephens County, Southern Oklahoma—that is going to have very, very high rates of return at today’s oil price. They are fairly deep, expensive wells, but very good. Continental has most of that area, and maybe a private company, Citadel, as well. It is very good. We only have three locations to drill there, so then we look to have consistent operations elsewhere. The next best is the Oswego, and that is more consistent, and we have dozens, if not hundreds, of locations left to drill in the Oswego. We could even move from Stephens County after we complete those wells to two rigs in the Oswego if oil prices remain elevated. Then the Clear Fork, which we picked up from Sabinol, would be number three, and as I mentioned, we have a rig going there in July. Lastly, because it is a little more gassy, is the Western Oklahoma Red Fork, and if gas prices were to move up, it could move up in the hit parade. But today, that would be our fourth of four. Charles Meade: That is great detail, Tom. Even there, the Red Fork is going to be about 80% rates of return? Tom L. Ward: Yes. Charles Meade: My follow-up is on San Juan Basin supply, demand, and marketing. When you bought that asset from iCAV, you gave a lot of detail about where that gas can go and the options. Prices are pretty tough out there right now, and a lot of gas wants to get to the Gulf Coast, but you have Permian and Waha between you and the Gulf Coast if you wanted to go that way. What are the dynamics we can watch that would signify or be precursors to more favorable pricing in that basin? Kevin R. White: Yeah, I mean— Tom L. Ward: At the time we bought the iCAV assets last summer and closed in September, I would not have thought that our basis hedge was a benefit. We have 65% that we bought on a long-term contract from BP that expires in 2030, effectively at $1.72. Since that time, really due to weather—winter not coming to the West—basically we almost stand alone among public companies in the San Juan in having low basis. Now our realized price has hovered around a dollar in what we receive. I do think that is coming back. To answer your question, it is really more pipe getting out going West, having a larger LNG facility in Mexico, and getting gas to Asia via LNG. That all happens over time. It is pretty good for us now that we did not have to pay up for that gas—we bought it at $1.72 or less. As it amortizes over time, that gives us time for the LNG market to expand, which I believe it is going to. There is a new pipe going across the Navajo Nation that I believe will be FID’d, and along with that, getting gas to the data center buildouts and Southern California, especially the Phoenix market, which seems to be expanding. There is some interest in getting our gas farther West into the upper Western markets and even into the Pacific Northwest. There will be expansion of gas coming out of the West, and really between Hilcorp and us in the San Juan, we control the vast majority of it. It is a good place to be as long as you are patient. It is a five-year program. Charles Meade: Got it. That is great detail. Thank you, Tom. Operator: Thank you so much. We have reached the end of our question and answer session. This concludes our call. We appreciate your participation. You may disconnect your lines at this time and enjoy the rest of your day.
Operator: Welcome to the Olin Corporation First Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. To ask a question, please press star, then 1 on your touch-tone phone. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Steve Keenan, Olin Corporation's Director of Investor Relations. Please go ahead, Steve. Steve Keenan: Thank you, Nick. Good morning, everyone. We appreciate you joining us today to review Olin Corporation's first quarter 2026 results. Please keep in mind that today's discussion, together with the associated slides, as well as the question-and-answer session that follows, will include statements regarding estimates or expectations of future performance. Please note these are forward-looking statements, and that Olin Corporation's actual results could differ materially from those projected. Some of the factors that could cause actual results to differ from our projections are described, without limitation, in the Risk Factors section of our most recent Form 10-Ks and in yesterday's first quarter earnings press release. A copy of today's transcript and slides will be available on our site in the Investors section under Past Events. Our earnings press release and related financial data and information are available under Press Releases. With me this morning are Ken Lane, Olin Corporation's President and CEO, and Todd Slater, Olin Corporation's CFO. We will start with some prepared remarks, then we will look forward to taking your questions. I will now turn the call over to Olin Corporation's President and CEO, Ken Lane. Ken Lane: Thanks, Steve, and thank you to everyone for joining us today. We appreciate your time and your continued interest in Olin Corporation. Let's start on Slide 3 for a review of our first quarter highlights. Amid a very dynamic operating environment in the first quarter, the Olin Corporation team executed with discipline, maintaining focus on running our assets safely and reliably, removing structural costs through our Beyond two fifty program, and preserving liquidity, all while staying firmly committed to our value-first commercial approach. That discipline translated into positive results in the first quarter and sets the stage for stronger earnings in the coming months. During the first quarter, our epoxy business returned to profitability, and we saw early signs of demand growth for Winchester commercial ammunition. The Iran conflict introduced significant disruption across global petrochemical supply chains. Sharply higher crude oil prices and freight rates disproportionately impacted non-U.S. producers, further reinforcing the structural cost advantage of U.S. Gulf Coast assets such as Olin Corporation's. While these dynamics did not materially benefit our first quarter results due to normal pricing lags, they meaningfully improved the outlook for the second quarter. Looking ahead, the near-term backdrop has shifted more in favor of U.S. producers than where we were at the beginning of the year. While the duration of Middle East disruptions remains uncertain, we believe the full impact is still unfolding as global supply chains continue to tighten. We are seeing significant inventory drawdowns and deferred maintenance temporarily helping bridge supply gaps. This creates a more constructive environment as the year progresses. Olin Corporation is well positioned to navigate this dynamic environment, supported by our advantaged asset base, improving cost structure, and strong cash generation. As regional customers increasingly prioritize security of supply, we have the flexibility to increase operating rates and capture value while maintaining our value-first commercial approach. Now let's turn to Slide 4 for a deeper review of Chlor Alkali Products and Vinyls (CAPV). First quarter results reflected lower operating costs driven by Beyond two fifty and lower-than-expected maintenance turnaround costs. Merchant chlorine demand was seasonally soft but improved from the fourth quarter with year-end customer destocking behind us. We saw chlorine demand into water treatment and crop protection rebound nicely in mid-March as U.S. temperatures warmed. Caustic soda continues to be the stronger side of the ECU. Global demand is stable against the backdrop of tightening supply and a rising cost curve for non-U.S. producers, which sets up for improved earnings as we move through the year. Several Asian vinyls producers have declared force majeure due to limited access to feedstocks and rapidly increasing costs. This disruption constrained chlor-alkali production, reducing the availability of co-produced caustic soda. While China has been less affected given significant coal-based vinyls production, the net impact has been a meaningful reduction in global supply. Trade publications estimate that 6% to 9% of annual vinyls capacity is impacted globally. All of this drove a sharp spike in global pricing in late March, with levels now moderating as inventories are depleted. U.S. export EDC prices have significantly increased since January. We expect EDC and caustic soda pricing to stabilize at higher levels compared to earlier in the year as shortages persist and production costs remain high. Olin Corporation has announced a total of $185 per ton in domestic caustic soda price increases for implementation in 2026. We continue to aggressively implement the balance of our price announcement. Slide 5 provides a look at our epoxy results. First quarter 2026 marks an important milestone, as our epoxy business returned to profitability. We expect full-year epoxy performance to be meaningfully improved, with our return to profitability driven by several well-executed actions. Our epoxy team has grown our European business in the wake of regional rationalizations. Our new European cost structure is on course to deliver $40 million to $50 million of annual cost improvement. Our formulated solutions portfolio continues to provide a high-margin platform for growth with a strategic focus on electronics, semiconductors, and power generation. And our recent plant closure in Guarulhos, Brazil will further improve our cost structure and strengthen supply integration. In addition to these actions, we are focused on raising prices, which have been significantly depressed due to subsidized Asian supply. Olin Corporation announced March and April epoxy resin price increases totaling more than $1,200 per ton in North America, and €1,300 per metric ton in Europe. We expect these increases to offset the higher feedstock and transportation costs. Let's now turn to Slide 6 for an update on our Winchester business. Winchester's first quarter performance was a significant improvement. The team took decisive actions in the second half of last year to rebalance channel inventories and position the business for improved commercial volume and price. As a result, we have regained commercial pricing traction and retail shipments are moving back into alignment with out-the-door sales. As retailer purchases align, we would expect to realize a commercial volume uplift of mid- to high-single digits year-over-year. Raw material costs remain a headwind, particularly copper, as well as brass and propellants. We expect that our pricing actions, once implemented, will offset the majority of 2026 cost inflation; however, we expect to continue to see cost pressure as we go through the year. We are continuing to operate a disciplined make-to-demand model that aligns to our value-first commercial approach. As a result, we are building a strong commercial backlog while tightly managing our working capital. Winchester is a core part of Olin Corporation's portfolio. With its iconic global brand, long-standing relationships with leading retailers, the U.S. military, and a broad base of international customers, the business is well positioned to deliver durable, long-term growth and value creation. I will now turn the call over to Todd for a look at our financial highlights. Todd Slater: Thanks, Ken. Let's review our cash flow, liquidity, and financial foundation. Our top priority continues to be generating strong cash flow to preserve and further enhance liquidity. In February, we took proactive steps to amend our bank credit facilities, providing greater covenant flexibility through late 2027. As a result, we maintain full access to our revolving credit facility and 1.3 billion of available liquidity. Our debt structure is well organized, with manageable tranches and staggered bond maturities over the coming years, and no maturities before 2029. As is typical with seasonal working capital needs, net debt and leverage increased in the first quarter. We expect net debt to rise during 2026 as we make payments to resolve legacy litigation matters. Now let me take a moment to discuss our outlook for expected uses of cash in 2026. First, regarding cash taxes, we anticipate receiving refunds from prior years related to clean hydrogen production tax credits under Section 45V as part of the Inflation Reduction Act of 2022. Factoring in these refunds, we expect 2026 to essentially be a cash-free tax year, plus or minus $20 million. We are proactively managing our capital spending, targeting approximately $200 million, with a focus on funding sustaining capital expenditures to ensure safe and reliable operations of our assets. We expect to continue our nearly century-long history of uninterrupted quarterly dividend payments. As we further strengthen our financial resilience, any remaining excess cash flow after the preceding capital allocation priorities will be used to reduce our outstanding debt. We remain firmly committed to managing our balance sheet in a way that maximizes our financial flexibility for the future. We anticipate ending the year with a debt leverage ratio of just above four times. Looking forward, our goal remains to average below two times leverage across the cycle. Our team's focus is on generating cash, strict cost control, and advancing our Beyond two fifty structural cost reduction program and a value-first commercial approach. Before I turn the call back to Ken, I want to comment on Beyond two fifty. The program is designed to permanently remove structural costs, not simply trim around the edges. We have a clear line of sight to more than 250 million of cumulative savings by 2028. We delivered $44 million of structural savings last year and expect to deliver an incremental $100 million to $120 million in 2026. Every day, we continue to expand our Beyond two fifty scope with a focus on people and processes. We are making great progress on safety, with record performance in the first quarter. Our efficiency gains are well socialized and measurable. For example, we have nearly doubled our Freeport, Texas time on tools. We have transformed our maintenance planning by leveraging historical data and AI tools to evolve from a reactive, time-based scheduling to a proactive, risk-based approach. We streamlined the organization, reducing site headcount by 15% while reducing our reliance on contractors and improving reliability. To sum up, we are preserving a durable balance sheet, generating healthy cash flows, and maintaining a prudent capital structure to drive long-term shareholder value. Ken, let me hand the call back to you. Ken Lane: Thanks, Todd. Let's finish up with Slide 8 and our outlook for the second quarter. With improved pricing and seasonally higher demand, we expect to realize significantly improved earnings in our CAPV business. Our second quarter outlook includes an estimated impact from an unplanned vinyls outage at our Freeport, Texas plant. We are expecting to restart these assets late next week. Olin Corporation's value-first commercial approach has preserved our ECU values through an extended trough and provides an attractive starting point as we begin the next cycle. Looking out a little further, the chlor-alkali supply-demand dynamics are favorable, with limited additional capacity, a likelihood of further asset rationalization, and a still-to-come housing and construction demand recovery. Chlor-alkali is well positioned to rebound from this historic trough. In our epoxy business, we expect to see earnings improvement with higher seasonal demand, improved pricing, and continued cost improvements. We are realizing the benefits of being a strong, integrated, local producer as customers seek reliable supply in the face of tremendous uncertainty. Winchester's second quarter results are also expected to improve sequentially with higher commercial ammunition volume and pricing, and higher military sales. With that, we expect to deliver second quarter adjusted EBITDA in the range of $160 million to $200 million, a significant sequential improvement. Operator, we are now ready to begin Q&A. Operator: Thank you. We will now open the call for questions. To ask a question, please press star, then 1 on your touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. In the interest of time, please limit yourself to one question. The first question will come from Hassan Ahmed with Olympic Global. Please go ahead. Hassan Ahmed: Morning, Ken and Todd. Just a question on the guidance. Obviously, you did about $86 million in EBITDA in Q1 and are guiding to, if I were to take the midpoint, call it $180 million in Q2. So I am just trying to get a better sense of bridging that $100 million or so in incremental EBITDA. How much are you getting from Beyond two fifty? How much of that is some of these opportunities you see via the conflict in the Middle East? How much from incremental caustic and EDC export opportunities? Ken Lane: Good morning, Hassan. Thank you for the question. The bridge between Q1 and Q2 has a lot of variables contributing to it. The largest one is going to be improvement in CAPV from the first quarter, driven by improved pricing and higher volumes as assets are running again. We will continue to have some headwinds related to turnaround costs, but both higher pricing and higher volume in the second quarter for CAPV will drive a big part of the uplift. We will also continue to see benefits from improved costs in the second quarter, again netting out the impact from the turnaround. We have also built into that outlook the impact we currently estimate related to the unplanned outage in the vinyls assets at Freeport. We are expecting to have those assets restarted late next week, and that is reflected. Unfortunately, that takes a little bit out, and we want to make sure we get that done timely and safely because it is important to get those assets back up when we are seeing the pricing environment that we are for those products. If you look at epoxy and Winchester, we will continue to see improvements in the epoxy business, including the normal seasonal uplift, so improving demand. As I said in the prepared remarks, the team did an outstanding job positioning Olin Corporation as the last integrated epoxy producer in Europe and leveraging that into a stronger market position with respect to volume growth in 2026 versus 2025, and that will continue into the second quarter. The momentum we saw building from Winchester, and the actions Winchester took late last year to rebalance things—last year was sort of the perfect storm with higher costs, lower demand, and high inventories—have largely corrected with the exception of the cost side. Inventories are back to a much more comfortable level, and demand has started to come back, so we are seeing year-over-year growth for the first time in over a year. All of those things combined create the uplift, but again, the biggest uplift is coming out of CAPV. Operator: The next question will come from Frank Mitsch with Fermium Research. Please go ahead. Frank Mitsch: I wanted to get your thoughts on pricing as we exit Q2. I think you have a fairly good line of sight on where you stand today and your plans in terms of getting price increases in June. As you think about the average Q2 price across your company versus where you are going to exit the quarter, I would imagine that sets you at a higher level for Q3. Any way you can give us some orders of magnitude around expectations on the momentum on the pricing side? Ken Lane: Good morning, Frank, and thanks for joining. Starting with CAPV, in the first quarter we were already seeing momentum with caustic pricing coming out of the fourth quarter into the first quarter before everything started happening around the world late in the first quarter. We are going to see that improvement really start to hit in Q2. Even with the lag that we see in some product lines and businesses, there will be good momentum continuing into the third quarter, and I expect that to carry through the year. For CAPV, caustic and EDC are the two big needle movers; those price levels are going to continue to be elevated versus where we thought they would be at the beginning of the first quarter, and we see that continuing into the third quarter. We had a very fast run-up in prices and then saw them moderate a little bit. People who had inventory, as you would expect, pushed a lot of that volume into the market when prices were spiking. We see that coming down, and once that plays through—remember even today, with talk about a ceasefire in the Middle East, Brent crude is still over $100 a barrel, and U.S. natural gas is around $2.70 to $2.80—that is still a sizable advantage for U.S. producers. In addition, you have effectively taken out of the market sanctioned oil that was going into assets in Asia at a significant discount and creating a distortion. That is now gone, which is constructive for pricing as we go into the third quarter. Generally speaking, you will start to see it in Q2 but really see it even more later in the year. Operator: The next question will come from Mike Sison with Wells Fargo. Please go ahead. Mike Sison: When you think about Q2, the $160 million to $200 million, how would you describe the earnings levels? Are we approaching a mid-cycle number? It does not feel like peak, particularly on volume. As you think about where pricing is going to set up longer term, do you think some of this is sustainable where maybe 2027 will have structurally higher pricing and margins for the industry? Ken Lane: Good morning, Mike, and thanks for joining. Thinking back to what we said at Investor Day, we are not anywhere near what we would consider our normalized level of earnings. We have seen an improvement from where we were at the beginning of the first quarter, no doubt. But even with the step-up in earnings we will see in Q2 and later in the year, it reflects what we emphasized at the 2024 Investor Day: there is a lot of leverage in Olin Corporation's portfolio. When you start to see demand come back and the supply-demand balance get more normalized, there is a lot of leverage to the upside. We are not close to a normalized or mid-cycle level of earnings; that is still out in the future. Once we start to see things like housing recovery and infrastructure and general construction coming back in both Europe and the U.S.—which is going to happen—the outlook is constructive. The setup for chlor-alkali supply and demand, the limited additional capacity being added, and the rationalization that has happened and will likely continue is really constructive for us. There is still much more leverage in Olin Corporation to come; you are just seeing the beginning of it now. On long-term sustainability, yes, we are in the trough, and we are going to come out of it. The markets we are in and serve are set up well to see that sooner than maybe others. Operator: The next question will come from Patrick Cunningham with Citi. Please go ahead. Patrick Cunningham: You alluded to some price normalization, obviously EDC being top of mind. First, what sort of sensitivity should we expect on EDC prices, or perhaps you could help with the price levels embedded within the outlook? And in terms of volume uplift or value, how much is embedded within the Braskem arrangement versus how much opportunistic volume do you have to sell here? Ken Lane: Good morning, Patrick, and thank you for the question. We manage the portfolio to have optionality, especially around our chlorine outlets, and we want a diverse set of options because these markets recover at different rates. EDC is clearly important for us. The strategic relationship with Braskem is accretive through the cycle, but that represents only part of our EDC volume. We continue to have part of the EDC portfolio with spot exposure, but we are balancing it. We do not want everything spot or everything in long-term contracts. We are doing that to optimize and create the highest value we can for Olin Corporation through the cycle. That is our strategy. Operator: The next question will come from Kevin McCarthy with Vertical Research Partners. Please go ahead. Kevin McCarthy: Thank you, and good morning. Ken, can you provide an update on your EDC and VCM operations at Freeport? Last quarter, I think you flagged the major triennial planned turnaround. In your prepared remarks this morning, I heard reference to an unplanned outage. Are those related or unrelated? Can you talk through the operational outlook there in the quarter? Ken Lane: Sure, thanks for the question, Kevin. In the second quarter, we completed the turnaround we discussed on the last earnings call, which bridged across the end of the first quarter and the beginning of the second quarter. We successfully completed that and restarted the VCM assets in Freeport. The team did an outstanding job executing that turnaround safely, a little ahead of schedule, and on budget. Unfortunately, we recently had an unplanned event that brought down the vinyls assets at Freeport. We are in the middle of our root cause analysis, making sure we have everything established to restart those assets safely. The current plan is to restart late next week. I am confident the team will do that as well as they did with the turnaround. All of that looks to be coming back into good condition and shape in the next week or so. Operator: The next question will come from Josh Spector with UBS. Please go ahead. Josh Spector: Good morning. On caustic dynamics, you are going for additional pricing and have alluded to that. Looking at Asia pricing relative to U.S. pricing, the U.S. seems to have moved to a bit of a premium. Typically, caustic production increases as PVC production increases over the next few months. How do you expect North America prices to move higher if North America is going to have more caustic to deal with in a few months, and the manufacturing backdrop is not that strong? What am I missing on the pricing dynamic that pushes it higher from here? Ken Lane: Good morning, Josh, and thank you for joining us. There are a lot of dynamics in the caustic market that I think people underestimate. Thinking linearly—what happened in the past will happen now—does not capture today’s environment. Freight rates are higher, and there are supply chain disruptions. For example, there used to be caustic coming into the East Coast from Europe and into the West Coast from Asia; that is pretty much gone now. Pricing is driven as much by availability as by arbitrage. You have a big step-up in freight costs as well. Those dynamics will drive the market for the foreseeable future. Backing up to the first quarter, even between Q4 and Q1, with stable demand, we were already seeing price momentum with caustic. There was an overcorrection last year; the market was tighter than people believed, and you saw recovery even before the current Middle East situation. All of that is constructive for caustic pricing. Capacity has come off, demand is relatively stable, costs are higher—prices should go up in that environment. Operator: The next question will come from Matthew Blair with TPH. Please go ahead. Matthew Blair: Thanks, and good morning, Ken and Todd. Ken, you mentioned that 6% to 9% of global vinyl capacity is currently offline due to the Iran war. Is that also a good estimate for global ECU capacity that is offline? And in terms of duration, how quickly could these assets return and supply chains normalize if there were a true ceasefire announced tomorrow? Ken Lane: Good morning, Matthew. Starting with duration, a ceasefire has already been announced and it is still disruptive. This will linger for quite a while. Supply chain disruptions are not a light switch; ships are out of position, and feedstocks are not available for a period of time. That lingers for weeks and months, typically. That is why I am optimistic about structural support for higher prices and benefits for companies like Olin Corporation with assets in regions with good access to low-cost energy and raw materials. I do not see that reversing in the short term. On your first question, the 6% to 9% reported for vinyls capacity offline is a good proxy for ECU production constraints—if you do not have a place to put the chlorine, ECUs are not going to be produced. Operator: The next question will come from David Begleiter with Deutsche Bank. Please go ahead. David Begleiter: Thank you, and good morning. Ken, on your vinyl strategy, has the conflict in the last two months influenced your thinking on how you pursue a vinyl strategy down the road? And as a housekeeping item, on Slide 15, the turnaround expenses—does the Q2 forecast of $42 million include the unplanned outage? If not, how much is that unplanned outage in vinyls? Ken Lane: Good morning, David, appreciate you joining us. The vinyl strategy is not impacted by what is going on in the world today. It is still an important market for us and one on which we remain focused longer term to ensure we have access. When we think about all of the options we have discussed, extending the current agreement we have with our fence-line customer at Freeport is still a priority for us, but there are other good options we are evaluating. This environment makes some partnership options more attractive, especially to potential partners we are working with, which is a positive. But it does not change our focus on wanting to grow in vinyls longer term. On the turnaround expenses, the Q2 forecast does not include the unplanned event at Freeport. That would be an incremental impact in the second quarter, and we have reflected that in the outlook we gave. Operator: The next question will come from Arun Viswanathan with RBC Capital Markets. Please go ahead. Arun Viswanathan: Good morning. Thanks for taking my question. My main question is on the duration of the earnings power here. You are guiding to about $180 million for Q2. Various peers have given different timelines for normalization between three to six months. Is that how you are looking at things? You also have some capacity entering the industry in the next six to twelve months from debottlenecking, as well as a new plant coming on maybe in a few years. Are you still feeling that caustic is going to be tight through that period, or will we settle into a bit of an oversupplied situation? Putting that together, are we looking at a year that is roughly twice your first half, or do you see upside to that? Ken Lane: Good morning, Arun. I am not going to speculate on exactly how long this goes. I did say earlier I believe the impacts will carry through this year. Costs are going to be higher, and I think people will expect a higher security-of-supply premium, particularly where product from other regions had been dumped into Europe and the U.S. We are seeing a premium for local supply, and I think that will continue. Even if energy prices settle down, there will be longer-term hangover effects that are beneficial to Olin Corporation. Stepping back to the broader trough recovery and supply-demand outlook for chlor-alkali, it is more positive than you may be thinking. You have to factor in the pluses and minuses over the last year or two: assets have closed in Europe, the U.S., Latin America, and even Asia. There is very little new capacity coming online between now and the end of the decade. I feel very bullish about the outlook for the markets we are in and see no reason to change that view. Operator: The next question will come from John Roberts with Mizuho. Please go ahead. John Roberts: Thank you. For your export EDC business, how are you thinking about the competition from China? Most of their coal-based capacity is inland, and their coastal capacity is probably ethylene-constrained. How do you think the dynamics there will play out in the next few months? Ken Lane: Good morning, John, very good question and important for us. We are going to see a step-up in EDC volume in the second quarter, and prices have moved up significantly from last year’s levels. Prices had dropped far more quickly than warranted by fundamentals; things have since improved to a healthier level. Because much of China's coal-based capacity is inland, the cost to get that EDC to market is higher. Our costs have gone down, not up, so we are able to serve the market more competitively at a better price, which is constructive for us into the second and third quarters. I think that continues through the end of the year. Pricing is getting back to what I would consider a more normal level for where we are in the supply-demand environment because things were overdone. As I mentioned earlier, sanctioned oil that had been sloshing around the market and distorting costs has been curtailed; while the volume is still there, it will be priced much higher than previously. That is beneficial to us. Operator: The next question will come from Vincent Andrews with Morgan Stanley. Please go ahead. Vincent Andrews: Thank you. Chemours indicated they signed an agreement with you for the 2028-plus period instead of building the plant they announced back in December 2024. Could you help us understand the impact to you? Are those tons going to be more profitable, less profitable, or about the same as how you are monetizing them today? Ken Lane: Good morning, Vincent, and thank you for joining us. Anytime we can do a strategic partnership like we have done with Chemours—similar to Braskem, where we are working with an industry leader—it is accretive for Olin Corporation. This is a long-term supply deal that will start in 2028. These are the sorts of optionality we want in our portfolio to give us the ability to generate stronger earnings through the cycle. We are very happy with the relationship with Chemours and look forward to expanding that in 2028. As you can imagine, we will not disclose further details around the agreement, but it is a win-win for both Olin Corporation and Chemours. Operator: As there are no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Ken Lane for closing comments. Ken Lane: Thank you very much. We appreciate everybody's time this morning and your interest in Olin Corporation, and we look forward to giving you an update at our second quarter earnings call later this year. Thank you very much, and have a safe weekend. Operator: Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Plains All American Pipeline, L.P. and PAGP First Quarter 2026 Earnings 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, you will need to press star 11 on your touch-tone telephone. Please note this call is being recorded. I would now like to turn the call over to Blake Fernandez, Vice President of Investor Relations. Please go ahead. Blake Michael Fernandez: Thank you, Michelle. Good morning, and welcome to the Plains All American Pipeline, L.P. First Quarter 2026 Earnings Call. Today’s slide presentation is posted on the Investor Relations website under the News and Events section at ir.claims.com. An audio replay will also be available following today’s call. A condensed consolidating balance sheet for PAGP and other references are in the appendix. Today’s call will be hosted by Willie Chiang, Chairman, CEO and President, and Al P. Swanson, Executive Vice President and CFO, along with other members of our management team. With that, I will turn the call over to Willie. Wilfred C.W. Chiang: Thank you, Blake. Good morning, everyone, and thank you for joining us. This morning, we reported first quarter adjusted EBITDA attributable to Plains All American Pipeline, L.P. of $730 million. Al will cover the details on our results in his portion of the call. Let me start with the macro environment, which has changed significantly since our last call. Recent geopolitical events have reiterated the importance of reliable, secure, and responsibly produced energy. The closure of the Strait of Hormuz has significantly disrupted global shipping channels and Middle East supply, contributing to stronger commodity prices over the past couple of months. In response, excess floating storage has been drawn down, and strategic petroleum reserves are being released globally. While this helps balance the market deficit on a short-term basis, we are seeing a more constructive oil market developing on a longer-term basis. We expect this destocking environment to continue over the next number of months and ultimately drive a restocking phenomenon longer term, as countries replenish depleted strategic petroleum reserves globally. Post-war, we would not be surprised to see several countries restock their SPRs above pre-war levels, essentially creating an additional layer of demand into the future, which should support prices and incent producer activity. On the supply side, OPEC production capacity post-war remains uncertain, but we suspect spare capacity will be tighter based on a slower recovery of shut-in production and infrastructure damage during the war. We believe the conflict shifts the focus towards more geopolitically stable regions to ensure security of supply. Against this backdrop, North America, including the Permian, remains well positioned to play a critical role in meeting global demand. As this occurs, the value of existing infrastructure in the ground should continue to increase over time. For these reasons, we believe Plains All American Pipeline, L.P. is well positioned for both the near-term volatility and longer-term macro environment. Based on these market dynamics and the growth trajectory that we see for our business, we have increased our initial 2026 EBITDA guidance. As highlighted on slide four, we are increasing the midpoint of our full-year 2026 adjusted EBITDA guidance by $130 million to $2.88 billion. The NGL segment EBITDA is now expected to be $170 million, following first quarter outperformance of $45 million and the updated divestiture timing now in May 2026. Our trajectory of growth this year is underpinned by three key drivers: the sale of our NGL assets, Cactus III synergy capture and streamlining. The growth of our EBITDA is paced with the execution of these initiatives and is enhanced by capturing optimization opportunities that have been substantially secured over the next three quarters. We are also seeing increased producer interest in both Canada and the United States for additional connections to our system. The combination of all these factors will ramp up through the year and position us well into the future. Our premier crude oil footprint continues to support stable fee-based cash flows in a variety of macro backdrops. As global markets turn to North America for long-term energy supply, we are well positioned across key producing basins and downstream markets to drive multiyear growth. We remain committed to our efficient growth strategy, generating significant free cash flow, optimizing our assets, maintaining a flexible balance sheet, and continuing to return cash to unitholders via our disciplined capital allocation framework. With that, I will turn the call over to Al to cover our quarterly performance and other financial matters. Al P. Swanson: Thanks, Willie. Slides five and six contain adjusted EBITDA walks that provide additional detail on our performance. For the first quarter, we reported crude oil segment adjusted EBITDA of $582 million, which was broadly in line with our internal estimate and includes a full-quarter contribution from the Cactus III acquisition, offset by a number of one-off items including winter weather impacts in the Permian, system maintenance, and timing of minimum volume commitments. Moving to the NGL segment, we reported adjusted EBITDA of $145 million, reflecting a stronger-than-expected contribution from higher straddle production and improving frac spreads in March. A summary of 2026 guidance and key assumptions is on slide seven. Growth capital remains $350 million, while maintenance capital was increased to $185 million reflecting ownership of the NGL assets into May. Regarding the $130 million increase in EBITDA guidance, key drivers are outlined in the waterfall on slide eight. The NGL segment increased by $70 million, driven by outperformance in the first quarter along with ownership of NGL assets into May. The oil segment was increased by $60 million, driven by captured optimization opportunities, FERC tariff escalators, increased spot tariff volumes, and increased West Coast volumes. To the extent that the elevated commodity environment persists into the second half of the year, we would expect to capture incremental opportunities. For 2026 guidance, we continue to assume Permian crude oil production to be relatively flat year over year. While we have yet to see a meaningful shift in U.S. producer behavior, any increase in activity would likely benefit 2027 and beyond. We expect an improving back end of the crude oil curve and removal of natural gas takeaway constraints as new egress projects start up later this year to drive incremental activity throughout the year. As illustrated on slide nine, we remain committed to generating significant free cash flow and returning capital to unitholders while maintaining financial flexibility. For 2026, we expect to generate $1.85 billion of adjusted free cash flow excluding changes in assets and liabilities, and excluding sales proceeds from the NGL divestiture. Our pro forma leverage at the end of the first quarter was 4.1x, reflecting the Cactus III acquisition. First quarter leverage pro forma for the NGL sale would decrease to approximately 3.5x, and we would expect leverage to migrate towards the low end of our target range of 3.25x to 3.75x by the end of the year. We expect net proceeds from the NGL sale to be approximately $3.3 billion, which is approximately $100 million higher than our prior estimate. Our acquisition of Cactus III last year has mitigated the tax liability of the unitholders resulting from the NGL divestiture. As a result, we no longer expect to pay a special distribution following the closing of the NGL sale. Before handing it back to Willie, I would note that both current and deferred taxes are elevated on the statement of operations this quarter because of the restructuring activities associated with the NGL sale. There was no cash tax impact in the quarter, as payment of the related taxes will be made in conjunction with closing or in future periods. With that, I will turn the call back to Willie. Wilfred C.W. Chiang: Thanks, Al. In the midst of volatile energy markets, we remain steadfast and focused on executing our three initiatives for 2026: closing the NGL sale, driving synergies on Cactus III, and advancing our streamlining initiatives. Our efficient growth strategy has positioned us well to execute through a range of market environments, generating durable cash flow and creating long-term value. Importantly, the improving oil macro environment is starting to present additional organic investment opportunities with strong returns. We continue to evaluate both organic and inorganic opportunities in a disciplined manner. Capital investments help underpin long-term EBITDA growth, but they must meet our return thresholds and provide visibility into future return of capital to unitholders. Our transition to a pure-play crude midstream company, coupled with the acquisition of Cactus III, is proving timely as tensions in the Middle East position North America as a key source of global energy supply into the future. Before I turn the call over to Blake, I would like to make a brief comment about our pending transaction with Keyera. In terms of timing, as reported by both Keyera and Plains All American Pipeline, L.P. in separate releases earlier this week, we are targeting to close the transaction this month. While it is unfortunate that the Competition Bureau has chosen to challenge the transaction, their lawsuit does not prevent the parties from closing the transaction, which both Plains All American Pipeline, L.P. and Keyera are committed to do. I realize you may have some additional questions, but I hope you understand it would be inappropriate for us to comment any further on this matter, so we would appreciate it if you would refrain from asking questions regarding the transaction. Blake, I am now going to turn it over to you to lead us through Q&A. Blake Michael Fernandez: Thanks, Willie. As we enter the Q&A session, please limit yourself to two questions. This will allow us to address as many questions as possible from participants in our available time this morning. With that, Michelle, we are ready for questions. Operator: Thank you. If your question has been answered and you would like to remove yourself from the queue, please press 11 again. Our first question comes from Brandon B. Bingham with Scotiabank. Your line is open. Brandon B. Bingham: Thanks. Good morning, everybody. I just wanted to ask on the new guide. If I look at your sensitivity and the new crude price expectations, it would imply that, at least on price movements alone, the crude contribution should probably be higher than what is currently shown. Could you just walk us through what is baked into the new guide and maybe the embedded outlook in there? Al P. Swanson: Sure, Brandon. Our original guidance for the year assumed a $60 to $65 environment for 2026, so roughly a $62 midpoint. We came into the year highly hedged at roughly those levels. The $85 environment that we are talking about for the future is roughly the strip from June through December when we looked at it. So there would be some benefit based on crude prices on our PLA, but because we had hedged quite a bit before entering the year, that sensitivity we give is just a raw sensitivity. In order to make it more meaningful, we would have had to have disclosed to you the hedge position at the beginning of the year, which we have not historically done. So what I would say is that the first quarter performance and the nine months of our guide are very minimally impacted by actual PLA pricing. Brandon B. Bingham: Very helpful, thank you. And then maybe just wanted to ask about, in light of some of the commentary in your prepared remarks about a more constructive longer-term market and just the whole macro environment as it stands today, how are you thinking about the potential for the EPIC expansion at this point? Jeremy L. Goebel: Brandon, good morning. We are excited about the opportunities around our entire long-haul portfolio and are having constructive dialogue with existing customers and new customers looking for secure supply from the United States. That results in some spot activity, but longer term the expectation is to contract at higher rates than maybe before, with potentially new counterparties. That would pertain to recontracting existing pipeline capacity and expansions as well. We are looking at all of the above and hope to have updates in the coming quarters on how that looks. Brandon B. Bingham: Okay. Great. Thank you. Operator: Our next question comes from Gabriel Philip Moreen with Mizuho. Your line is open. Gabriel Philip Moreen: Hey, good morning, everyone. Maybe I will just ask the Permian macro question, Willie, in terms of your best outlook. I think previous years you talked about 200 thousand-ish barrels a day year-over-year growth. Best venture at this point, I realize there are a lot of things in play and things are changing quickly, but do you think that goes significantly higher from here, 400 thousand, 500 thousand in 2027? I am just curious what your latest thoughts are there. Wilfred C.W. Chiang: Yeah, Gabe. Jeremy may have some additional comments, but I will give you my thoughts. U.S. producers have remained very disciplined as far as capital allocation, and they are looking at the back end of the curve to see where it goes. WTI is roughly $70, and our view is when you start getting into $75 and above, increased activity happens. There are also some other short-term operating constraints that are limiting production a bit. The Permian has some natural gas takeaway constraints. There are new lines that are being built and being commissioned as early as later this year, so the thought is that alleviates itself. Our assumption for the Permian this year was flat, and if there is some upside, obviously we benefit from it. We are not giving a formal guide, but we would expect growth going forward and probably some momentum of volumes that will increase production, maybe with a little bit of a flush later this year or early next year. I think it really depends on the back end of the curve, but the systems are ready to go. Gabriel Philip Moreen: Thanks, Willie. And then maybe if I can ask on the sustainability of some of the marketing opportunities you are currently seeing. Can you talk about some of the spreads that you are seeing and also the value of dock space, the extent you are debating internally maybe terming some of those out at higher prices? And then, the steepness of the curve and backwardation—how that is playing with your storage. Is that helpful? Is that a hindrance? Jeremy L. Goebel: Gabe, without getting into specific strategies, time, location, and quality spreads—all that volatility—we benefit from all of those because we have the assets, the supply position, and the trading function to capture those opportunities. It is hard to forecast those when they arrive. That could be time spreads—do you sell a barrel now and buy it back later by emptying a tank? Differences in grades between Canada and the United States, differences in Gulf Coast grades—all of those are strategies and things we can take advantage of with our integrated system. We are excited about those opportunities. What we have put in the forecast has been substantially captured over the next three quarters. This is a very volatile period; we have only been in this sixty to seventy days, so it is hard to forecast that to continue. But if it continues, we would expect to capture more opportunities going forward. And just to add on, we estimate there is close to 200 thousand to 300 thousand barrels a day of oil that is behind pipe in the Permian Basin. So that flush production Willie referenced is substantial, and a lot of that is in the more constrained areas of the Delaware Basin, where we have a broader footprint, including New Mexico and other places. If you look at the Waha spread, flat price in Waha has been largely negative since last September. That is what is accumulating all of this to go, and as gas prices recover, productive capacity is already there to add. As you add more, that puts more pressure on potentially long-haul spreads and the ability to term up contracts at greater rates. We are seeing more demand from new customers, and we are seeing potentially flush production. Those should all help convert short-term opportunities into longer-term opportunities. Wilfred C.W. Chiang: And if you look at our numbers, long-haul has increased and margins on that have also improved. I think we are moving to a more structurally full-pipe situation as we go forward, which should be constructive for us. Gabriel Philip Moreen: Appreciate it. Thanks, guys. Operator: Our next question comes from Manav Gupta with UBS. Your line is open. Manav Gupta: Good morning. I just wanted to focus a little bit on the weather impact. I think it is about $49 million quarter over quarter. I am trying to understand, since you mention timing of minimum volume commitments, is there a possibility some of this can be reversed in 2Q—some of what you lost in the current quarter comes back into the second quarter? If you could talk a little bit about that. Jeremy L. Goebel: Yes, Manav. Those are two different things. With regard to weather, weather is just production shut in for a period—you cannot make that back, but the flush production does come back. With regard to the timing of MVCs, that is continuous in our process. If you look at some of the earnings calls from others about their dock performance or other things in the first quarter, freight was really expensive and margins did not have people moving, so long-haul volumes were down across the industry. But that has completely reversed in timing. So you would absolutely expect that to be recovered—it is just a question of those MVCs accrued versus when they are paid. All the pipelines are full again, and the MVCs are being reversed. Wilfred C.W. Chiang: Manav, if you are referring to slide five, I think the point of your question is on that negative $49 million. There are a bunch of one-time events in there that you are absolutely correct will not occur again as we go forward. Manav Gupta: Perfect. And if you could also talk about the very strong results from the NGL segment in the first quarter versus the last quarter—some of the drivers of what helped you deliver much stronger earnings in that segment quarter over quarter? Thank you. Jeremy L. Goebel: Sure, Manav. Higher border flows than expected—you had very full storage in Canada and continued production, which required volumes to be exported, and those were exported through our Empress asset. So higher border flows lead to more straddle production, and that would all be unhedged and impact results. In addition, higher frac spreads towards the end of the first quarter contributed. I would say those two, and that has continued into the second quarter, which is reflected in the increase in guide for the NGL business through closing. Manav Gupta: Thank you. Operator: Thank you. Our next question comes from Michael Jacob Blum with Wells Fargo. Your line is open. Michael Jacob Blum: Thanks. Good morning, everyone. My question is on the guidance, the crude segment. It sounds like most of the increase is optimization that you have already locked in, and then maybe the rest is PLA. I just want to make sure I understood that. And then, if prices stay elevated for the balance of the year, would there be upside to the guide in the crude segment, or is that already baked into the numbers? Wilfred C.W. Chiang: Thanks, Michael. Great question. Our assumptions are that the numbers in there are really what we have captured that will roll off through the year as we actualize optimization efforts. And you are correct—if we have a stronger macro environment and higher prices, there definitely is upside. Michael Jacob Blum: Great. Thank you. Operator: Our next question comes from Jeremy Tonet with JPMorgan Securities. Your line is open. Jeremy Tonet: Hi. Good morning. Just wanted to see what you are seeing locally, ear to the ground there, as far as producer activity—whether rigs are being picked up by the independents or larger drillers as well—and what would be needed across the strip to gain the comfort to do that? How do you think production could uptick here, and what do you see? Jeremy L. Goebel: Jeremy, good morning. You have already seen about 15 rigs added back, and we would expect some to continue. But as Willie mentioned, there is a bit of a throttle right now—you cannot add more natural gas to the system if flaring is not allowed. Productive capacity is there; rigs being added now would impact 2027. I think there was a bit of confusion in the market in that the products market and the physical crude market are substantially tighter than the financial markets would indicate, which means the back end of the curve has to come up. It is very difficult, even if you opened the Strait of Hormuz tomorrow, to get everything back in order the way it was. It is going to take a while for shipping to start. You have to empty tanks before you can start back up production. Products markets are just empty in some places. There is a real dislocation that will take time. Some integrators have stated for every day it is down, it is three days to get back up. So it is potential for months to get out of this even if it were resolved today. I think that is the part producers are waiting on—more assurance in the back end of the curve to bring rigs on. At this point, the service companies have stacked equipment. It takes capital and commitments to bring those back. Producers need commitment from prices that they will be there, and the longer this goes, the more likely that will occur. But the dislocation in the back end of the curve right now is maybe causing some hesitancy, which is going to prolong the problem. Jeremy Tonet: Got it. That is helpful. How do you think that impacts basis over time and what it could mean for future egress expansion? Jeremy L. Goebel: It is constructive for basis—more production and more demand on the water. Specifically in the Corpus market and some of the more efficient docks, you are seeing higher pricing relative to even the screen. On a prolonged basis, that says there are new buyers coming to America. Vessels that used to be pointed at other locations intend to come back and forth to the United States for a while. You are seeing that on the NGL side, you will see it on the LNG side, and on the crude side. More buyers and more demand is generally constructive for spreads, and we would expect to match either our suppliers or our customers with that and, hopefully, offer service at a higher rate. Wilfred C.W. Chiang: Jeremy, you are aware that on Cactus III we have expansion capacity. As we have always said, we are going to pace that with market demand and commercial contracts. As we have gotten to know the project and assessed it, we have the ability to do that in a phased approach. It is fairly flexible for us to get additional volumes. It is not a binary big expansion—there are ways to do it in phases which should match customer demand. Generally speaking, in a higher price environment, there are more opportunities because there is a pull on the whole system, and optimization opportunities become more prevalent versus a lower price environment where less is moving. Jeremy Tonet: That is helpful. Thank you. Operator: Thank you. Our next question comes from Jackie Kalidas with Goldman Sachs. Your line is open. Jackie Kalidas: Hi, good morning. Thank you so much for the time. First, I was wondering if you could comment on the progress of your cost reduction initiatives. Are these on track with expectations at this point, and is there any potential for upside capture here? When should we expect Plains All American Pipeline, L.P. to realize more significant efficiencies through the year? Christopher R. Chandler: Good morning, Jackie. We are on track to capture the efficiencies—$50 million by the end of 2026 and an additional $50 million in 2027. We have already made a number of changes, some unrelated to the NGL transaction and some in anticipation of the NGL transaction. We feel confident in the number. There is always upside—we are always looking for additional opportunities, and we will certainly pursue any that we find. We are not prepared at this time to change the $100 million target we have through 2027, but we are on track and things are going well. Jackie Kalidas: Thank you. And then one on capital allocation. With debt reduction as a near-term focus, particularly following the pending NGL sale, when can we expect a shift—or what would allow a shift—from debt paydown to a larger focus on potential buybacks or preferred paydowns? Al P. Swanson: Clearly, with the proceeds from NGL, we intend to take that and pay down a little over $3 billion of debt, which would be the term loan, the outstanding CP we have, and a $750 million note that matures later this year. Post that, we expect to be right at the midpoint of our leverage range—around 3.5x—and expect that to migrate down, which will then bring us back to where we have been for the last number of years prior to the EPIC acquisition, with leverage towards the low end of our range. Our capital allocation, first and foremost, is focused on maintaining distribution growth, funding investments—whether organic or M&A-related—as well as looking at taking out preferreds should leverage remain at or below the bottom end of the range, and opportunistic share repurchases. So, once we get through the NGL sale and deployment of the proceeds, we return to the framework we have been operating under for the last several years. Jackie Kalidas: Great. Thank you. Operator: I am showing no further questions at this time. I would like to turn the call back over to Willie Chiang, President, CEO and Chairman, for closing remarks. Wilfred C.W. Chiang: Michelle, thanks. We appreciate everyone’s support and attention, and we look forward to seeing you on the road. Stay safe. Thank you very much. Operator: Thank you for your participation. You may now disconnect. Everyone, have a great day.
Operator: Greetings, and welcome to the Strattec Security Corporation third quarter fiscal 2026 financial results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Deborah Pawlowski, investor relations for Strattec Security Corporation. Please go ahead. Deborah Pawlowski: Thank you, and good morning, everyone. We appreciate you joining us for Strattec Security Corporation’s third quarter fiscal 2026 financial results conference call. Joining me on the call today are Jennifer Slater, our President and Chief Executive Officer, and Matthew Pauli, our Senior Vice President and Chief Financial Officer. Jennifer and Matthew will review our financial results, the progress we are making on our transformation, and our outlook. You can find a copy of the news release and the slides that accompany our conversation today on the Investor Relations section of the company’s website. If you are reviewing those slides, please turn to Slide two for the Safe Harbor statement. As you are aware, we may make some forward-looking statements on this call during the formal discussion as well as during the Q&A. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated on today’s call. These risks and uncertainties and other factors are discussed in the earnings release as well as in other documents filed by the company with the Securities and Exchange Commission. You can find these documents on our website as well. I want to also point out that during today’s call we will discuss some non-GAAP measures. We believe these will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP to comparable GAAP measures in the tables accompanying the earnings release and slides. So with that, I will turn the call over to Jennifer, who will begin with Slide three. Thank you, and good morning, everyone. Jennifer Slater: We delivered another solid quarter and continued to make progress on our transformation despite a challenging automotive environment. Our previously completed restructuring actions delivered $1.9 million in savings this quarter. This is a peak level as we lap some of the benefits from the prior year restructuring actions. We generated $11.4 million of operating cash flow in the quarter and ended the third quarter with $107 million of cash on hand. That liquidity gives us flexibility to continue investing in the business, support customers, and navigate a dynamic industry backdrop. While sales were down from the prior year, the decline was in line with expectations, and we continued to improve profitability, generate strong cash flow, and maintain a very strong balance sheet. Despite lower revenue and ongoing foreign exchange headwinds, gross margin expanded to 16.5% supported by restructuring savings, recoveries tied to canceled customer programs, and continued operational focus. As highlighted on Slide four, our priority remains the execution of our transformation plan with discipline and consistency. We are working to build a more predictable, higher-performing company, and that means staying focused on daily operational execution while continuing to put the right processes, talent, and systems in place. During the quarter, we made additional changes within our Mexico operations that are expected to provide $800 thousand in incremental annualized savings beginning in the fourth quarter. More broadly, the actions we have taken over the last several quarters help to improve the way the business operates and better align our cost structure with the business we have today. Equally as important as our focus on improving our cost is a transformation for how we approach growth. As you know, the automotive industry is long-cycle and cyclical, with intense competition. And more recently, there have also been challenging external factors such as tariffs and supply chain challenges within our business and the broader industry. As a result, our strategic growth initiatives are centered on how we build a sustainable business that can deliver resilient and predictable growth even in a challenging industry. From a commercial standpoint, we are focused on capturing additional content with our current customers by deepening our relationships and being involved in advanced development on new platforms. In addition, we are starting to develop with a more diverse set of customers that have U.S. production sites and are looking to source globally. We are also focused on innovation and a product strategy that is anchored to engineering-led access systems, organized into three core product categories of permission, motion, and hold. The team is busy defining technical product road maps that are aligned with customer requirements and current and future technologies. We are very early in our execution on these growth initiatives. Importantly, we have the balance sheet and financial flexibility to support our efforts and the broader transformation of Strattec Security Corporation. With that, I will turn the call over to Matthew to walk through the financial details. Matthew Pauli: Thanks, Jennifer, and good morning, everyone. Please turn to Slide five. As Jennifer pointed out, sales in the quarter were down 4.5% as lower volume and EV program cancellations were only partially offset by pricing benefits and tariff recoveries. The annual impact of the customer cancellations on reduced EV platforms is about $9 million, of which about two-thirds we have already seen in our year-to-date fiscal 2026 results. Our largest declines by customer were with Ford and Hyundai Kia, which were both down a little over 10% year over year in the quarter. During the quarter, we did see higher sales to Tier 1 customers and Stellantis as they increased production. By product, door handles and keys and lock sets were steady while power access and latches were down year over year. Please turn to Slide six. Gross profit for the quarter was $22.7 million compared with $23.1 million in the prior-year period. While gross profit dollars were modestly down on lower sales, gross margin improved by 50 basis points year over year to 16.5% reflecting the value of our transformation actions. The quarter benefited from restructuring savings of approximately $1.7 million as well as recoveries related to canceled customer programs. Those benefits were partially offset by higher labor and benefit costs, incremental tariff costs, and a meaningful foreign exchange headwind. As we previously communicated, the annual cost of incremental tariffs has been approximately $5 million to $7 million, of which about half were IEPA tariffs. We have recovered the majority of the tariff costs on a delayed basis through price increases or pass-throughs to OEMs and will now pursue past AIIPA tariff recoveries from the government, which we will then have to pass back to our customers. On a year-to-date basis we continue to see the benefits of pricing actions, operational improvements, and restructuring savings come through in our margins, although foreign exchange remains an ongoing headwind. Overall, we believe these results show that we are improving the underlying earnings power of the business even in a softer production environment. Please turn to Slide seven. Selling, administrative and engineering expenses were $17.6 million in the quarter, or 12.8% of sales, compared with $16 million, or 11.1% of sales, in the prior-year period. The increase reflects continued business transformation activity, executive transition costs, higher salaries and benefits, and third-party engineering support. At the same time, these expenses also reflect investments we are making to strengthen the business. As Jennifer mentioned, we are continuing to upgrade talent, improve internal capabilities, and support the systems and processes needed to create a more effective and scalable operating model. We remain focused on cost discipline, and over time we still expect SAE to move closer to our targeted operating range. For now, the reported expense level reflects both the work required to transform the business and the near-term investments needed to support that effort. Please turn to Slide eight. Net income attributable to Strattec Security Corporation in the third quarter was $3.2 million, or $0.78 per diluted share, compared with $5.4 million, or $1.32 per diluted share, in the prior-year quarter. On an adjusted basis, net income was $3.7 million, or $0.90 per diluted share. The year-over-year decline in quarterly earnings was primarily driven by unfavorable changes in foreign exchange, which was a headwind in both cost of goods sold and other income and expense. Non-operating other income and expense in the prior year included a $235 thousand foreign currency gain while the current year included a $900 thousand currency loss, the majority of which is unrealized losses on peso forward contracts driven by the sudden and short-lived strengthening of the U.S. Dollar at the end of the quarter. The currency loss had a $0.16 negative impact on earnings per share. Based on the accounting mark-to-market requirements for the forward contracts, this could reverse at the end of the fourth quarter given where the peso is trading today. On a year-to-date basis, earnings per share was up 46% over the prior-year period reflecting the cumulative benefits of cost reduction actions, productivity improvements, and stronger underlying operating performance. Adjusted EBITDA was $10.1 million in the quarter compared to $12.5 million in the prior-year period. FX was the primary reason for the decline. On a year-to-date basis, adjusted EBITDA was $37.9 million, a 23% increase over the prior-year period. Turning to Slide nine. The business continues to demonstrate that it is a strong cash generator with cash from operations in the third quarter of $11.4 million. We ended the quarter with $107 million in cash and cash equivalents. We also continued to reduce debt associated with the joint venture credit facility and, subsequent to quarter end, that facility was replaced with a new revolving credit agreement that extended the maturity and eliminated the Strattec Security Corporation guarantee on borrowings. Our balance sheet remains a significant strength. It supports investments in organic growth, continued process modernization and automation, the flexibility needed to manage through cyclical industry conditions, and enables us to execute on our plans for growth. Please turn to Slide 10. As we look ahead, we continue to expect a moderate market environment including the impact of canceled EV programs and lower production on certain key platforms. At the same time, we believe the business is better positioned than it was a year ago with a stronger operating foundation and clearer priorities. We expect revenue in the fourth quarter will be down 3% to 4% year over year reflecting the same dynamics that we saw in the third quarter. As we have mentioned before, over the next few years we are targeting gross margin of 18% to 20%, which assumes the peso at its five-year average of 19.5. We are currently operating in the 16-plus range. Over the next several years we are targeting SAE of approximately 10% to 11% of revenue, excluding unusual items. Our focus remains on continuing to improve operational performance, maintaining cost discipline, supporting customers effectively, and generating cash. Over time, we remain focused on building a stronger and more consistently profitable business through a combination of cost improvements, modernization efforts, and more effective positioning for future customer awards. With that, I will turn it back to Jennifer to cover Slide 11. Jennifer Slater: Thanks, Matthew. We presented our vision last quarter, which reflects the broader transformation taking place at Strattec Security Corporation and the role we aim to play in safe and secure access solutions. Our vision is to be the most trusted global leader in safe and secure access solutions for the automotive and mobility industries by creating the ultimate access experience for consumers. As we discussed previously, we have been working to sharpen how we align internally around a common purpose and how we present these changes externally. This work supports our internal culture and organizational alignment so the team is engaged with the direction of the company and the role that they play in that future. It also reinforces the importance of innovation, collaboration, and accountability as we continue to transform the business. We believe the actions we are taking are building a stronger company with improved resilience, better earnings power, and a clearer path to long-term value creation. We have a strong balance sheet, an engaged leadership team, and a sharper strategic focus. We are confident in the progress we are making and the opportunities ahead. With that, we will now open the call for questions. Thank you. Operator: We will now conduct a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 to remove yourself from the queue. Participants using speaker equipment, it may be necessary to pick up your handset before pressing 1 to ask a question at this time. The first question comes from John Franzreb with Sidoti & Company. Please proceed. John Franzreb: Good morning, everyone, and thanks for taking the questions. Morning, I would like to start with the $600,000 in canceled programs. I am curious if those are programs that you walked away from or if those are programs that the customer canceled? Jennifer Slater: Yes. I will let Matthew talk a little bit more about the financials. But the canceled programs are really what you have seen in the headlines from our customers on a shift of EV programs back to ICE in North America. And so that is really just the impact of those decisions that the customer made. Matthew Pauli: Yes. And John, it is about a $1.3 million benefit in our results. About half of it is in cost of goods sold, the other half is within SAE. And it is really recovery of costs that we previously had expensed for the development on those programs. John Franzreb: Okay. I guess the reason I phrased the question the way I did was that I know that there is a review of unprofitable or less profitable programs. I am curious where you stand in that evaluation. Jennifer Slater: Yes. We did a portfolio review first, and that is why we made the decision not to continue to invest in our switch portfolio. And then we continue, obviously, to look for cost optimization versus pricing-up opportunities. So that is an ongoing effort for us, John. But nothing in this quarter related to that. John Franzreb: Got it. And since we are talking about particular product lines, I saw in the presentation that power access was down. Maybe can we talk to why that was the case? Jennifer Slater: Yes. That really was just timing of builds from our customers, between Hyundai, Kia, and Ford. So we do not see that impacting long term. That is really more just a timing-of-build impact. John Franzreb: Alright. Fair enough. I guess I will ask one more question and get back into the queue. What is needed to move the gross margin from the 16% threshold to the 18% target range? What are the levers you need to pull still? Jennifer Slater: Yes. I think we are pleased with the progress that we have made so far on gross margin. We have talked about the fact that we still feel early in the transformation and there is still a lot of work to do on cost optimization. So we will continue to have very granular focus on further cost opportunities that will help that gross margin. The other piece is, as you mentioned, the portfolio review on pricing. We talked about in the past that we had really taken the low-hanging fruit, but we are continuing to look at where there are further opportunities on pricing. And then longer term, volume is important. So, I think at this volume level, we are confident we can get to the 18% to 20%, but volume always matters longer term. Matthew Pauli: Yes. The only thing I would add, John, is if you look at our gross margin last fiscal year, it was 15%. If I look at it on a trailing twelve-month basis at the end of the third quarter here, it is just north of 16.5% on a trailing twelve-month basis. So we are seeing improvement in our gross margins from the actions that we have taken to right-size the cost structure and improve the margins. So we feel comfortable with the target, with the items we have line of sight to, to get to the 18% to 20%. Jennifer Slater: And I think it also is a proof point for our cash generation because we have continued to have stable cash generation from the improvements that we have put into the fundamentals of the business. John Franzreb: Alright. I lied then. What were the changes you actually made in Mexico that were beneficial? Matthew Pauli: Yes. We implemented additional restructuring action in Mexico. That is what is driving the additional savings that you will see starting here in the fourth quarter. It is about $800 thousand. Jennifer Slater: And I think, John, that is where we continue to have opportunity. What we balance is making sure that as we optimize the business, we do not impact delivery or quality for our customers. So it is a measured approach of getting our cost structure in the right way. Part of it is just looking at the way we do our business and improving processes. Part of it is the automation activities, the simple automation activities that we have talked about, and continuing to look at benchmark cost structures against where we are at. So this is where we think there is continued opportunity, but it is really in a balanced measure to make sure that we are not impacting our customers from a quality and a delivery standpoint while we right-size our cost structure. John Franzreb: Fair enough. Okay. Now I will get back into the queue. Thank you very much, everybody. Jennifer Slater: Thank you, John. Operator: At this time, there are no further questions. I would like to thank everyone for their participation in today’s conference. You may disconnect your lines at this time. Have a great day.
Operator: Hello, everyone, and welcome to Astrana Health's First Quarter 2026 Earnings Call. [Operator Instructions] Today's speakers will be Brandon Sim, President and Chief Executive Officer of Astrana Health; and Chan Basho, Chief Operating and Financial Officer. This press release announcing Astrana Health's results for the first quarter ended March 31, 2026, is available in the Investor Relations section of the company's website at www.astranahealth.com. The company will discuss certain non-GAAP measures during this call. Reconciliations to the most comparable GAAP measures are included in the press release. To provide some additional background on the results, the company has made a supplemental deck available on its website. A replay of this broadcast will be available at Astrana Health's website after the conclusion of this call. Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward-looking statements within the meanings of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terms such as anticipate, believe, expect, future, plan, outlook, and will, and conclude, among other things. Statements regarding the company's guidance, continued growth, acquisition strategy, ability to deliver sustainable long-term value, ability to respond to the changing environment, liquidity, operational focus, strategic growth plans, and acquisition integration efforts. Although the company believes that the expectations reflected in these forward-looking statements are reasonable as of today, those statements are subject to risks and uncertainties that could cause the actual results to differ materially from those projected. There could be no assurance that those expectations will prove to be correct. Information about the risk associations with the investing in Astrana Health is included in the filings with the Securities and Exchange Commission, which we encourage you to review before making any investment decisions. The company does not assume any obligation to update any forward-looking statements as a result of new information, future events, change in market conditions, or otherwise, except as required by law. Regarding the disclaimer language, if you would like to refer to Slide 2 of the conference call presentation for further information. With that, I will turn the call over to Astrana Health's President and Chief Executive Officer, Brandon Sim. Please go ahead, Brandon. Brandon Sim: Good afternoon, and thank you for joining us on Astrana Health's first quarter 2026 earnings call. Today, I'll begin with our first quarter results. Then discuss how we have built and positioned Astrana anchored in our AI-enabled platform and longitudinal payer-agnostic care model and why that model is increasingly advantaged. I'll then provide updates on our 4 strategic pillars and our progress against each. And finally, I'll provide some color on the Prospect integration, expansion market performance, and recent regulatory updates before turning the call over to Chan. Astrana delivered a strong start to 2026. We saw continued disciplined growth, well-controlled medical cost trend, meaningful operating leverage, and early performance from new full-risk contracts that continue to track in line with our underwriting expectations. More importantly, this quarter reinforces our broader thesis. As the health care environment becomes more complex, advantage will accrue to organizations that can integrate care delivery, data, and financial accountability into a single operating system. Astrana has built that operating system. And we believe that advantage is widening. In the first quarter, Astrana delivered revenue of $965.1 million, up 56% year-over-year and adjusted EBITDA of $66.3 million, up 82% year-over-year. Non-GAAP adjusted EPS was $0.74, up 76% year-over-year and free cash flow was just over $64 million in the quarter. Deleveraging also continued to progress ahead of schedule with net leverage declining to approximately 2.3x on a pro forma trailing 12-month basis and to 2.2x based on the midpoint of our full year guidance. As a reminder, when we announced the Prospect transaction, we communicated a path to deleveraging below 2.5 turns of net leverage within 24 months. We have now achieved that milestone in just 3 quarters. And we anticipate ending the year at or below 2 turns of net leverage. We are pleased with the consistency of our performance and execution against our priorities in the first quarter. And our results increasingly reflect the advantages of the platform we have built and the way we are embedding AI across our platform. Our view is straightforward. AI can improve individual tasks. But the greatest value accrues to the orchestration layer where data, workflows, clinical decisions, and financial accountability are integrated across the system. In health care, that means connecting how care is financed, coordinated, and delivered and, ultimately, improving outcomes for patients. We believe that requires deep architectural alignment. Unlike fragmented health care technology stacks assembled across multiple third-party vendors, our platform was designed internally as an integrated operating system because an embedded orchestration across workflows, care delivery, and financial operations requires that. As a delegated payer-agnostic platform, we sit at the center of the health care ecosystem with a continuous longitudinal view of each patient across plans, settings, and time. We are not tied to a single payer or a single line of business. We follow the patient throughout their health care journey. That creates 2 structural advantages. First, it creates long-term value. The continuity we build with our patients allows us to engage and manage care over extended periods of time, driving better clinical outcomes, more efficient resource allocation, and more predictable financial performance. Second, it creates a compounding data advantage. Our longitudinal view allows us to build a more complete and persistent understanding of each of our patients, which improves our ability to predict risk, intervene earlier, and coordinate care across settings. And on top of that foundation, we have built a proprietary data ontology and AI models that translate intelligence into action, embedding real-time insights, next best actions, and workflow orchestration directly into provider workflows and care management operations. Across our platform, our AI agents are increasingly embedded into operational and clinical workflows, helping manage authorizations, claims processing, care management, quality outreach, and next best actions in real time. Because these agents operate within our broader platform and data infrastructure, they act with longitudinal context across the patient journey rather than within isolated workflows. And these capabilities are embedded directly into the day-to-day workflows of our providers and care teams, driving measurable improvements at the point of care. Providers actively using our platform achieve a 24% higher gap closure rate and a 30% higher annual wellness visit completion rate. And those outcomes are increasingly powered by AI-enabled patient engagement at scale, including around 500,000 automated member interactions across voice and text each month, the equivalent of several hundred personnel worth of outreach capacity. We are seeing similar leverage operationally. For example, our AI claims agents have reduced provider payment cycle times to less than half that of manually processed claims. Taken together, these capabilities translate directly into improved clinical outcomes, more efficient operations, and ultimately, more predictable financial performance. Importantly, because we operate the system our AI is improving and because we maintain longitudinal relationships with patients across payers, the benefits compound over time within our platform. As more patients flow through our system, our models improve, our predictions sharpen, and our ability to allocate resources becomes more precise across the patient journey. That combination of longitudinal relationships, data continuity, and integrated workflows is what really enables us to translate AI into durable clinical and economic value. We continue to see those platform advantages translates into consistent clinical performance across the enterprise. In the quarter, medical cost trends slightly outperformed our full year trend assumption of approximately 5.2%, with strong performance across both our core and legacy Prospect populations as we continue integrating Prospect onto the Astrana operating system. Our original Medicare populations in both ACO REACH and MSSP also performed well, reinforcing the scalability of our platform and the ability of our technology and clinical infrastructure to drive consistent outcomes across lines of business. We are also seeing that leverage reflected in our operating structure. In the first quarter, G&A as a percentage of revenue was 6.4%, a 70 basis point improvement year-over-year. As we continue embedding agentic workflows and intelligence across the platform, we expect additional operating leverage over time and believe that we will exit the year at levels below where we are today. Turning to membership. We ended the quarter serving approximately 1.55 million members in value-based care arrangements. On Medicaid and Exchange, trends in the quarter remained generally in line with expectations with puts and takes across the portfolio, largely offsetting one another. Medicaid membership attrition tracks modestly below expectation, while acuity has remained favorable, reflecting less adverse selection than modeled due in part to our longitudinal patient relationships. On the exchange, attrition tracked somewhat ahead of expectations during the quarter. And overall, we continue to manage these dynamics with a disciplined and appropriately conservative approach. And our broader assumptions and outlook for 2026 remain unchanged. On prudent risk progression, we delivered on the commitment we made in late 2025 to convert key contracts to full risk arrangements. At quarter end, approximately 80% of care partners' revenue and around 40% of owned membership were in full risk arrangements. Importantly, new contracts that commenced this quarter are performing in line with our underwriting, reinforcing the discipline of our approach. Collectively, our results reflect continued execution across the 4 strategic pillars we have discussed consistently over the past several years: Disciplined growth, prudent risk progression, strong clinical and medical cost performance, and expanding operating leverage through our platform. Now, turning to Prospect. Integration remains on track and continues to validate the strategic rationale for the transaction. We have completed financial standardization, established full visibility into medical economics and aligned clinical workflows under the Astrana Care model. Gross provider retention remains above 99% for the quarter. And we continue to track towards the high end of our $12 million to $15 million annual synergy target. In our expansion markets, Southern Nevada, which reached run rate profitability in 2025 with a 20% year-over-year improvement in MLR, continues to perform well. In Texas, the launch of our full risk delegated model with a large payer partner on January 1 is progressing in line with expectations. And we expect our platform and operating model to drive a similar maturation curve over time in Texas as we've observed in our other markets. Finally, some quick comments on the regulatory environment. On the 2027 Medicare Advantage final rate notice, we believe there continue to be structural tailwinds for Astrana. Our model is not dependent on diagnosis sources that are being disallowed. And our historically conservative and counter-based approach to risk adjustment positions us well under the revised framework. More broadly, as regulatory changes continue to minimize risk adjustment as a source of alpha, we expect relative performance across the industry to be increasingly driven by underlying clinical execution and cost management. That is core to how we operate. To close, our first quarter results reinforce the structural advantages of the Astrana platform. We are growing with discipline, progressing risk responsibly, managing medical costs with consistency, and continuing to widen a durable technology and AI advantage that compounds with every patient we serve. With that, I'll turn the call over to Chan. Chan Basho: Thank you, Brandon, and good afternoon, everyone. Our first quarter financials reflect solid execution and a strong start to 2026, driven by the commencement of new full risk contracts, continued contribution from Prospect and disciplined platform-wide performance. Total revenue for the first quarter was $965.1 million, up 56% versus the prior year period, driven by the full quarter contribution from Prospect, commencement of full risk contracts and continued organic growth across our Care Partners segment. Adjusted EBITDA for the quarter was $66.3 million, up 82% versus the prior year period. Both revenue and adjusted EBITDA came in at the higher end of our guidance range, reflecting the durability of our model. Net income attributable to Astrana was $14.4 million and adjusted EPS was $0.74 per share. Medical cost performance in the quarter was in line with expectations. Our 2026 plan assumes a blended cost trend of approximately 5.2%. And Q1 actuals across both legacy Astrana and legacy Prospect were consistent or better than planned across all lines of business. G&A as a percentage of revenue was 6.4% compared to 7.1% in the prior year first quarter. This 70 basis point improvement reflects continued operating leverage as we scale revenue and continue to embed AI capabilities across the enterprise. Free cash flow for the quarter was $64.1 million due to strong operating performance and conversions to full risk. We continue to expect strong full year free cash flow generation as new full risk contracts ramp, working capital normalizes, and integration-related investments decline. We ended the quarter with $478.4 million of cash and $586.8 million of net debt. Net leverage on a pro forma basis was approximately 2.3x, down from 2.6x at year-end, reflecting strong free cash flow generation and continued EBITDA growth. We remain committed to meaningful deleveraging over the next 12 months through profitable growth, free cash flow generation, and disciplined debt reduction. We are reaffirming our full year 2026 outlook. We continue to expect total revenue in the range of $3.8 billion to $4.1 billion, adjusted EBITDA between $250 million and $280 million, and free cash flow between $105 million and $132.5 million. We're pleased with our first quarter performance and continued execution and remain disciplined in our approach to full year guidance. Our outlook continues to assume conservative Medicaid membership trends and 0 contribution from HQAF. We expect greater clarity on both items as the year progresses. And until then, we will continue to apply an appropriately conservative approach to full year guidance. As a reminder, the midpoint of our 2026 guidance reflects our operating plan. The low end assumes a stacked downside case rather than a shift in underlying execution. On the headwind side, we have embedded expected declines in Medicaid and exchange enrollment, adverse selection, losses associated with new cohorts and expansion markets, conservative medical cost assumptions, and 0 contribution from HQAF. On the tailwind side, we have modeled improved 2026 Medicare Advantage rates, continued realization of Prospect synergies, ongoing maturization of full risk cohorts, and operating efficiencies driven by automation and AI deployment. For the second quarter of 2026, we expect revenue between $965 million and $1 billion and adjusted EBITDA between $65 million and $70 million. Taken together, our first quarter results give us continued confidence in our ability to deliver against our 2026 framework. With that, operator, we're happy to take questions from the audience. Operator: [Operator Instructions] Our first question is from Jack Slevin with Jefferies. Jack Slevin: Candidly, crazy afternoon, so a little trouble processing information. Maybe just to hit on what I think are like the 3 biggest things for everyone here. I heard the commentary on the trend better or in line with what you're expecting across all books. If I just think about enrollment and trend in Medicare Advantage on the HIC side and in Medicaid, can you just give me the rundown on sort of where that stuff landing versus expectation and how to think about the progression there versus what you sort of already expressed at the last quarter call? [Technical Difficulty] Operator: Will the speakers please check and see if their line is muted. Brandon Sim: Sorry, can you guys hear me? Operator: Yes. Brandon Sim: I apologize. Sorry, I know that, that was -- that was a busy quarter, Jack. Thank you for joining anyway. Happy to give an update per line of business on enrollment and trend. For -- starting off with Medicare, enrollment came in, as we had described before, mid-single-digit growth in eligibility. I'll start first with enrollment and then go to trend. On Medicaid, as I mentioned in my prepared remarks, enrollment or disenrollment tracked slightly ahead of the midpoint of our range. And so we're looking at probably on the high end of our range for disenrollment for the year. And then finally, for exchange, things came in better than expected in terms of disenrollments as has been noted industry-wide. In terms of trend, we were able to come in at or above our full year range for trend, which is a blended 5.2% cost trend year-over-year. And so trend has performed very well across all lines of business. Notably, trend came in better in Medicaid as well relative to our expectations. So there was lower adverse selection so far throughout the year than we expected even with the slightly higher disenrollment than expected. So as I mentioned in the prepared remarks, Medicaid and exchange kind of puts and takes there ended up balancing out. And trend ended up performing better than expected really across all lines of business and for both core and legacy Prospect populations. Jack Slevin: Just one follow-up for me. The balance sheet, obviously now getting to a better position. I know you called it out and then sort of a lot of where you had been messaging and things progressing nicely and good free cash flow generation in the quarter. I guess maybe just thinking about, you had done some M&A, nothing obviously on the scale of Prospect beforehand. But as you sort of get that leverage ticking down and think about what you can do with excess free cash, would love to get your thoughts just on what you think the best use of cash is here. If there's ample tuck-in opportunities? If the buyback is something you should look at? Just curious to sort of hear what you're thinking about there. Brandon Sim: Yes, of course. Overall, our approach to capital allocation, I think, is going to remain disciplined and consistent with the priorities we've previously communicated. First and foremost, of course, our near-term focus is on deleveraging following the Prospect transaction. As I mentioned in the remarks, we're very pleased with the pace of progress so far. As I mentioned, net leverage already declining to approximately 2.3 turns on a pro forma TTM basis. And that's far ahead of the timeline we originally communicated when we announced the transaction. And so when we think about capital deployment, I think our highest priority continues to be investing organically into the platform, including our technology infrastructure, AI capabilities, clinical operations, and expansion markets. And we see strong returns and a meaningful runway ahead in those efforts. On M&A, though, it's really a question about capital allocation efficiency. I think we already -- we believe we already have the core capabilities required to operate a fully integrated AI-enabled health care operating system internally. So the question is less about acquiring technology capabilities and more about determining the most capital-efficient way to expand membership provider relationships and market density over time. So it's going to be a bit of a buy versus build question in terms of M&A. That being said, we continue to believe the platform is extremely well positioned to integrate and scale M&A acquisitions over time. Because we've built that proprietary operating platform, I think we've proven that we're able to operationalize acquired assets very efficiently and very consistently across the platform. And we've demonstrated that capability, as you noted, with Prospect, but also with things like collaborative health systems, CFC, and more in the past. So it's going to be an important opportunity to continue growing the platform. But we're going to remain disciplined and highly selective in the approach. And finally, on share repo, we did continue to do share repurchases in Q1 as we have in Q4 of last year. And we'll continue to evaluate that capital allocation strategy dynamically based on where we believe the risk-adjusted return for repo will be and where we think we can create kind of long-term shareholder value. So given the strong cash generation so far and that integration is on track and ahead of schedule, we're pleased with where we are. And we think we have a lot of flexibility over time as we continue growing the platform. Operator: Our next question is from Ryan Daniels with William Blair. Ryan Daniels: Congrats on the strong start to the year. Brandon, I thought you gave a great overview of the Astrana operating platform and the advantages it gives you both on care and operating efficiencies. So I'm curious how much more leverage do you have there to drive maybe G&A efficiencies? And what type of new programs are you launching? And then as a follow-up, I'd love to learn more about how you plan to commercialize that in the market as other vendors kind of struggle sometimes to manage care as effectively via your care enablement partner offering. Brandon Sim: Hello, Ryan, thanks for the question. I think there's a lot of -- I described some of the examples of how we're using technology so far. It's really deeply integrated into the system. And it helps that we have a fully delegated capitated model where we do act as a single payer. And we have the visibility across authorizations, claims, care management, and the entire ecosystem. So far, as I mentioned, we've really been using a lot of AI in terms of our risk stratification models, our next best action models, creating a suite of agents on both the payer-facing and provider-facing side. On the payer side, for example, on claims adjudication and prior authorization, on the provider and patient side in terms of engagement through voice and text as well as clinical documentation and gap closure. I think some opportunities remain in further expanding our agentic care management workflows, something we've developed over the last half year or so that we're -- that is already in use, but certainly can lead to further efficiencies on both the OpEx and, hopefully, over time on the cost of care line as well. We're also looking at, of course, continuing to finish off the integration of Prospect onto the Astrana operating system, which can drive further operating leverage as well as over the medium term, medical cost leverage, and continuing to expand our clinical decision support capabilities embedded directly into the provider workflow as part of the Astrana operating platform. So I think there are going to be continued opportunities. And like I mentioned in the prepared remarks, already reduced G&A as a percentage of revenue, 70 basis points year-over-year and expect to exit the year even lower than where we came in around -- sorry, lower than where we came in, 6.4% in Q1. On the second question in terms of commercializing this in the market, I think perhaps an underappreciated part of our story is that there is a segment that we report in which we do commercialize some of these tools to the market in our Care Enablement segment. That segment continues to grow rapidly, has a strong gross margin and EBITDA margin profile. And just in this quarter, we added a new client, which we had disclosed kind of on earnings -- on a previous earnings report to that client base in the Care Enablement business. So we continue to grow that business rapidly. And we think there is potential to not only improve groups and clients in that business, but also one day potentially, as we did with the Community Family Care acquisition, to look for deeper ways to partner and get them perhaps into our Care Partners business. Ryan Daniels: And then one quick follow-up. This is more housekeeping. But with the quality assurance fund, I know that's not included in your guidance. Has there been any update there or any thoughts on when we might get timing on that to see if there could be potential contribution to this fiscal year for you guys? Brandon Sim: Thanks, Ryan. Yes, I think that's unfortunately going to have to wait until later in the year. We don't have an exact date in mind, but probably in the third or fourth quarters. So again, out of conservatism, we've left that contribution out of the guidance for 2026. But we look forward to hearing more and updating the street when that happens. Operator: Our next question is from Jailendra Singh with Truist Securities. Jailendra Singh: Congrats on a strong quarter. Brandon, I know you have been cautiously optimistic around your 2027 EBITDA target of $350 million and you've said that there is still a path to get there. But in recent few months, there have been some positive developments around 2027 CMS MA rule. You just said that Medicaid and HICs have been trending better to at least in line to better than expectations and then you're also driving AI-driven efficiencies. Are you feeling better about that target now versus 3 months back? Or at least you're willing to say that current consensus, which is around $340 million, seems to be at least in a reasonable range. Just trying to understand like how your views about 2027 might have shifted in the last couple of months or 3 months. Brandon Sim: Hello, Jailendra, thank you for the question. When we originally provided that 2027 adjusted EBITDA framework, this was back in 2024. Of course, we're in a meaningfully different regulatory and industry environment than the one we're operating in today. But with that being said, I think the more important point, the more salient point is the continued strength and adaptability of the Astrana platform over all environments. Our model was designed to operate across cycles, as I've mentioned many times before. And we believe the consistency of our performance over really decades of performance. But certainly even in the last 5 or 6 years, certainly reflects that. As an example, from 2019 through guidance for 2026, we've grown revenue at approximately a 32% CAGR and adjusted EBITDA at a 25% CAGR while continuing to generate operating leverage and free cash flow along the way as we grow very, very rapidly. And against that context, looking forward into '27 and beyond, we think that the business has continued to be positioned to grow organically at a mid to high teens rate while continuing to deliver on free cash flow as well. We see meaningful opportunities, of course, to accelerate that growth past the mid to high teens growth rate through disciplined and selective M&A potentially over the long-term, particularly given the scalability of what we've built. But even without M&A, we still think that it's a mid to high teens organic grower. And so that being said, I think the key takeaway here is really the operating model and its durability across all regulatory and economic cycles. Our ability to continue compounding growth as we have, 25%, both organically and inorganically over the last 6, 7-year period and our continued expectation that off of the 2026 number, that mid to high teens CAGR on the EBITDA line is firmly within reach over the short to medium-term future. Jailendra Singh: And then my follow-up on the AI investments. You talked -- I think in the presentation, you said that your G&A has been benefiting from AI-enabled tools. And is the message that all of the 70 basis point year-over-year improvement was driven by these AI tools, which would imply like $7 million benefit in the quarter alone. I just want to confirm that. And then as we think about broadly your AI investment strategy. How are these investments split between focus on administrative aspect of the business where savings might directly fall to bottom line right now versus investing in clinical workflow, so that these will drive more savings down the road? Just help us understand how do you allocate your AI investment strategy and the dollars there? Brandon Sim: Yes, of course. I think it's a little hard to say exactly how much of the 70 bps is driven directly by AI. Certainly, AI is being infused across the board. So I would say a meaningful part of that without quantifying is driven by AI and its ability to help us scale the business without increasing G&A costs associated with that rapid revenue growth. In terms of the split between more administrative functions and maybe clinical or coordination and navigation-related functions that could potentially have an impact on medical costs in the short and medium-term future. I think it certainly started off on the payer side and on the G&A side. We built agents around claims, around authorizations, around eligibility. And I think over the last probably year or 2, we've been building a proprietary suite of more clinical-facing tools such as risk stratification, care management, workflow orchestration, and identification that I think will lead to MLR improvements over time. And you can see that a little bit as we -- maybe getting a little off topic here. But you can see that a little bit with how Prospect has performed as we continue to onboard them onto the Astrana operating system. Prospect, prior to the acquisition had medical cost trend running 6%, 6.5% or so. We modeled around 50 basis points of improvement in 2026 versus that number. And we're outperforming that by a bit here even in Q1, even though we've already improved by that 50 basis point margin. So I think you'll really start to see even more MLR improvement in the medium term. But I would say the improvement is largely skewed towards G&A at this point in time. Operator: Our next question is from Craig Jones with Bank of America. Craig Jones: So Brandon, I want to follow-up on your comments around your encounter-based risk adjustment model MA. So it sounds like CMS keeps mentioning like leveling the playing field in MA and really wants to rewrite the current MA risk adjustment model. So if you were in the room with them redoing the risk adjustment model, what would you recommend changing? And then how do you think the potential changes end up making potentially going to this encounter-based model would help Astrana? And then do you think you could see something along these lines as soon as the 2028 technical notices fall? Brandon Sim: Thanks for the question. Yes. I think the future of risk adjustment is really interesting. As you can see in the ACO lead preliminary model details. There is the phasing in of an AI inferred risk score, which would depend not necessarily on an organization's ability to document and submit codes, but rather trying to use AI to infer the true acuity of the member and reimbursing appropriately based on that kind of "gold standard" kind of determination of a member's risk. Again, I think, ultimately, because we've been conservative on risk adjustment, because we see members over a longitudinal period of time and we try to be very appropriate in terms of capturing the clinical complexity of the population. We think that either way, we're well structured, we're well positioned for that future. We think that because we haven't relied on documentation or coding optimization to generate savings and value for the health care system in the past, it may even be beneficial for us, for example, to have a true determination of what a patient's risk is via AI that the government or CMS is going to determine rather than everyone playing a game to try to improve their risk scores over time on a relative basis. So I think really, regardless of how all that shakes out, we think we're structurally well positioned for the long-term. That being said, if I had my way, I do think that the -- that risk adjustment as a source of alpha is not really, I think, in the benefit of the health care ecosystem in the long-term and for the Medicare Trust fund in the long-term. So I would recommend without knowing more that some of these approaches that are being suggested like AI inferred risk models seem very appropriate and seem like a much more efficient way to standardize what risk determination looks like across the American population. Operator: Our next question is from Michael Ha with Baird. Michael Ha: So when it comes to AI, clearly, everyone is talking about it this earnings season, all the large national payers, providers. But the thing is most of them have pretty legacy old infrastructure, fragmented data, as you said yourself. So when I think about Astrana versus, I guess, almost all of your peers. It's the fact that you built an AI-native tech platform many years ago. And the fact that you yourself are spearheading foreseeing AI adoption across basically every facet of your company. I think that's still widely underappreciated. So I was wondering if you could talk more about this specifically, the structural differences between you Astrana versus your peers when it comes to unlocking the power of AI? In other words, like what still has to happen -- what still has to be done by your peers to get there versus what can already start to happen at Astrana? Brandon Sim: Yes. Thanks so much for the comments, Michael. I think broadly, that's right. I think our thesis has always been building internally. And I think that thesis is being rewarded in an era where it is easier than ever and faster than ever to build internally because of the advent of generative AI and its use in coding. And I think as long as you have the integrated data infrastructure to support that, the ontology is on top of that, the definitions, the concepts and the relational -- and the relationships between those concepts so that the AI understands how to operate on each of these concepts and how they relate to each other and how they ultimately translate into actionable insights. I think that's hard to replicate, right? I think if you're operating a system where you've acquired a bunch of stuff. And you haven't integrated them into a unified data layer with a unified set of concepts and vocabulary on top of that, on top of which the AI and the agents can operate. You're going to find it very difficult to kind of build the fifth floor of the building without having the structural supports in the ground floor and the lobby built out. And I think that's a lot of what our peers are doing perhaps without getting too much into what our peers are doing. I think there's a rush to chase the kind of the sexiest parts of AI to build the top floor, the penthouse unit without having the foundational approach, without having the pick axis, the knowledge about how to dig the hole and the foundation into the ground to build that in an effective manner. And I think we've spent a lot of time, myself personally, given my engineering background to build out that foundation. And now we think that's going to unlock our business in terms of rapidly adopting AI across the enterprise and embedding it deeply into each and every workflow, both operationally, clinically and on the quality of care side. So we're really excited about where we can take this platform. We're already seeing the G&A improvements. We're starting to see some of the trend improvements as we continue to integrate new businesses onto the platform. And we're seeing great success as well in terms of our Care Enablement business, selling the tools, and the integrated workflow that we've built to other provider groups and helping them succeed also in an accountable care relationship. Michael Ha: So next question on the final MA rate notice. So I'm getting roughly like 4% net rate increase for Astrana if I exclude -- on the chart reviews. And when I think about Astrana's margin expansion, just how sensitive it is to the rate environment? I know your cost trends are running, I think, 4% to 5% roughly for MA. So at face value, right, that would imply rates are basically they match up. But if I start at 4%, add maybe 1% to 2% coding, maybe another 1% to 2% help from plans, benefit design pricing. Then we're getting into a different sort of ballpark of 6% to 9% rate versus trend of 4% to 5%, up to 400 basis points of margin expansion. So it feels quite considerable. And that's not even including right, your regular cohort maturation dynamics, any other trend vendors or G&A. So at a high level, am I missing any major components? Is this even the right way to start thinking about 2027? Brandon Sim: Yes. Mike, as always, your math is great. So I would broadly agree with your comments. I think the final rate notice was constructive overall. And the overall top line kind of effective growth rate of 5.33% does more appropriately reflect underlying medical cost trend. As you mentioned, the disallowed diagnosis -- or the diagnoses, sorry, are expected to be immaterial for Astrana, given our historically conservative and encounter-based approach to risk adjustment. So as you had noted correctly, the average change for us might be the 2.48% plus the 1.53% or approximately 4% in aggregate. And as we think about '27 more broadly in our models, at our current RAF levels, we probably expect to maintain MA margins consistent with 2026 with that 4% kind of average rate book increase. Beyond that, we continue to see tailwinds and opportunity for more accurately capturing the complexity of our populations and risk adjustments. And there's potential tailwinds above and beyond the 4% from those sources. Operator: Our next question is from David Larsen with BTIG. David Larsen: Congratulations on the great quarter. Can you talk a bit about your margins for like, I guess, full cap books of business that would include inpatient? And can you remind me what regions or how many members are full cap, including pharmacy, doc, inpatient? Brandon Sim: Thanks for the question, Dave. Thanks for tuning in. Our fully capitated arrangements start off in lower kind of EBITDA margin arrangements as we transition them from full risk because as we talked about before, you get the kind of increase in percentage of premium without yet necessarily flowing through the decrease in inpatient utilization as we take on additional portions of the risk dollar. Over time, the maturation of the full risk cohorts, as we've seen over the past years as we've moved members cohort at a time into full risk arrangements as we continue to do that as we did in Q1 of this year. You see that margin profile mature and ultimately get to hopefully a similar point as the kind of partial risk members as well. So I think that's what we expect as we continue to move members selectively and prudently into full risk arrangements. We underwrite kind of this margin maturation cycle. We've seen that happen now over several years. And each of those has matured as expected. And so we can kind of space out our membership moving into full risk as appropriate. I do want to mention that almost all of our full risk arrangements do not include Part D as in dog risk. So there are a handful that do and most of them do not. In terms of the geographies where we are full risk, it really varies. Most of our membership, 80% of the revenue approximately comes from California. So I would say still that California does have a large percentage, a majority of the full risk members. However, we have moved over 14,000 Medicare Advantage members into a full risk delegated construct arrangement with a payer partner, for example, in Texas in the first quarter of this year. So -- and we also have full risk delegated contracts in Nevada. And of course, the ACO REACH business is in some aspects, the full risk business also. So we're really in the business of properly underwriting and then appropriately and proactively reducing the cost of care for our populations and then making sure that our financial contractual arrangements are conducive to us capturing some of the value that we're generating for our patients and for our communities over time. David Larsen: And then for Prospect, I think you may have mentioned this earlier. Is it still $80 million of EBITDA? Is that on track? Brandon Sim: Yes, that's right, Dave. Prospect was on track for around $80 million of adjusted EBITDA on an annualized basis. And at this point in time, it is currently tracking a bit ahead of those expectations. David Larsen: And then just one quick one. It looks like your stock has been doing really well over the past couple of months. I guess what do you attribute that to just at a high level? What? Brandon Sim: Sure. I mean we're always happy to see that as it's our job to continue generating shareholder value, of course. I think I hope it's a continued recognition of our leadership and our consistency and stability of our model. The differentiation of our technology platform, the 35% revenue CAGR, the 25% adjusted EBITDA CAGR that I mentioned, which I think is fairly unheard of in health care services over a very long period of time, over 7 years. And ultimately, of course, definitely helps that there's been -- there have been regulatory tailwinds, including the adjustment, the more appropriate, in our view, 2027 Medicare Advantage final rate notice. So I think overall, a lot of positive kind of macro tailwinds lining up and hopefully, an increased recognition of the unique platform that we've built that has really generated free cash flow, profitability, and now rapid growth for over 3 decades. David Larsen: The best health care is when you don't actually have to see your doctor. And that's the model that you guys have created. So nice quarter. Operator: Our next question is from Ryan Langston with TD Cowen. Christian Borgmeyer: This is Christian Borgmeyer on for Ryan. So looking at the second quarter guidance and EBITDA margin, how should we think about puts and takes within the cost of service revenue and G&A lines? For example, any seasonal considerations within medical utilization, in particular that are different this year? Or on the G&A side, any sequential savings from AI or Prospect synergies embedded in that? Chan Basho: In terms of our 2026 guide, probably the best way to think about this is in the first half of the year, we're probably going to see a little over 50% of profitability coming in consistent with what's happened in historical years. As you think about puts and takes, the puts and takes, as we mentioned, it's around HQAF. It's around opportunities with MA and ACO as well as watching in terms of what's going to happen around the Medicaid membership trend. Brandon Sim: And then maybe to answer the other part of your question. We didn't see any abnormal utilization necessarily in Q1. I know there's been talk about weather and the flu season and whether that was heavier or lighter. I don't think things came in pretty operationally clean is how I characterized the quarter and tracked pretty consistently both on the inpatient and outpatient side with the broader medical cost trends that we reported across the business, even drilling down into each line of business as I started off the Q&A session with. So we felt pretty comfortable this quarter. And we're maintaining guidance primarily because we want to take a disciplined and conservative approach early in the year here. Christian Borgmeyer: I actually had a quick balance sheet question actually. I see the accounts receivable balance and the medical liabilities balance are each up like $90 million to $100 million sequentially. Anything to call out there related to any one item or program in particular? Or is that the full risk conversions contributing to that? Chan Basho: Yes, that's the full risk conversion that you're seeing in Q1. Operator: Our next question is from Gene Mannheimer with Freedom Capital Markets. Eugene Mannheimer: Congrats on a good start to 2026. So coming in or tracking at the high end of cost synergies with Prospect. Can you discuss potential revenue synergies there and when you may start to see that realized? And my follow-up would be on the MLR trends at or better than the 5.2% or so that you called out. Did you or can you break that out across the legacy Astrana and the Prospect book? Brandon Sim: Hello, Eugene, thanks for calling in. Sure thing. So on the revenue synergies, we haven't -- those are not included in the $12 million to $15 million synergy range. So we haven't quantified that yet. But we do expect over time that our partners and our providers and ultimately, our members will see the value of our denser network and our ability to drive access to care, high-quality care in a faster way because of the larger network that we now have. So over time, we do think that, that value will be realized by the platform, but we haven't yet quantified necessarily what that looks like. On the trend item, I would say that, as I mentioned before, Prospect came in 6% to 6.5%, 6.2%, 6.3% trend prior to the acquisition. And we are underwriting a 50 basis point improvement in that trend year-over-year. Our overall trend for the year is around 5.2% on a consolidated basis. And I would say that both core Astrana as well as legacy Prospect businesses performed better than expected here in Q1. Again, it's still early on in the year. We don't have perfect visibility, claims visibility yet, for example, on March. So we wanted to be conservative, but things are tracking well here to start the first quarter. Operator: Our next question is from Matthew Gillmor with KeyBanc Capital Markets. Matthew Gillmor: I wanted to follow-up on the full risk contract transition discussion. I think this quarter, you had 40% of members in full risk. I think last quarter, you set an expectation of 36 members in full risk as of the first quarter, so maybe a little bit ahead of schedule. I wanted to see if I had those numbers right and then just get an update in terms of how you're thinking about the pacing of members moving to full risk over the course of the year. Brandon Sim: Hello, thanks for the question. Yes, I think that's approximately right. Around 40% of our members are in full risk arrangements. And that translates into around 80% of our care partners revenue being -- coming from full risk arrangements. And of course, that's because the percentage of premium that we receive in the full risk arrangements per member is obviously higher than the partial risk arrangements. So I think you're continuing to see that the percentage of both membership and revenue continue to grow. In Q1, this took a step up because of the forwards contracts that we had started in the first quarter as we had guided to late last year. And all of those have now been completed. And so that's what's led to the spike here in Q1. On a go-forward basis, I think in our supplemental presentation deck. We did note that we do expect continued growth in the percentage of full risk members. And we'll be phasing that in over time kind of on a regular course basis. Matthew Gillmor: And as a follow-up, we've been particularly interested in your ability to bring this delegated model into new markets. And so the news out of Texas that you've updated us on has certainly been encouraging. I did want to take your temperature in terms of expanding a delegated model either into new markets or even just new states or even just new markets within states like Texas, which many of those places traditionally haven't had fully delegated models. Brandon Sim: Yes, it's a great point. And you're absolutely right. A lot of parts of the country have not necessarily operated in a -- don't even mention delegated model. They haven't even operated really in a value-based care setting in a broad way. And so we recognized the challenges of kind of gone 0 to 1 in a very short period of time. And I think that's why we've been really working on a gradated kind of approach to helping providers and payers along as we continue to take the Astrana delegated model outside of California, outside of Nevada, outside of Texas, and through the rest of the country. And what that looks like really is, first, entering into partial risk arrangements, ensuring that the data feeds that we need are on the ground and ready to go. Ensuring that our relationship with our downstream providers, primary care specialists and even hospitals are strong. Ensuring that our technology platform is integrated directly into the workflow of those providers. And ensuring that kind of our care management orchestration is in place and kind of allowing the economic contractual relationships to kind of follow behind the wake of the operational changes that we're making in terms of how health care is delivered in these new states and/or geographies. So it is a created kind of stepwise approach to getting folks into the validated model. We think that it ultimately will win out because, frankly, at the end of the day, it's just a more efficient model. It's a more valuable model to the health care system and a more efficient one for both payers and kind of the overall system. So we think that logic will take the day here and the economics of it will take the day. But we do recognize that change management takes time. And we're prepared to and have engaged in Florida, I mean, sorry, in Texas and Nevada, for example, on that path forward step by step. Operator: Our final question is from Andrew Mok with Barclays. Thomas Walsh: This is Thomas Walsh on for Andrew. You shared that acuity in the Medicaid population remains favorable in part due to your longitudinal patient relationships. Can you help us understand how those patient relationships mitigated the acuity impact in practice? And are there any other factors on the mix of members disenrolling or otherwise that mitigated the adverse selection? Brandon Sim: Yes, definitely. I think what I was alluding to, to put it more clearly is that the patients that tend to be Astrana members, which -- and the patient attribution mechanism is the choice. The selection of a primary care provider who is an Astrana primary care provider. The members that tend to be attributed to us, tend to not be the members who have low to no utilization because they are almost making an active choice to be an Astrana member and to be engaged in our care model and to be engaged in the longitudinal nature of the care model that we have with our patients as we follow them, for example, across line of business. I mentioned before, the example during COVID, members who lost their jobs and had to switch from a commercial line of business to commercial insurer to potentially something on the exchanges or something on Medicaid, for example, could continue to be in the Astrana ecosystem, continue to have the same care management, continue to see their same PCP and same specialist network. Those are the benefits, I think, of being in the Astrana network. And that tends to insulate us or we think partly insulate us from the level of adverse selection we expected from the disenrollment of members and kind of potentially their lower MLR. That didn't end up playing out the way that -- or to the degree that we thought it would. And that's what's led to some of the improved acuity in the Medicaid population. Thomas Walsh: And following up on ACA attrition tracking better than expectations, similar to trends across the industry. Could you share the actual disenrollment you experienced there? And at what point in the year would you expect to have enough visibility to make an informed revision to the full year membership expectation? Brandon Sim: Yes. I think at the beginning of the year, embedded in our guidance, we thought it would be a 30% to 40% disenrollment number in exchange throughout the year. And I think we had quantified that at a kind of mid-single-digit EBITDA impact headwind, of course. What we're seeing so far this year is not quite the 30% to 40%, really closer to high single-digit attrition in the ACA population. It still is early. We're still in May here. And there could be further disenrollments after the 90-day grace period. But across the industry, as we think about projections for actuarial firms and what others have been saying as well as our own experience. We're now projecting a decline of, call it, 20% to 30% instead of 30% to 40% internally at least. Again, we haven't reflected that in the guidance yet of conservatism, but that's kind of the quantum of the numbers we're talking about. Operator: There are no further questions at this time. I would like to turn the conference back over to management for closing remarks. Brandon Sim: Thank you, everyone, for joining our call today. We appreciate your time. And we hope to see you in the near future at one of our -- one of several conferences we'll be attending or we can catch up at any time if you e-mail investors@astranahealth.com. Again, thank you so much for joining and have a great evening. Operator: Thank you. This will conclude today's conference. You may disconnect at this time. And thank you for your participation.
Operator: Hello, everyone, and welcome to the Johnson Outdoors Inc. second quarter 2026 Earnings Conference Call. Today’s call will be led by Helen P. Johnson-Leipold, Johnson Outdoors Inc.’s Chairman and Chief Executive Officer. Also on the call is David W. Johnson, Chief Financial Officer. Prior to the question-and-answer session, all participants will be placed in a listen-only mode. After the prepared remarks, the question-and-answer session will begin. If you would like to ask a question during that time, please press star then the number 11 on your telephone keypad. This call is being recorded. Your participation implies consent to our recording this call. If you do not agree to these terms, simply drop off the line. I would now like to turn the call over to Allison Gitzaro from Johnson Outdoors Inc. Please go ahead, Ms. Gitzaro. Allison Gitzaro: Good morning, and thank you for joining for a discussion of Johnson Outdoors Inc.’s results for the 2026 fiscal second quarter. If you need a copy of today’s news release, it is available on our website at johnsonoutdoors.com under investor relations. I also need to remind you that this conference call may contain forward-looking statements. These statements are made on the basis of our current views and assumptions and are not guarantees of future performance. Actual events may differ materially from those statements due to a number of factors, many beyond Johnson Outdoors Inc.’s control. These risks and uncertainties include those listed in our press release and filings with the Securities and Exchange Commission. If you have any additional questions following the call, please contact David W. Johnson or Patricia G. Penman. It is now my pleasure to turn the call over to Helen P. Johnson-Leipold. Helen P. Johnson-Leipold: Thanks, Allison. Good morning, everyone. I will begin by sharing perspective on our second quarter and year-to-date results as well as give an update on each business. David will review the financial highlights, and then we will take your questions. Improved retail conditions and ongoing success of our product innovation helped drive 15.5% revenue growth in the second quarter, with all business segments contributing to the improvement. Operating income for the second quarter was much improved versus the prior-year second quarter due to increased sales volume, and our cost-savings initiatives continued to boost profitability as well. Year to date, our net sales are 21.5% higher than last year’s fiscal six-month period, with operating income and gross margin also up for the fiscal year-to-date period. We are pleased with our second quarter and year-to-date results and are particularly proud of our market-leading brands, which continue to resonate with consumers and reinforce our leadership position across our portfolio. Our Fishing business delivered strong results in the second quarter, driven by improved trade conditions, continued robust demand for Humminbird’s Explorer Series and MEGA Live 2 fish finders, and Minn Kota’s full lineup of trolling motors, as well as pricing action. These factors combined to reinforce our momentum and position in the marketplace. We remain focused on investing in innovation to deliver fishing technology that sets the standard for anglers worldwide. In Camping and Watercraft, growth during the quarter was supported by our expanding digital and e-commerce capabilities, with Old Town and Jetboil maintaining their leadership position in competitive categories. During the quarter, Jetboil also launched TrailCook, a new innovation designed to expand the brand beyond boiling water into broader backcountry cooking. In both brands, we will continue to build on our strengths to drive sustained growth through innovation and deep engagement with outdoor enthusiasts. Lastly, in our Diving business, improved conditions across the global markets and continued growth in e-commerce helped drive a solid increase in second quarter sales. Digital engagement continues to play an increasingly important role, enhancing connectivity between our SCUBAPRO brand, retail partners, and consumers. As we continue to lean into digital channels and strengthen our global footprint, we are optimistic about SCUBAPRO’s ability to grow and further reinforce its position in the market. Overall, we are pleased with the quarter and year-to-date results. By investing in and executing our strategic priorities—consumer-driven innovation, digital and e-commerce excellence, and operational efficiencies—we are strengthening our market position and taking the right steps to navigate macroeconomic uncertainty while building long term. Now I will turn the call over to David for more detail on the financials. David W. Johnson: Thank you, Helen. Good morning, everyone. Our strategic cost-savings program remains critical and continues to deliver meaningful benefits to our bottom line. Gross margin for the second quarter improved to 38.8%, up 3.8 points from the prior-year quarter. Overhead absorption from higher volumes and cost savings were the main drivers of the improvement in gross margin. Year to date, gross margin is 37.9%, up 4.9 points from the prior year-to-date period. Operating expense increased 11.2 million from the prior-year second quarter, due primarily to increased sales-volume-related costs as well as increased variable compensation costs. Profit before income taxes for the second quarter was 10.2 million compared to 4.2 million in the previous-year quarter, driven mostly by the improvement in operating income. As we prepare for the upcoming selling season, we modestly increased inventory levels. Our inventory balance at the end of the second quarter was 186.9 million, up about 6.8 million from the previous year’s second quarter. Our balance sheet remains debt-free, and we continue to pay a meaningful dividend to shareholders, with the Board approving our most recent dividend announced in February. Looking ahead, despite ongoing economic uncertainties, we remain firmly focused on financial discipline and actively managing the business to balance near-term pressures while continuing to invest in priorities that support sustainable growth. Now I will turn the call over to the operator for the Q&A session. Operator: Thank you, ladies and gentlemen. If your question has been answered and you wish to remove yourself from the queue, please press 11 again. One moment for our first question. Our first question comes from Anthony Chester Lebiedzinski with Sidoti. Your line is open. Anthony Chester Lebiedzinski: Thank you, and good morning, everyone. Certainly nice to see the really strong revenue growth, especially in Fishing. So as it relates to Fishing, how much was revenue helped by pricing versus better market conditions and a stronger competitive position? David W. Johnson: We saw strong unit volume growth in our business, and that was a big driver for the quarter. Pricing certainly helped, and we are also seeing really strong demand for our broad line of trolling motors. That is very helpful. Anthony Chester Lebiedzinski: Gotcha. Thanks, David. So do you think this is perhaps a sort of replacement cycle from the bump from COVID, or is there something else going on? Helen P. Johnson-Leipold: The market is very hard to predict, but we have innovation that continues to drive purchases. Consumers are a little cautious with all the things going on, but innovation is the catalyst to get things moving. We are hoping this is the beginning of an upward trend, but it is going to be challenging, and innovation will be the key going forward. Anthony Chester Lebiedzinski: Gotcha. Okay. Thanks for that. So as far as the other two segments, you highlighted the increased sales through e-commerce. Can you expand on that a little bit and, if possible, give us some numbers as it relates to the growth you saw in the quarter? And how are you thinking about the rest of fiscal 2026 as it relates to Diving and Watercraft and Camping? Helen P. Johnson-Leipold: E-commerce is one of our growth initiatives, and we have put a hard core press on that. It reaches a much broader consumer base, and we are really excited about it. Our bricks-and-mortar partners remain important, and both channels complement each other. We have been up and running in a true digital mode for only about a year, so it is early, and we have a lot to learn, but it is a good opportunity to reach a broader audience. I think it will continue to grow. It is a smaller piece of the pie than our other sales, but from a growth standpoint it is helping us. We do not do a lot of forward-looking commentary, but as we look at the third quarter, the signs in the second were good and better than they have been in the past. The world is complicated, and consumers have a lot going on, but it comes back to the product line, the brand, and our positioning in the market. We feel really good about where we are as a brand and as a company, and we are hoping the markets cooperate as well. It is good to have a quarter that feels very strong. Anthony Chester Lebiedzinski: That is very helpful context. As far as the world out there, as you talk to your retail customers, since the Iran conflict started in late February, gas prices have gone up quite a bit. From the point-of-sale data you can access, have you seen any notable impact for your brands? David W. Johnson: I would say not yet, Anthony. We have not seen a direct impact, but like a lot of companies, we are looking at inflationary pressure and higher input costs. Helen P. Johnson-Leipold: And we are mindful of worried consumers whose confidence levels are down. David W. Johnson: So far it is okay; we have not seen a direct impact, but we are looking at things in a neutral fashion over the next couple of quarters. Anthony Chester Lebiedzinski: Understood. As far as gross margin, you had a strong improvement versus last year. You talked about fixed-cost absorption and cost savings. Was that kind of a 50/50 split? And second, regarding cost pressures, how should we think about gross margins for the rest of the fiscal year? David W. Johnson: Most of the improvement was operating—so fixed-cost absorption. Our cost-savings program is also critical and helped as well. We are seeing cost pressure going forward. Like many companies, electronic industry component costs are dynamic for us, and that is something we have our eye on and are monitoring. That could be a bit of a headwind over the coming quarters, so it is a good thing we have our cost-savings efforts in place to help offset that. Anthony Chester Lebiedzinski: Got it. In terms of operating expenses, they came in higher than we expected. Roughly, how much of the year-over-year increase came from sales-volume-related costs versus incentive compensation? And how should we think about operating expenses for the rest of the fiscal year? David W. Johnson: A decent portion was volume related—probably about a third—and then we had some variable compensation accrual adjustments that made up about a third. There are some other items in there that we did not call out, like certain health care costs and consulting expense. But the two big ones were the volume-related items and the variable compensation. Anthony Chester Lebiedzinski: And do you expect that to continue near term? Any general comments there? David W. Johnson: The expense structure will probably settle down a little bit. Volume drives some of that, but in terms of our spending and our ability to manage, I think it will settle down over the next couple of quarters. Helen P. Johnson-Leipold: We are investing and putting foundational systems in place, and we are investing against our key priorities. It is good spend, and it may not be long term. As David said, it will settle down, and we are investing in the right things to set us up for long-term success. We will get more efficient on the other side of this. David W. Johnson: Agreed. We expect to be more efficient as these investments mature. Anthony Chester Lebiedzinski: Lastly from me, the tax rate came in lower than we expected. David, can you address that and how we should think about the tax rate for the balance of the fiscal year? David W. Johnson: Because we have the valuation allowance on the U.S. income right now, the tax rate will be up and down depending on the mix of profits we see in the quarter and what we are forecasting for the full year. A practical way to think about it is probably 4 to 5 million of tax expense for the year. How that is spread over the quarters depends on the mix of profit, so it is hard to give you a rate quarter by quarter. Anthony Chester Lebiedzinski: Understood. That is definitely helpful. Thank you very much, and best of luck. David W. Johnson: Thanks, Anthony. Operator: I am not showing any further questions at this time. I would like to turn the call back over to Helen P. Johnson-Leipold. Helen P. Johnson-Leipold: Thank you, everyone, for joining us today. If you have additional questions, please contact David W. Johnson or Patricia G. Penman. Have a good day. Thank you. Operator: Thank you, ladies and gentlemen. This concludes today’s presentation. You may now disconnect, and have a wonderful day.
Operator: Good day, and welcome to the Reinsurance Group of America, Incorporated First Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to J. Jeffrey Hopson, Head of Investor Relations. Please go ahead. J. Jeffrey Hopson: Thank you. Welcome to Reinsurance Group of America, Incorporated’s first quarter 2026 conference call. I am joined on the call this morning by Tony Cheng, Reinsurance Group of America, Incorporated’s President and CEO; Axel Philippe Andre, Chief Financial Officer; Jonathan William Porter, Chief Risk Officer; and Jason Bronchetti, Chief Investment Officer. A quick reminder before we get started regarding forward-looking information and non-GAAP financial measures: some of our comments or answers may contain forward-looking statements. Actual results could differ materially from expected results. Please refer to the earnings release we issued yesterday for a list of important factors that could cause actual results to differ from expected results. Additionally, during the course of the call, the information we provide may include terms that are discussed on our website along with reconciliations to GAAP measures. Throughout the call, we will be referencing slides from the earnings presentation, which is posted on our website. I will now turn the call over to Tony Cheng for his comments. Tony Cheng: Good morning, everyone, and thank you for joining us for today’s call. We appreciate your continued interest in Reinsurance Group of America, Incorporated. As you have seen from our first quarter results, we delivered a strong start to the year with excellent performance across many regions and businesses. The quarter reflects disciplined execution, strong underlying fundamentals, and the benefits of the diversified global platform we have built over time. Building on our strong 2025 performance, we believe our results this quarter further demonstrate that we are successfully executing on our strategy. Our focus remains on well-balanced earnings growth, capital allocation, and delivering attractive returns over the long term. Looking at the financial results, the strength in the quarter was broad-based across our regions and products. I will highlight a few specifics in the quarter. Asia Pacific had another strong quarter, driven by ongoing growth and strong execution. We closed a number of notable transactions in the region, particularly in Japan, spanning both in-force and flow deals that include both asset and biometric risk. EMEA’s earnings continue to reflect good new business, with results exceeding expectations. Performance was supported by favorable overall experience and continued momentum in longevity. We closed additional longevity transactions during the quarter by leveraging deep, long-standing client relationships, and we remain optimistic given our leadership position and differentiated competitive strengths. In the U.S., adjusted operating performance was strong, supported by favorable claims experience and the contribution from recent new business. Activity in U.S. individual life remains robust, demonstrating sustained momentum in large part driven by our strategic underwriting initiative. I am pleased with our U.S. group results, which are in line with our 2026 expectations. Moving to claims experience in the quarter, our economic claims experience was favorable across all regions. While one quarter of claims experience should not be overly emphasized, when considered as part of the cumulative experience since 2023, the favorable experience demonstrates the strength of our pricing, underwriting, and risk selection. Additionally, we continue to see profit emergence from business written and capital deployed over recent years. This profit emergence is tracking in line with expectations as asset portfolios are repositioned prudently over time and claims continue to be in line with expectations. This quarter was another demonstration of the strategic optionality in our global platform. Most of the deployment into in-force transactions was in Asia, where we saw the most attractive opportunities from a risk-reward perspective, primarily driven by our range of innovative solutions. Additionally, we continue to have very good momentum with our flow business in the U.S., where our value-added underwriting solutions and outsourcing efforts set us apart from competitors. Equally important to our flexibility is that we are comfortable not proceeding with transactions that do not meet our risk-return trade-off. That discipline continues to be a key feature of both our strategy and our culture. Now I want to take a brief step back from the details of the quarter and reinforce how we think about Reinsurance Group of America, Incorporated’s positioning and strategy. At its core, our approach is straightforward. We focus on life and health risk. We operate globally, and we deploy capital selectively where we believe we have competitive advantages and can earn attractive risk-adjusted returns. Specifically, Reinsurance Group of America, Incorporated has several unique strengths, including strong biometric expertise, asset management capabilities, a global platform, a market-leading brand, and flexibility to partner across the industry. What is critical is that these strengths do not operate in isolation. They reinforce one another, creating a competitive advantage that is difficult to replicate. When we combine this competitive advantage with a proactive business approach, we create win-win transactions, generating higher returns for Reinsurance Group of America, Incorporated and greater value for our clients. Let me share a few examples from this quarter. In North America, we extended a long-standing U.S. client relationship into Canada, where the client was seeking a reinsurer to partner on evolving product offerings. Our global platform enabled an exclusive relationship while our biometric expertise and collaborative partnership model differentiated us and drove a successful outcome. In Asia, we closed multiple coinsurance transactions by leveraging our ability to reinsure both sides of the balance sheet, combining asset management and biometric expertise. These wins across both flow and in-force transactions reflect the strength of our local presence and our position as a trusted counterparty. Lastly, in EMEA, we completed an exclusive transaction with an insurance company that leveraged our biometric expertise to unlock value from its in-force portfolio. The structure generates incremental capital to support the partner’s growth, and we expect to replicate this model in EMEA and other parts of the world going forward. On the capital front, we again repurchased shares, allocating $50 million this quarter. A balanced use of excess capital is an important part of our strategy to generate long-term shareholder value. Looking ahead, our confidence in the outlook for 2026 and beyond remains high. The fundamentals of our business are strong. Our pipeline is healthy. Our competitive advantages are durable. And our strategy is consistent with what has driven value creation at Reinsurance Group of America, Incorporated for the past five decades. We are confident that our disciplined execution of our strategy will enable us to deliver on our intermediate-term financial targets and long-term value for shareholders. With that, I will turn the call over to Axel Philippe Andre to walk through the financials in more detail. Axel Philippe Andre: Thanks, Tony. Reinsurance Group of America, Incorporated reported pretax adjusted operating income of $611 million for the quarter, or $6.97 per share after tax. For the trailing twelve months, adjusted operating return on equity, excluding notable items, was 16.2%. We delivered another strong quarter, reflecting disciplined execution across our businesses. Results were driven by continued earnings emergence from business written in recent years, favorable underlying experience, and solid investment performance. As Tony mentioned, we continue to leverage our strategic advantages, reinforcing our confidence in delivering on our targets in 2026 and beyond. We deployed $338 million into in-force transactions in the quarter. We remain selective in our capital deployment and are pleased with the quality and expected returns of new business generated. On the traditional side, our premium growth was 5% compared to prior year, which benefited from good growth across EMEA and APAC. In the U.S., traditional premium growth was up approximately 1% over prior year, as the strategic recapture of certain treaties as a result of management actions in 2025 impacted results. Overall, we continue to see very strong momentum in our strategic underwriting initiatives, including record volumes in the quarter and pipeline opportunities for block transactions, which reinforce Reinsurance Group of America, Incorporated’s biometric expertise advantage. It is worth reminding everyone that the premium generated from the Equitable transaction last year is included in our Financial Solutions results and not reflected in the traditional premium growth metrics. We completed $50 million of share repurchases in the quarter, bringing total repurchases to $175 million since we reinstated buybacks in the third quarter of last year. Our capital position remains strong, and we ended the quarter with estimated excess capital of $2.4 billion and estimated next twelve months deployable capital of $2.9 billion. The effective tax rate for the quarter was 24.4% on adjusted operating income before taxes, above the expected range due to the jurisdictional mix of earnings and an increase in the valuation allowance on tax credits. Turning to biometric claims experience, economic claims experience was favorable by $117 million in the quarter, with a corresponding favorable current-period financial impact of $4 million. Over half of the economic experience was driven by U.S. individual life, and every region had favorable experience. Most of this experience was deferred to future periods due to uncapped cohorts, and the portion included in the current-period income was partially offset by unfavorable experience in EMEA traditional capped cohorts. Claims experience in U.S. group was in line with updated expectations, and we continue to believe that our remedial actions taken last year will generate solid results in 2026. Taking a step back, since the beginning of 2023, economic claims experience for the total company has been favorable by $343 million. As a reminder, the favorable economic experience that has not yet been recognized through the accounting results will be recognized over the remaining life of the business. On slide seven, we highlight certain key considerations for the quarter, including actual-to-expected biometric claims experience, variable investment income, and other key items. After considering these impacts, we view run-rate EPS for the first quarter at approximately $6.70 per share. As a reminder, for 2026, we are assuming a 7% variable investment income return. This is below our longer-term expectations of 10% to 12%, primarily due to a still muted environment for real estate sales, which is when income from these investments is recognized. As indicated in this table, there were no material in-force management actions in the quarter. We remain active in managing our in-force blocks, but the timing and size of these actions is difficult to predict. Moving to the quarterly segment results, the U.S. and Latin America Traditional results reflected favorable claims experience in individual life and good individual health results. As mentioned, experience in U.S. group was in line with expectations. The U.S. Financial Solutions results were in line with our expectations. Canada Traditional results reflected favorable individual life and group claims experience, while the Canada Financial Solutions results were in line with expectations. In the Europe, Middle East, and Africa region, the Traditional results reflected the timing benefit on an annual premium treaty, partially offset by unfavorable claims experience in capped cohorts. Economic claims experience was favorable. EMEA Financial Solutions results reflected the contribution from recent new business and favorable overall experience. Turning to our Asia Pacific region, Traditional had another good quarter, reflecting favorable overall experience and the benefits of ongoing growth. Financial Solutions results reflected the timing impact of new business portfolio repositioning and unfavorable foreign currency impacts. Finally, the Corporate and Other segment reported an adjusted operating loss before tax of $65 million, primarily due to the timing of certain compensation expenses and slightly unfavorable variable investment income. Moving to investments, the non-spread book yield, excluding variable investment income, was 4.85% in the first quarter. While the new money rate was lower at 5.64% in the quarter, primarily driven by tactical allocation towards high-quality public corporates, it remains above our portfolio yield, thus providing a continued tailwind to our overall book yield. Total company variable investment income was modestly below our 7% yearly return expectations, by around $8 million. Overall, our portfolio quality remains high, and credit impairments are favorable relative to our long-term expectations. Before moving on, I want to spend a couple of minutes discussing our private credit strategy. We included updated information on our portfolio in the earnings presentation. Our allocation to private credit has been a measured and important part of our long-term investment strategy for many years, and we manage this exposure through a rigorous asset-liability management framework. We invest selectively in a diverse range of private credit assets when they are a good match for our stable liability profile and deliver attractive risk-adjusted returns through incremental illiquidity premiums with greater downside protection. Private credit represents approximately 9% of our total portfolio and is highly diversified across many issuers and multiple asset categories, including investment-grade private placements, private asset-backed securities, fund finance, infrastructure debt, and middle market loans. The majority of our private assets are rated investment grade. In addition, the vast majority of our below-investment-grade private assets are comprised of first-lien senior secured loans underwritten by our experienced internal team, which provides better visibility into underwriting, tighter covenants, stronger downside protection, and more control over credit selection. Overall, fundamentals across the portfolio remain healthy. Credit performance has been in line with expectations, and we manage this portfolio with the risk discipline you expect from Reinsurance Group of America, Incorporated. Turning now to capital, our excess capital ended the quarter at an estimated $2.4 billion, and our next twelve months deployable capital was an estimated $2.9 billion. It is important to note that we manage capital across multiple frameworks, including internal economic capital, regulatory capital, and rating agency capital frameworks. We maintain ample regulatory capital across jurisdictions we operate in while supporting strong ratings that underpin our counterparty strength. Across these frameworks, we remain very well capitalized. Additionally, we will continue to balance capital deployed into the business with returning capital to shareholders through quarterly dividends and share repurchases. We intend to remain opportunistic with share repurchases and expect total shareholder return of capital to range between 20% to 30% of after-tax operating earnings over the long term. We also expect to allocate $400 million of excess capital to reduce financial leverage during 2026. During the quarter, we continued our long track record of increasing book value per share. As shown on slide 16, our book value per share excluding AOCI and the impact from B36 embedded derivatives increased to $167.92, representing a compounded annual growth rate of 9.9% since the beginning of 2021. To summarize, this was another strong quarter for us, and we are confident in our ability to achieve our intermediate-term financial targets. The underlying fundamentals across our business are solid, new business momentum is healthy, and investment performance continues to support earnings growth. Capital deployment remains disciplined, focused on transactions that meet our return thresholds and fit our risk framework, while continuing to return capital to shareholders. Our priorities are unchanged: deliver attractive, sustainable returns while appropriately managing risk and deploying capital where we see the best long-term value. This concludes our prepared remarks. We will now open the call for questions. Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Please limit yourself to only one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question comes from Suneet Kamath with Jefferies. Please go ahead. Suneet Kamath: Great. Just wanted to start on capital deployment. In the past, we have spoken about needing $1 billion of deployment to hit the 8% to 10% EPS growth. Considering the debt maturity that is coming, your excess is $2 billion, your deployable is $2.5 billion. Do you think you have enough opportunities to meet or exceed that $1.5 billion, or is that still the base case for this year? Axel Philippe Andre: Thanks, Suneet. When we look at capital deployment for the quarter, we are tracking right in line with our expectations. As always, we will continue prioritizing quality over quantity, just as we did this quarter. We are pleased with the types of transactions and the return expectations that we are generating. We have strategic optionality embedded in our platform, and we will continue to allocate capital towards the most compelling opportunities across the globe, as well as returning capital to shareholders. We believe that we can achieve our financial targets through this combination of capital deployment and return of capital to shareholders. Suneet Kamath: Okay. And then on the Equitable transaction, now that Equitable and Corebridge are planning to merge, does that impact your flow reinsurance agreement that you have with Equitable, and are there any other concentration issues that we should think about as those two companies come together? Axel Philippe Andre: Thank you for the question. We do not want to comment too much on any one client. Obviously, we have a strong partnership with Equitable and expect this to continue. We remain very pleased with the transaction executed last year and do not expect any impacts as a result of this news, either on the in-force or the flow transaction. Tony Cheng: To bring it up a level, for the U.S. overall, we remain very confident as we continue to benefit from our strategic positioning around our biometric and underwriting strengths. Operator: The next question comes from Analyst with UBS. Please go ahead. Analyst: Hi. Thank you. Good morning. Just wondering if you could dig into the mortality favorability in the U.S. It has persistently been surprisingly favorable. I feel like you must have among the best data across the space in terms of the underlying trend. Could we dig into that a little bit? Jonathan William Porter: Hi. I am happy to address that. Speaking to our own experience, our Q1 claims experience was favorable, and that was due to a lower frequency of claims, both large claims and non-large claims. Uncapped cohorts were favorable and capped cohorts were in line. I would say there are no other significant trends to call out in our own data or experience that we saw in the quarter. Bringing it up to a population level, the flu season was more moderate this year than last year based on CDC data and peaked in December. Population mortality, when you look over 2024–2025, continues to be modest. We are seeing reasonable trends there. Analyst: What I really mean is, over a longer-term period, Axel mentioned a $300 million economic benefit that you have not recognized yet. I know there is probably an element of COVID pull-forward and there are GLP-1s coming on. That was more of what I meant. Jonathan William Porter: Certainly, we are pleased to see that there are some favorable tailwinds in the future on the horizon. You mentioned GLP-1s specifically. To reiterate, we have not made any material changes to our assumptions due to GLP-1s, but the benefit we expect to see does give us more confidence that our existing mortality improvement assumptions will be realized in the future. We continue to see signs of positive momentum related to GLP-1s in 2026, including the recent approval of oral GLP-1s reducing prices and broadening access, including Medicare and Medicaid coverage in the U.S. That is a trend we continue to follow and, if and when appropriate, we would reflect that in our assumptions. Analyst: Thanks. And on the excess capital, I saw in the slide deck you mentioned there was a $200 million negative impact from a correction to subsidiary regulatory capital. Could you run through that math and what drove it? Axel Philippe Andre: Happy to take that. Each year, we update our excess capital estimates as part of the completion of our annual regulatory and rating agency capital models. The adjustment discussed on the slide reflects, first, a correction in one of our subsidiary regulatory capital calculations; second, annual experience and assumptions updates; and third, changes to subsidiary excess capital from finalizing year-end calculations as well as additions to the entities included in the analysis. Importantly, we remain very well capitalized across all our legal entities and capital frameworks. That provides us with significant financial flexibility to deploy capital into the business and return capital to shareholders. Operator: The next question comes from Wesley Collin Carmichael with Wells Fargo. Please go ahead. Wesley Collin Carmichael: Good morning. My first question is on earnings seasonality. In the past, especially before LDTI, we thought about the first quarter as being weaker from an earnings perspective, particularly from mortality in the U.S. In a post-LDTI world, how should we think about the seasonality in terms of the first quarter versus the rest of the year? Jonathan William Porter: Thanks for the question. We do expect some higher claims in the winter months, as you point out, both from the flu and from other causes. Our assumptions reflect the seasonality, which is incorporated into our reserves. An average flu season is essentially built in as a higher Q1 claims expectation. Under LDTI, we would expect any differences to that higher expectation to be partially offset from an earnings perspective, although this is dependent on how the experience emerges by type of cohort. This seasonality assumption is something we routinely review as part of our annual assumption process. Because we take the seasonality into account, it largely levelizes what you would expect from an earnings perspective, other than potentially some seasonality that comes through on uncapped cohorts. Under LDTI, there should be less earnings impact from that than you would have seen in the past. Operator: The next question comes from Wilma Jackson Burdis with Raymond James. Please go ahead. Wilma Jackson Burdis: Good morning. Just to make sure I understand correctly, the $26 million benefit will slip to be negative, ending the year at zero. Is that correct on the margin? And then will it come out evenly across the next three quarters? Help us understand that piece a little bit. Thanks. Axel Philippe Andre: Hi, Wilma. For the EMEA segment, this relates to an annual premium treaty where the premium from an accounting perspective is recognized all in the first quarter, while the claims come through the four quarters. This is something that we had already last year and before. Assuming those treaties stay in place, that pattern of earnings would continue in the future. Wilma Jackson Burdis: Thank you. And could you talk a little about what you are seeing on new in-force block transactions? There has been a lot of strong interest in the market in general, but maybe some ebbs and flows. What are you seeing on spread expectations and the level of interest in more complex deal structures? Tony Cheng: Sure. There is a lot there. Let me start with our pipeline. We see the pipeline remain strong, high quality, and, very importantly, diversified across the globe. In Asia, activity continues to be strong both in product development—serving the middle class—and in Financial Solutions as clients adjust to new capital frameworks in markets such as Japan and Korea. In the U.K. longevity market, we continue to be a market leader and are seeing continued business momentum driven by our immensely strong team. In the U.S., we continue to benefit from strategically repositioning around our biometric and underwriting strengths, as well as the industry realignment that is taking place. I want to reiterate that our focus is very much on our sweet spot, which combines both biometric and asset capabilities, and we will not hesitate to walk away from any transactions that do not meet our risk-return trade-off. Operator: The next question comes from Thomas George Gallagher with Evercore ISI. Please go ahead. Thomas George Gallagher: Good morning. First question is on the slower growth you saw in U.S. Traditional. Can you talk about what is going on in that market more broadly? Is the market slowing somewhat? Are companies ceding less, or has that been stable? I am wondering if the broader industry is becoming more constructive on mortality and whether companies might look to retain more themselves. Thanks. Axel Philippe Andre: Hi, Tom. I can get started and pass it to Tony for more color. In 2025, we had some strategic recaptures as part of management actions that reduced ongoing premiums, making the year-over-year comparison more challenging. This is a good thing, because the recaptures tended to be lower quality and less profitable blocks, and this also reduces volatility. Let me remind you that the premiums associated with the Equitable block are now reported in the Financial Solutions segment. Ultimately, we are pleased with our U.S. Traditional business as we continue to improve the overall risk profile and as we see strong momentum in our strategic underwriting initiatives. We are confident that this performance will be reflected in our results over time. Tony Cheng: Not much to add to what Axel said, except that we had a very strong 2025 in U.S. Traditional. The type of transactions we focus on leverage our underwriting and biometric capabilities. That momentum continues into 2026. We remain very optimistic about our prospects in U.S. Traditional—winning very high-quality business at very good returns and adding a lot of value to our client partnerships. Thomas George Gallagher: Do you have any sense of cession rates for the industry more broadly? Has that been stable or changing? Tony Cheng: We do not have that at our fingertips. We focus on delivering comprehensive solutions—product development, underwriting solutions, and more. By focusing on solving our clients’ problems and creating win-win solutions, we feel we can control our own destiny, independent of broad cession rate trends. Operator: The next question comes from Joel Robert Hurwitz with Dowling Partners. Please go ahead. Joel Robert Hurwitz: Earlier this year, you brought up the prospect of potentially launching a sidecar for complex liabilities like long-term care and universal life with secondary guarantees. Could you provide an update on that potential vehicle and whether you are seeing parties interested in committing capital to it? Axel Philippe Andre: Thanks, Joel. Third-party capital remains a core element of our capital management strategy. It enhances our flexibility to fund growth and return capital to shareholders, while also generating incremental fee income for shareholders over time. Our current focus is on fully deploying Ruby Re, which is still expected this year. There are pros and cons to various sidecar structures and types of liabilities, but it is too early to be specific as we focus on completing Ruby Re capital deployment. We will update you as appropriate. As it relates to ULSG and long-term care risks, these risks are less than 10% of our balance sheet today, and we expect it to remain this way going forward. Joel Robert Hurwitz: On Ruby Re, how much capital do you have left to deploy this year? Axel Philippe Andre: We have the last piece of capital identified in terms of the blocks of business that are going to go to the sidecar, and we are in the process of getting that approved by the investors and working through the process with our regulator. Operator: The next question comes from Analyst with JPMorgan. Please go ahead. Analyst: Thank you. First, there is a widely held view that as the P&C cycle softens, the large multiline European reinsurers tend to be more competitive on the life side. Do you agree with that view? If so, how do you think competition from that part of the market unfolds given price softening in P&C? Tony Cheng: I have heard both sides of that view as P&C cycles soften or harden. Addressing competition more broadly, in our sweet spot—transactions with both biometric and asset risk—competition continues to be very stable. We focus on this area by leveraging our key strengths, our strong local presence and relationships. In some ways, we feel Reinsurance Group of America, Incorporated is unique—one of one—in that space. In addition, with our global platform, we have strategic optionality to pursue the best risk-adjusted opportunities around the world. With that in mind, we remain very excited about our business momentum and disciplined positioning in the reinsurance market. Analyst: My second question is also about competition but from a different angle. An increasing number of U.S. primary insurers are setting up internal reinsurance captives to generate capital efficiencies, and some have started writing third-party business. Some have set up sidecars not that different from Ruby Re. What is your view on this trend? Is it just enormous market opportunity, or is it an ambiguous sign of more competition entering this space? Tony Cheng: We have definitely seen increased competition in various markets, but that competition is really more for vanilla asset-intensive transactions. That is what many of those vehicles are being set up for. Our sweet spot is transactions that have both asset and biometric risk. We feel we are uniquely positioned to do that. Whether in Japan, where the market is large, or in the U.S., we are very optimistic about our ongoing momentum. Q1 was a strong proof point of our success in executing on our strategy in this area. Operator: The next question comes from Analyst with Barclays. Please go ahead. Analyst: Good morning. On in-force management actions you have done over time, it felt like there was a heightened element over the last few years. Where are we in that time frame—still more to do, or more normal course now? Specifically on older-age experience, are you still seeing the need to do actions on those blocks? Axel Philippe Andre: Managing our in-force business is a core part of our strategy and will continue to be. We have had very good success with these efforts over the past several years. In the first quarter, we did not have any notable in-force management actions. We expect to remain active going forward, but the timing and size of these actions are unpredictable. We are projecting a more limited financial impact compared to recent experience in the near term. Analyst: Thanks. Second, in the U.K., there is proposed regulation around captive reinsurance and limiting some uses of that. Is there anything around that that could be an opportunity or a risk to your structures? How might that impact you? Jonathan William Porter: I believe you are referring to the recent PRA information related to counterparty charges. It is very new, but at this point we do not expect it to have a big impact on our business. It is related to funded reinsurance, and the majority of our longevity business in the U.K. is done on a swap basis, where we take just the longevity risk and not the asset risk. About 90% of our in-force longevity block is on a swap basis. Initial industry takeaways are that there might be a compression of overall economics for ceding companies due to the higher charge, but there will also be increased linkage to reinsurer credit quality and collateral strength that should favor strong counterparties like Reinsurance Group of America, Incorporated. Operator: There is a follow-up question from Wesley Collin Carmichael with Wells Fargo. Please go ahead. Wesley Collin Carmichael: Apologies. Can you hear me? My follow-up is on the economic biometric experience—the $343 million that is going to be recognized in future periods. Is it material over the next twelve months? How much of that comes in, or is the duration longer so that it is probably pretty small? Axel Philippe Andre: Thanks for the question. The difference between the economic claims experience that has not yet been recognized through the accounting results has grown in recent periods and will come through the accounting results over a long time period. The current annual impact to future earnings is baked into our expectations. It is approximately $20 million a year. Wesley Collin Carmichael: Got it. Thanks, Axel. And a regulatory follow-up: over the past year and a half, the NAIC has worked on Actuarial Guideline 55 on asset adequacy testing for reinsurance. I think it is disclosure only, but is there any impact to Reinsurance Group of America, Incorporated? Is this material for the industry? Axel Philippe Andre: In the U.S., our standard business practice utilizes our flagship U.S. entity, RGA Re, as a reinsurer facing clients. As an onshore entity, our clients can confidently transact with a AA-rated counterparty and be exempt from AG 55. We believe that is an attractive option for our clients, especially combined with our broader solutions and the partnership mindset that we bring to long-term reinsurance relationships. We constantly model transactions across a variety of accounting and capital frameworks and have an open dialogue with our regulators on the expected impact of any regulations. Our business model does not rely on any particular regulatory regime, so the additional requirements of AG 55 are really just an extension of our existing practices from a regulatory perspective. We do not expect it to have a material impact for Reinsurance Group of America, Incorporated. Operator: This concludes our question and answer session. I would like to turn the conference back over to Tony Cheng for any closing remarks. Tony Cheng: Thank you for your continued interest in Reinsurance Group of America, Incorporated. We are pleased with the strong start to the year, and we look forward to continuing to deliver in the future. This concludes our Q1 conference call. Thank you. Operator: 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 First Quarter 2026 Gogo Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jim Golden with Collected Strategies. Jim, go ahead. Jim Golden: Thank you, and good morning, everyone. Welcome to Gogo's First Quarter 2026 Earnings Conference Call. On the call today to discuss the company's results are Gogo's CEO, Chris Moore; and CFO, Zach Cotner. During the course of this call, Mr. Moore and Mr. Cotner may make forward-looking statements regarding future events and the future performance of the company. Participants are cautioned to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements on this call. Those risk factors are described in the earnings release filed this morning and in a more fully detailed note under Risk Factors filed in the company's annual report on 10-K and 10-Q and other documents that the company has filed with the SEC. In addition, please note that the date of this conference call is May 7, 2026. Any forward-looking statements made today are based on assumptions as of this date, and the company undertakes no obligation to update these statements as a result of more information or future events. During this call, Mr. Moore and Mr. Cotner will present both GAAP and non-GAAP financial measures. A reconciliation and explanation of adjustments and other considerations of the company's non-GAAP measures to the most comparable GAAP measures is available in the Gogo's first quarter earnings release. The call is being webcast and available at ir.gogoair.com. The earnings release is also available on the website. After management comments, Mr. Moore and Mr. Cotner will host a Q&A session with the financial community only. I'll now turn the call over to Mr. Moore. Christopher Moore: Thank you, and good morning. The defining theme of the first quarter has been the deliberate transition of our legacy base services in air-to-ground and global satellite services into our next-generation technology portfolio. Consistent with prior earnings calls, I will focus on the continued demonstratable progress made across the compelling new product portfolio. These include Gogo Galileo with two models, HDX and FDX, both of which are providing game-changing increases in capacity, functionality, speed and global consistency as well as our 5G rollout and our existing GEO offerings. We are making steady progress on shipments, installations and early activations across both 5G and Gogo Galileo. I will also highlight our recent fleet wins and long-term growth prospects from our military and government customer base. We believe these next-generation products are not only enhancing the value we deliver to existing customers, but also expanding our addressable market and creating a reoccurring revenue stream that sets the stage for free cash flow growth and long-term strategic value in the future. Let's start by reviewing Gogo Galileo, our global low earth orbit or LEO service in which we have two products, HDX and FDX and where we continue to see encouraging progress. HDX serves as our entry point LEO solution, purpose-built for smaller aircraft, while FDX extends that capability to mid- and large cabin aircraft with higher performance connectivity. And together, they position Galileo as a scalable full fleet solution spanning the breadth of our customer base globally. Our Q1 shipments were largely in line with what we projected. We shipped 92 units in the quarter, including 82 HDX and 10 FDX. This brings our total number of LEO terminals shipped to 410 units since launch and across 35 commercial supplemental type certificates or STCs. Our 35 STCs cover a total addressable market of approximately 7,000 aircraft. We have 14 additional STCs underway to be completed in the next few quarters, addressing another 1,500 aircraft for a total of 8,500 aircraft. Building on this progress, I want to highlight some significant fleet wins for our Gogo Galileo offering. VistaJet is rolling out Gogo Galileo across its fleet with approximately 100 aircraft currently in scope as part of the broader plan to equip more than 270 aircraft globally. Installations began in Europe and are now expanding into the U.S. with a steady cadence of roughly 1 aircraft every 9 days, supported by continued STC progress. Wheels Up, another significant fleet win is also rolling out Galileo across its 80-plus aircraft in coordination with its fleet modernization strategy. Finally, we plan to have fully rolled out the committed aircraft with NetJets Europe in the first half of 2026, which currently make up half of our Galileo units online and have also started installations with NetJets North America. We remain confident with our Galileo projections given the strong pipeline, which is demonstrated with the rollout at major fleet operators. We expect a great ramp of shipments as important installations at multiple OEMs are expected to start in the second half of the year with Galileo becoming a line fit option. Turning to our air-to-ground or ATG network. We are seeing significant momentum with our 5G rollout. Even though customers have been waiting a long time for 5G, we're seeing strong enthusiasm for the service. We sold an all-time record of 511 air-to-ground units this quarter, of which 52 were 5G, and we anticipate a very robust rollout throughout the rest of the year with units online ramping in late Q3 and Q4. We have a very robust total pipeline of over 500 units. In terms of our legacy products, we reported record C1 conversions of 254 in the first quarter. This momentum reflects a growing wave of customers upgrading to C1 to ensure a seamless transition from our EVDO network to our LTE network. Additionally, I'm also happy to announce that we've secured an extension from the FCC regarding our classic product migration with the program completion deadline now extended to November 8, 2026. Under the FCC reimbursement program, we've also allocated our full approved amount of approximately $334 million to cover the cost of removing and replacing covered foreign equipment across the U.S. network and ATG aircraft. We believe this gives us the necessary flexibility to transition our customers from our classic service to our C1 and AVANCE products, giving them the room they need to operate seamlessly between the old service and the new and adding robustness to our overall 5G and LTE rollout. We're also seeing strong support from our MRO and OEM partners in the network transition, including Duncan, who is outfitting their demonstration aircraft with 5G as well as Textron, who is updating all of their STCs in the quarter. We are getting more customers exposed to our exciting new 5G network, which will continue to improve, especially with the new LTE network, which we expect to be fully operational by the end of 2026. Finally, let's now turn our attention to our Geostationary Earth Orbit or GEO business. GEO units online declined by 15 in the quarter, a moderate reduction from the net reduction of 22 we saw in Q4, reflecting continued resilience in our installed base and demonstrating the strength of our OEM partnerships. Looking across the balance of the year, we do expect some attrition in our GEO fleet, driven by broader market evolution towards next-generation LEO and hybrid satellite solutions. and we are closely monitoring ARPU dynamics within our customer base. We continue to view GEO as a strategically valuable component of our network offering, particularly for customers whose mission profiles benefit from the global coverage and redundancy where LEO has regulatory restrictions and proven reliability and accessibility of geostationary networks. As recently announced, our Plain Simple Ku-band platform continued to gain traction in the first quarter across both commercial and military end markets. AirX selected our Plain Simple Ku-band solution to upgrade its Challenger 850 fleet. The selection was driven by the simplicity of installation and our ability to provide a fully integrated end-to-end connectivity solution for a high utilization global fleet. We were also pleased to receive U.S. Air Force Mobility Command approval to offer our Plain Simple Ku-band tail-mount. -- on the C-130 platform, opening access to a fleet of more than 1,000 aircraft and representing a meaningful new avenue of growth for our GEO franchise within the military and government vertical. I now want to spend some time on our important military and government end market in which we see significant expansion and growth for Gogo. Military and government service revenue increased by 7% sequentially compared to the fourth quarter of 2025, marked the second consecutive quarter of growth. Geopolitical uncertainty and a focus on sovereign communication requirements are creating a sustained need for secure, reliable connectivity and our network military and government offerings have proven to be well positioned to meet that demand in an unpenetrated market. As a result, we are seeing a distinct rise in communication spending that extends well beyond the United States and NATO as global governments actively invest to modernize their secure and airborne networks. During the quarter, we secured several contracts, the first being with the National Oceanic and Atmospheric Administration, or NOAA, totaling more than $8 million over a 5-year period. This represents a meaningful addition to our long-term backlog and a strong endorsement of our network-neutral platform's reliability for mission-critical applications. We also secured business with a U.S. civil government customer worth over $3 million for Galileo and 5G on their small to midsized airframes. We expanded further into the growing global UAV market with customer wins for both GEO and LEO services for border protection and surveillance with major drone manufacturers anticipated to deliver over $15 million in revenue over the contractual periods. Another major milestone in the quarter also demonstrated the importance of avoiding vendor lock to OEMs as we adapted the HDX so it can be fitted under an existing STC and the Escape hatch for a major airframe OEM for European deployment. Building on the growth we've delivered over consecutive quarters within our military and government end market, we are seeing high demand for our existing services driven by ongoing conflict in the Middle East, where the operational environment is also accelerating the cadence of adoption for next-generation communication systems across our global military customer base. The U.S. government can access our technologies quickly because of our blanket purchase agreement, which serves the U.S. Department of War. Outside the U.S., our partnerships with leading aerospace integrators and OEMs continue to deliver with strong demand for Galileo from international government customers. Taken together, this momentum has meaningfully strengthened our competitive position in the military and government end market for the long term. An important point to mention is that the following sunsetting of our legacy EVDO network, Gogo will operate the only fully U.S.-based data sovereign ATG network. Our data originates in the U.S., lands in the U.S. and is entirely protected within the U.S., which makes our offering more appealing than our competitors. This transition away from EVDO, which is expected to open up new opportunities since the EVDO hardware utilize foreign components that lock us out of certain opportunities due to national security requirements. Before I turn the call over to Zach, I want to highlight a few financial themes that his remarks will detail. The first is that our product portfolio shift is expected to ultimately increase the durability and resilience of our revenue as customers made the significant capital commitment to install these next-generation products on their aircraft as well as diversify our revenue across multiple connectivity solutions and mission profiles. Secondly, the expansion of our military and government business, which is based on longer contracts compared to shorter-term business aviation contracts should add to this revenue as heightened military and government activity continues. Lastly, our top capital allocation priority in the near term is to aggressively pay down debt. I will now turn the call over to Zach to walk through the Q1 numbers. Zachary Cotner: Thanks, Chris, and good morning, everyone. Our first quarter performance met our expectations as we built upon our strong finish to 2025. The quarter was driven by C1 and 5G demand, positive Galileo momentum, along with sustained growth in our military and government service revenue. This performance helped balance anticipated service revenue softness as we navigate ATG aircraft deactivations. Gogo's total revenue for the quarter was $226.3 million, down just 2% compared to both Q1 2025 and Q4 2025. Service revenue was $187.7 million, down 5% year-over-year and 2% sequentially. Total equipment revenue showed continued strength at $38.6 million, an increase of 22% compared to Q1 2025 and flat sequentially. Sustained activity with record C1 shipments and increasing adoption of our 5G-ready AVANCE LX5 platform for total ATG equipment sold of 511, up 8% compared to Q4 2025. We sold 184 AVANCE units, a 5% increase compared to Q4 and 327 C1 units, an increase of 10% sequentially, bringing our cumulative C1 units sold to 1,063. Gogo C1 solution is a simple box swap designed to allow connectivity for classic ATG customers on Gogo's new LTE network, which is expected to come online later in 2026. Galileo equipment shipments totaled 92 for the quarter, bringing our cumulative Galileo shipments to 410. Turning to our aircraft online. Total ATG AOL of 6,116 decreased 11% compared to the prior year quarter and 4% sequentially for the reasons Chris outlined in his comments. Advanced AOL now comprises 79% of our total ATG aircraft online and average monthly service revenue per ATG aircraft online, or ARPA, was $3,351, a 3% decrease compared to Q1 2025 and flat sequentially. Broadband GEO AOL increased 2% year-over-year to 1,306 but decreased 15 units from Q4 2025, largely due to aircraft sales in the quarter. Moving to our bottom line. Net income for the quarter was $13.1 million, a significant increase on a sequential basis. In Q1, net income benefited from 3 noncash items: first, a $4.9 million pretax reduction to the SATCOM direct earnout accrual; second, the nonrecurrence of a $10 million litigation accrual that occurred in Q4; and third, a $4 million pretax charge to reflect the change in the fair value of the convertible note that also occurred in the prior quarter. Adjusted EBITDA was $53.3 million in the quarter, a 14% decrease year-over-year, but a 41% increase on a sequential basis. Q1 2026 adjusted EBITDA includes $6.1 million of litigation expenses versus $8.4 million in Q4. The sequential increase in adjusted EBITDA of $15.5 million was primarily driven by improvement in equipment profit resulting from a favorable product mix and lower inventory reserves as well as a reduction in ED&D expenses. Year-over-year, the 14% adjusted EBITDA decrease of $8.7 million was largely driven by a drop in service profit stemming from declining ATG revenues. However, we partially mitigated this impact through disciplined OpEx management and strong execution on the synergy front with annualized synergies reaching $40 million, exceeding our prior targets. In addition, ED&D expenses benefited from the reimbursement of costs related to the FCC reimbursement program. Turning to our strategic initiatives. In Q1, our 5G program incurred $0.2 million in operating expenses and $1.4 million in CapEx. In addition, our Galileo project spend included $0.8 million in OpEx. Regarding our efforts to reduce our debt and improve our leverage profile, which, as Chris mentioned, remains our top capital allocation priority, we made a $21.1 million principal payment on the HPS term loan facility in April. This payment was executed as an excess cash flow or ECF sweep. Turning to our net debt leverage ratio. We ended the first quarter at 3.6x. Based on our 2026 forecast, we anticipate this leverage ratio will increase slightly in Q2 and Q3 before dipping back within our target range by the fourth quarter. Moving to free cash flow and the balance sheet. Net cash used in operating activities was $7.2 million and free cash flow was negative $19.2 million for the quarter, down from $30 million in Q1 2025 and down from negative $4.9 million in Q4. Our cash story this quarter was heavily influenced by a $14 million cash outflow related to our annual bonus payout as well as a reduction in accounts payable associated with our inventory ramp related to the Galileo product launches. We ended the quarter with $103.5 million in cash and cash equivalents. In our earnings release this morning, we reiterated our 2026 financial guidance. We project total revenue in the range of $905 million to $945 million. We expect adjusted EBITDA in the range of $198 million to $218 million, which includes $3 million in strategic investments and $8 million of ongoing litigation expense. Finally, we anticipate free cash flow in the range of $90 million to $110 million. This implies a 12% year-over-year growth rate at the midpoint, driven by the winding down of new product investment, sustained cost synergies and an expected strong ramp of new product revenue. Our guidance includes $30 million slated for strategic investments, net of any FCC reimbursements and net capital expenditures of $20 million, assuming $45 million in FCC reimbursement. To summarize, our first quarter results reflect continued strong execution, record ATG shipments and a 41% sequential increase in adjusted EBITDA. We are managing through near-term pressures in legacy service revenue while investing behind the two initiatives that we believe will define our next phase of growth, our 5G network and Galileo Broadband. We also repaid $21.1 million on our HPS loan in April, further strengthening our balance sheet. Together, these actions should expand our addressable market and position us to deliver long-term value to shareholders. I want to express my continued gratitude to the Gogo team for their hard work in driving our transformation and their commitment to outstanding customer service. Operator, this concludes our prepared remarks. Please open the queue for questions. Operator: [Operator Instructions] Our first question comes from Scott Searle with ROTH Capital Partners. Scott Searle: Nice to see you guys reiterating the outlook for 2026. Chris, maybe to start from a high level. It seems like there are a lot of shipments going out the door as it relates to Galileo and 5G, yet AOL has been slow to come online. I'm wondering if you could talk us through the comfort that you have in terms of that ramping up into the second half of this year in terms of dealer channel support, STCs, which seem like they're very much on track. And just maybe help us understand the competitive landscape out there, particularly as it relates to Starlink? Christopher Moore: It's going to take time. We've got the building blocks in place. We have the real estate. Our equipment revenue is up 22% year-on-year. We've got record ATG unit sales. Galileo AOL grew 50% sequentially and adjusted EBITDA grew 41%. And then if you look at the current shipments on Galileo, then most of that's with MROs at the moment. And really, as we've stated in previous calls, the OEMs come online really in Q3, Q4, and then you see that ramp going from there. So actually, we're really excited about what we're seeing with Galileo, and it's going to plan at the moment. Regarding competition, we're not really seeing any changes. I think the good news is this is probably the fastest product we've ever launched and the customer confidence is kind of showing with our results. Scott Searle: And Chris, I'm sorry, my phone blocked out for the 5G commentary. I'm wondering if you could just reiterate that quickly. Christopher Moore: Yes. I mean if you look on equipment revenue is up 22%. And then we've got year-on-year record ATG unit sales as well, which we said on the call. So if you look at 5G from a standing start, the pipeline is over 500, and it's a really solid start. We're seeing already partners like Textron already completing all their STCs. We've got good product shipments, good reliability. So we're very, very confident about 5G. It's actually a really good start to the product. Scott Searle: And then quick two follow-ups. Maybe just in terms of the classic conversion, what you're ultimately hoping that looks like by the end of this year? I know you got an extension there, but what's -- what do you think the attrition is versus retention and conversion over? And then lastly, just as it relates to the traditional SATCOM business, I'm wondering, given the growth that you're seeing in the military opportunities, when -- what's the long-term growth opportunity when you look at the traditional SATCOM business? And how much do you expect military to comprise of that as we start to look out 2 years to 3 years? Christopher Moore: Yes, that's a lot. All right. So let me start with kind of air-to-ground. If you look at record 254 C1 conversions this quarter and 1,058 overall, and our AVANCE base grew 3% year-over-year. So I think the tendency is just to focus on the quarter on suspensions, deactivations on the classic customers. They're not all deactivations. Some of those are suspension. So we expect some to come back. We, in the previous call, said that we expect to lose like 1,000 customers over the year. I think that's kind of holding. I think the big thing there, though, is the transition that we're showing with the new products is all of our customers have somewhere to go with a broadband experience, which they didn't have previously, which is pretty exciting. And we continue to believe the ATG portfolio kind of will be a very, very important part of our business moving forward. Going on to the Milgov business, I think just what we're seeing with the wins that we discussed today is kind of a very robust business unit that's growing, which is really exciting. And the value of the commercial-based products that we're putting into that, lower cost support global capability, robust cybersecurity and then the drone market, we see that as a really exciting area for the business to grow into and service revenue up 14% year-on-year, 7% from the last quarter. So we're really excited about that revenue segment for us. Operator: Our next question comes from Justin Lang with Morgan Stanley. This is Gaby Knafelman on for Justin Lang. Gaby Knafelman: You had mentioned that NetJets Europe will fully roll out Galileo in the first half of the year. I'm curious if you could give us a sense of expectations for the overall Galileo domestic international split through the end of the year? Christopher Moore: Yes, that's a good question. So let me just clarify a little bit on NetJets. I think there's a lot of misunderstanding around our NetJet relationship. And I want to clarify this is really going very well. If you look at the confidence in the broader fleet relationships along with NetJets, we're completing and rolling out NetJets Europe. We're starting to roll out NetJets North America. And we're also starting to see real big traction with VistaJet aiming for 270-plus aircraft, Wheels Up in their transformation with new aircraft, Luxe Aviation, Avcon Jet, AirX. So the confidence in the fleet operators, I think, speaks volumes for the business. And that 60-40 split is 60% North America, 40% overseas is really exciting for the business because previous to the Satcom Direct acquisition, Gogo was predominantly just a U.S. supplier. So we're seeing that kind of international expansion, confidence in the fleet operators and NetJets is still in the fold with Gogo, and we're excited about rolling out with them. Gaby Knafelman: Got it. Super helpful. And I'm just curious if you could comment on how GEO AOL figures this quarter compared against your expectations and whether or not you're thinking any differently at all about some of the pressures you had flagged around GEO coming into the year? Zachary Cotner: Yes. So effectively, GEO has held up exactly as we thought it would. The 15 units is sort of what we thought. I think the other kind of positive sign is, as we telegraphed in Q4, the minor drop was largely related to aircraft sales. I can tell you that's the same trend in Q1. So our sales guys are beating down the door to try to find the new owners and win those back. So I think GEO continues to be robust. The ARPA is down a little bit, but again, that's what we thought. So I think we've got a pretty good handle on GEO as of now. Operator: This concludes today's earnings call. Thank you for your participation in the conference. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Telephone and Data Systems, Inc. First Quarter 2026 Operating Results Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed in to today's call, please press 9 to raise your hand and 6 to unmute when prompted. I will now hand the conference over to John Toomey, Treasurer and Vice President, Corporate Relations. Please go ahead. John Toomey: Good morning, and thank you for joining us. The presentation we prepared to accompany our comments this morning can be found on the Investor Relations sections of the Telephone and Data Systems, Inc. and Array websites. With me today in offering prepared comments are, on behalf of Telephone and Data Systems, Inc., Walter C.D. Carlson, President and CEO, and Vicki L. Villacrez, Executive Vice President and Chief Financial Officer. On behalf of TDS Telecom, Kenneth Dixon, President and CEO of TDS Telecom, and Christopher “Chris” Bautfeldt, Vice President, Financial Analysis and Strategic Planning. I will now turn the call over to Walter. Walter C.D. Carlson: Thank you, John, and good morning, everyone. Turning to slide three, this morning Telephone and Data Systems, Inc. announced a proposal to acquire the remaining shares of Array not currently owned by Telephone and Data Systems, Inc. in an all‑stock transaction. As Telephone and Data Systems, Inc. continues its transformation, this proposal is the next step in executing our strategy, simplifying our corporate structure, and enhancing our ability to invest in targeted areas of growth. Array has successfully completed its transition into a tower‑focused company with strong fundamentals, and we believe this transaction will position the combined company for long‑term growth. By bringing Array fully under Telephone and Data Systems, Inc.’s ownership, Array’s stockholders would retain a significant interest in the tower business while gaining exposure to Telephone and Data Systems, Inc.’s growing fiber business. Under the terms of the proposal, Telephone and Data Systems, Inc. would acquire all of the outstanding common shares of Array that Telephone and Data Systems, Inc. does not currently own by way of a merger in which each Array common share not owned by Telephone and Data Systems, Inc. would be exchanged for 0.86 of a Telephone and Data Systems, Inc. common share. This exchange ratio assumes that the previously announced spectrum license sales identified in our offer letter will have closed prior to the closing of the transaction contemplated by Telephone and Data Systems, Inc.’s proposal, and that the Array Board, consistent with its treatment of net proceeds from prior spectrum sales, will have declared and paid dividends of $10.40 per share to Array stockholders prior to the closing. At $10.40 per share, Array would distribute approximately $900 million in net proceeds. This exchange ratio reflects an at‑market offer based on yesterday’s closing prices for Telephone and Data Systems, Inc. and Array, subject to the assumptions just described. The transaction is expected to qualify as a tax‑free reorganization for U.S. federal income tax purposes. Telephone and Data Systems, Inc. expects the transaction to eliminate duplicative corporate costs, streamline corporate governance, increase share liquidity, and strengthen the capital structure of the enterprise, providing greater flexibility to pursue strategic investments across all our businesses, including towers and fiber. As noted in this morning’s press release, the proposal is subject to review and recommendation by a special committee of Array’s disinterested directors and the approval of the majority of the disinterested shareholders of Array based on votes cast. It would also require approval of Telephone and Data Systems, Inc.’s shareholders and the satisfaction of customary closing conditions. Telephone and Data Systems, Inc. does not intend to sell or otherwise transfer its interest in Array and will not entertain any third‑party offers for Array or its assets in lieu of this proposal. Telephone and Data Systems, Inc. continues to support Array’s previously disclosed intention to opportunistically monetize its remaining unsold wireless spectrum. Telephone and Data Systems, Inc. looks forward to working constructively with the Array Board’s special committee as they evaluate this proposal. Beyond what I just disclosed, and the information included in our press release and proposal letter to Array, we are not going to comment further on or take questions regarding the offer on today’s call. With that, let us turn to slide three. The enterprise is making good progress on its 2026 priorities. Our focus remains on advancing our strategy with financial and operational discipline. As I just mentioned, the proposal announced this morning will aid in strengthening Telephone and Data Systems, Inc.’s corporate and capital structure, and we look forward to working with Array’s special committee. Both business units continue to make progress toward their operational goals. TDS Telecom continued to add fiber addresses and customers in the quarter. Array is off to a strong start in 2026 and is making good progress growing tower tenancy. In the arena of spectrum, Array closed on a small transaction with T‑Mobile earlier this week and expects the remaining announced T‑Mobile and Verizon spectrum sales to close in the second or third quarter, subject to regulatory approval and other customary conditions. I am pleased with the progress each business unit is making and with the efforts we have underway to strengthen our culture as we go through this period of transformation. I would like to personally thank every associate across the enterprise for their continued commitment and contribution. I will now turn the call over to Vicki. Vicki L. Villacrez: Thank you, Walter, and good morning, everyone. Slide four updates you on our capital allocation priorities. TDS Telecom continues to make nice progress toward achieving its long‑term objective of reaching 2.1 million marketable fiber service addresses, delivering 40 thousand in the quarter. Ken and Chris will discuss more about the opportunities and momentum we are seeing in that space in a moment. We continue to evaluate M&A opportunities in a financially disciplined, accretive, business‑case‑driven fashion. In mid‑April, we announced an agreement to acquire Granite State Communications. As I have communicated in the past, we are primarily focused on small to medium‑sized opportunities that are already fibered up or have an accretive economic path to all fiber and support our clustering strategy. Granite is just like that: fully fibered with over 11 thousand service addresses that are adjacent to several of our existing markets in New Hampshire. We are excited to welcome these associates and customers into the Telephone and Data Systems, Inc. family and expect the transaction to close in the third quarter, subject to regulatory approval. Finally, in the area of shareholder return in the form of Telephone and Data Systems, Inc. share buybacks, we were not in the market during the quarter. At the end of the first quarter, we had a $520 million authorization for Telephone and Data Systems, Inc. share buybacks available, and we remain committed to executing on that program. Across all three priorities, the company intends to be disciplined, balancing the needs of the business and evaluating future returns along with market and other conditions as we move forward. Thank you. I will now turn the call over to Kenneth Dixon to discuss Telephone and Data Systems, Inc.’s fiber business. Kenneth Dixon: Thank you, Vicki, and good morning, everyone. At TDS Telecom, 2026 is focused on executing our fiber growth plan: building fiber addresses, driving fiber sales, and continuing to transform our operations. This quarter, we made progress across all three priorities as we scale our fiber network and advance our long‑term strategy. As shown on slide six, our fiber builds are off to a good start. We delivered 40 thousand marketable fiber service addresses in the first quarter. This is the highest first‑quarter total in our company’s history and nearly 3x our delivery in 2025. This performance reflects both effective execution and construction capacity, including our highest‑ever internal and external construction crew counts. While we are pleased with the record construction number, we still have more work to do. We continue to invest in our internal construction teams by adding headcount and upgrading tools and equipment to support increased build capacity, giving us a strategic advantage. We believe these investments provide greater control over our execution and improve long‑term efficiency. In addition, we have a robust pipeline of addresses currently under construction, positioning us very well for the spring and summer build season. This pipeline includes a mix of addresses from our fiber expansion into new areas as well as fiber upgrades in our existing markets through our Fiber Deeper program and the federal A‑CAM program. As a reminder, the A‑CAM program provides federal support that enables us to bring fiber to approximately 300 thousand service addresses, including those along the route where it would otherwise not be economical, helping to drive copper out of our network. Looking at sales, we ended the quarter with approximately 11 thousand fiber net adds, up 32% year over year. As we continue to scale our fiber footprint, we remain focused on converting new service addresses into customers and improving the overall customer experience. During the quarter, we strengthened leadership in key sales and customer‑experience roles to support these priorities. Our operational transformation is centered on efficiency, improving the customer experience, and simplification. We continue to make progress modernizing our systems and remain on track with our transformation roadmap. I am happy to announce that we have now completed the billing conversion in our cable markets and have also introduced a new Field Force platform to support our technicians. These updates simplify our back‑office processes and provide an improved customer experience. We are now able to launch multi‑gig speeds in our cable footprint. These areas are some of the best markets in the country, and we continue to see great opportunity here, so expect more to come. Finally, as Vicki noted, in mid‑April we signed an agreement to acquire a fiber‑based telecommunications business in New Hampshire. The transaction adds over 11 thousand fiber addresses that are contiguous with existing TDS markets and supports our clustering strategy. Approximately 30 associates will join the TDS team. We are excited about the opportunity to continue to deliver excellent service in this area, and we look forward to closing this transaction in the third quarter, subject to regulatory approval. Turning to slide seven, our long‑term goals reflect our continued focus on executing our growth strategy that delivers scale, speed, and long‑term value. With the delivery of 40 thousand fiber addresses in the quarter, we now serve approximately 1.1 million fiber addresses representing 58% of our total footprint, with 79% of addresses capable of gig speeds. While there is more work ahead, the progress we are making reinforces our confidence in the path forward as we continue transforming into a fiber‑centric company. I will now turn it over to Chris to walk through our first‑quarter results. Christopher “Chris” Bautfeldt: Turning to slide eight, the chart on the left shows our quarterly fiber service address delivery over the past five quarters. As Ken highlighted, our first‑quarter fiber address delivery nearly tripled year over year. This significant increase reflects the additional construction capacity we introduced last year and are continuing to scale this year. Our execution in the first quarter demonstrates the effectiveness of the strategy and the momentum we are building as we advance toward our long‑term goals. The chart on the right illustrates the continued expansion of our fiber footprint. Over the past three years, we have nearly doubled the number of fiber service addresses across our markets, demonstrating steady and meaningful progress. On slide nine, residential fiber net adds were approximately 11 thousand in the first quarter, a 32% increase compared to prior year, driven by continued footprint expansion and ongoing copper‑to‑fiber conversions. Residential fiber connections have also nearly doubled over the past three years, and we expect continued growth as we expand our fiber footprint. Turning to slide 10, the chart on the left depicts our residential revenue per connection, which increased 1% year over year. This growth reflects annual price increases offset by ongoing industry‑wide declines in video attachment rates. The chart on the right is new this quarter and breaks down total residential revenue between copper, cable, and fiber. You will see our fiber revenue is up 13% versus prior year, an uplift of approximately $11 million, which helps offset the legacy revenue stream pressures we are experiencing. In cable, revenues are down roughly 10% versus 2025. As Ken highlighted, we are increasing investment in our cable markets to stem these declines. Overall, total residential revenue declined $5 million compared to prior year; approximately $3 million of this decline is attributable to divestitures of markets that were predominantly copper‑based. We remain hyper‑focused on driving fiber revenue at a pace that is expected to more than offset legacy declines. Slide 11 summarizes our financial performance. Total operating revenues declined 3% in the quarter, or 1% excluding the impact of divestitures. This reflects continued legacy revenue‑stream pressures, partially offset by growth in fiber connections and modest improvement in revenue per connection. Cash expenses decreased 3%, driven primarily by benefits from our transformation initiatives, including lower costs for billing, circuits, and facilities. Adjusted EBITDA declined 3% in the quarter, driven largely by the revenue losses from divestitures. Capital expenditures totaled $126 million in the quarter, reflecting higher construction activity, a robust funnel of addresses under construction, and accelerated investments in our internal construction crews and equipment. Slide 12 reflects our guidance for 2026, which remains unchanged. We are projecting total Telecom revenues of $1.015 billion to $1.055 billion. Current headwinds in our copper and cable markets are guiding us toward the lower half of this range. Adjusted EBITDA guidance remains between $310 million and $350 million as we continue our transformation efforts. Capital expenditures for the year are projected to be between $550 million and $600 million to support our goal of delivering between 200 thousand and 250 thousand new fiber service addresses. Before turning over the call, I want to thank the entire TDS team for their continued execution and focus. Their efforts across fiber delivery, customer growth, and operational transformation are critical to the progress we are making toward achieving our long‑term objectives. I will now turn the call over to Anthony. Anthony Carlson: Thanks, Chris, and good morning. 2026 has got off to a busy but great start. The organization is laser‑focused on fully optimizing our tower operations and monetizing our spectrum. In the first quarter, we saw cash site‑rental revenue increase 64% over Q1 of last year, we also demonstrated sequential tower‑tenancy growth when adjusted for DISH, and we continue to move our announced spectrum transactions forward. Before I get to the details of the quarter, I want to acknowledge the Array Board’s receipt of Telephone and Data Systems, Inc.’s proposal to acquire the remaining public shares of Array. Our Board has formed a special committee of independent directors who have retained independent advisers to carefully evaluate the proposal and make a recommendation as to what is in the best interest of Array’s shareholders. Array will be providing updates as appropriate, but we will not be commenting further or taking questions regarding this proposal today. Moving along to slide sixteen, I want to provide an update regarding DISH. As previously disclosed, we received a letter from DISH Wireless in September 2025 in which DISH asserted that unforeseeable FCC actions impacted its master lease agreement with Array and, as a result, DISH believes it is relieved of its obligations under the MLA. Since early December, DISH has generally failed to make the required payments and is therefore in breach of its obligations. Array continues to take actions it deems necessary to protect its rights under the MLA. Given the ongoing nonpayment, in the first quarter, Array ceased recognizing DISH revenue, and all unpaid 2025 amounts have now been fully reserved. Accordingly, our tenancy ratio no longer includes DISH colocations. When normalizing for this impact, we continue to see sequential growth in our tenancy ratio as depicted on the right, from 0.95 in Q4 2025 up to 0.96 in Q1 2026. Importantly, in Q1 we grew revenue and healthy colocation application volumes while supporting T‑Mobile in its integration. As noted on slide 17, cash site‑rental revenue in Q1 increased 55% year over year from all customers, and when normalized for DISH impact, this increase was 64%. When layering in the T‑Mobile interim site revenue, the increase was 86% year over year, or 98% when normalized for DISH. Our application volume remains robust, and coupled with our existing pipeline, will drive additional revenue growth in 2026 and beyond. Turning to slide 18, T‑Mobile has until January 2028 to finalize its 2,015 committed sites under the new MLA. We continue to anticipate 800 to 1,800 tenantless towers after the integration is completed and all interim sites are terminated. Our ground‑lease optimization work remained a priority in Q1, and we are making progress in reducing the cash burden of these negative cash‑flow assets. As noted previously, this will be a multiyear effort focused on cost avoidance, additional lease‑up, evaluating long‑term command, and decommissioning in situations where it makes sense, a process we have already begun on a subset of sites with no path to economic viability. This approach allows us to thoughtfully assess all potential outcomes for the tenantless tower portfolio. As shown on slide 19 and presented in prior quarters, we have reached agreements to monetize roughly 70% of our spectrum holdings. As a reminder, the sale of spectrum to AT&T closed on January 13, 2026, with the Array Board declaring a $10.25 per share dividend that was paid on February 2. In Q1, the FCC approved the sale of certain 100 MHz licenses to T‑Mobile, and that transaction closed earlier this week. Additionally, the FCC approved the sale of the 600 MHz and AWS licenses to T‑Mobile and, pending closing conditions, we expect that sale to close in Q2. Verizon will close in Q2 or Q3 of this year, subject to regulatory approval and normal closing conditions. The remaining transactions with T‑Mobile are expected to close by the end of 2026, once again dependent on regulatory approval and closing conditions. We continue to pursue opportunistic monetization of our remaining spectrum, primarily C‑band. We view our C‑band spectrum as a highly compelling 5G asset with a mature ecosystem ready for carrier deployment, and with no near‑term buildout requirements, we have ample time to realize its value. Slide 20 summarizes the results of our partnership, or non‑controlling investment interests. As discussed last quarter, investment income and distributions for full‑year 2025 were impacted by several one‑time factors, including the impact of the Iowa partnership selling their wireless operations to T‑Mobile and distributions received from Verizon related to their transaction with Vertical Bridge. For Q1, equity income was elevated due to prior‑period adjustments recorded by the managers of certain investee entities. Regarding cash distributions, certain entities distribute cash only twice per year, resulting in an uneven distribution pattern throughout the year. Slide 22 summarizes Array’s financial results. Year over year, we continue to see the impact of the T‑Mobile MLA driving revenue growth. As noted last quarter, there was a prospective change in classification of property taxes and insurance from SG&A to cost of operations. As such, that is driving roughly half of the year‑over‑year increase in cost of operations. SG&A expenses continue to include costs to support the wind‑down of legacy wireless operations, but sequential quarter‑over‑quarter results are declining as planned. We expect these wind‑down expenses to persist throughout 2026, but with additional reductions over future periods. On slide 23, our guidance across all metrics—total operating revenue, adjusted EBITDA and OIBDA, and capital expenditures—is unchanged. As a reminder, our guidance ranges are wider than industry norm due to uncertainty with the T‑Mobile MLA and the timing of interim site terminations. In closing, I want to again thank Array’s associates for their continued passion and dedication to driving operational efficiencies and growth. We continue to move through our first year as a stand‑alone tower company. I will now turn the call back to Walter. Walter C.D. Carlson: Thank you, Anthony. As I noted in my opening remarks, Telephone and Data Systems, Inc. continues to make solid progress advancing our strategic priorities. Our first‑quarter execution, combined with the momentum we are seeing across the business, positions us well as we move forward into the year. I would like to again thank all of the outstanding associates across the Telephone and Data Systems, Inc. enterprise for their continued dedication and hard work in serving our customers and supporting the advancement of our business. Operator, please now open the line for questions. Operator: Thank you. We will now open the call for questions. If you would like to ask a question, please raise your hand. If you have dialed in to today’s call, please press 9 to raise your hand and 6 to unmute when prompted. Your first question comes from Richard Hamilton Prentiss with Raymond James & Associates. Richard, your line is now open. Richard Hamilton Prentiss: Good morning, everybody. You continue to be very busy. A couple of questions. On the fiber side, the TDS Telecom side, have you looked at whether there is an ability to put fiber into a REIT structure, or any desire at some point to put fiber into a REIT‑like structure to be more tax efficient? Vicki L. Villacrez: Yes, Richard, this is Vicki. I will take that one. We have looked at a number of structural options, but given where we are at today, they are just not optimal. I am not going to speculate going forward on what we may or may not do in the future, but as I think about our fiber program, we are in a really good position. We have a strong balance sheet, and we are focused on funding fiber with our cash. Richard Hamilton Prentiss: Okay. Second question, can you update us as far as the number of shares or percent ownership Telephone and Data Systems, Inc. has of Array Digital, just so we can understand exactly how many of the disinterested might be out there? Walter C.D. Carlson: Let me take that. I think the press releases that have been issued speak to that, Richard. I think 81.9% is the right rough number, and we can get back to you with precise numbers offline. Richard Hamilton Prentiss: That is great. We had some people asking; there were some Bloomberg numbers out there saying 70%. We knew it was 80‑something, so appreciate that. The last question for me, a little more strategic. I know you have been looking at maybe providing more reporting metrics on the fiber business. Any update to what you think you could provide to help people understand what is happening with the fiber business—any cohort analysis or trend lines to help us look at the value of that business as it is going through a capital spending cycle and some EBITDA pressure? Is there a burn rate, and what can you give us to help understand the traction and future look? Vicki L. Villacrez: Lots of questions there, Richard. We will piece those apart. On disclosures, this quarter we added disclosures for our residential revenues and broke them out by technology, so you will see reporting by fiber, cable, and copper. We think this is something that will be helpful to investors going forward. Furthermore, we have included metrics in our trending schedules on our Investor Relations website, so I will point you there. Ken, do you want to jump in on the rest of Richard’s questions? Kenneth Dixon: The metrics that are most important as we move to a fiber‑centric business are, first, how well we are delivering marketable addresses from a build‑plan perspective, and second, our fiber net sales as we sell into that new open‑for‑sale footprint while also increasing our overall penetration in those new cohorts. So build velocity and overall fiber net performance are the two big things. Richard Hamilton Prentiss: I am going to assume as you get fiber out there, the maintenance capital and ongoing capital once you are done with the build drops to pretty low levels. Kenneth Dixon: We definitely see the cash‑cost‑per‑customer improvements on everything—from trouble tickets, copper versus fiber, to a lower call‑in rate—so we love the fiber business. The faster we migrate away from copper and bring it to fiber, we will continue to see improvements in the bottom line. Richard Hamilton Prentiss: Great. That is helpful. Everyone have a great Mother’s Day weekend. Thanks. Operator: Thank you. Your next question comes from the line of Sebastiano Carmine Petti from J.P. Morgan. Your line is now open. Sebastiano Carmine Petti: Thank you for taking the question. Sticking with TDS Telecom and Ken for a second: you hired some sales folks and customer‑experience folks to support your priorities. Where are you from a process‑improvement standpoint—instilling some of your decades of experience running fiber businesses into TDS Telecom? What inning are we in? What near‑term low‑hanging fruit remains to improve process performance and construction build? And on investing in the cable footprint—something we have not heard discussed in a bit—is that strategic and core? How do you think about the blocking‑and‑tackling improvements needed for the cable KPIs to begin stabilizing, given the competitive backdrop and repricing pressures? Kenneth Dixon: Thank you for the question. I would say we are in the very early innings, and we are starting to make very nice progress. I am starting to see wind in our sails. On address delivery, I am very happy with the team’s 40 thousand service‑address delivery—almost three times more than last year. It was important to prove we could keep our crews working all winter, and we accomplished that. We have started the spring and summer months with record crew counts for the two most important quarters of the year. Through April we are at record numbers, a combination of internal and external crews, and we continue to see sequential month‑over‑month crew‑count improvements as we head into May. Going into the second quarter, I am bullish on what we can accomplish because we have the largest funnel of addresses under some form of construction in our company’s history. On sales and customer experience, we see the opportunity to penetrate new addresses as fast as we deliver them. We are very happy with our presales velocity; we typically go in 60 days before an address becomes marketable, and we are seeing excellent results in the low‑20% range. We have put a tremendous amount of sales capabilities into our door‑to‑door channel—adding several vendors in Q4 last year and more in April and May—and we have several others in our funnel. We believe we have to be in the markets and use door‑to‑door to drive our sales agenda. We have also expanded significantly our .com business, which is open 24/7/365; sales have improved significantly, and we will continue to put more resources there. We are now developing our MDU sales capabilities, which is a tremendous opportunity—again, early innings but starting to see nice progress. The 11 thousand fiber net adds—up 32% year over year—is a very good start, and we have momentum. On the cable business, I love our cable markets. We are in some of the best markets in the country. Last year, we decided to convert those markets first onto our new billing system and get them on a single stack across the company. We also made a significant investment in a new field service tool for our technicians to improve overall service delivery, and we are now positioned to move to multi‑gig in 2026. We are just getting started in terms of what we can do in those markets. A lot is going on, but I like what I am seeing, and we have more work to do. We are definitely moving in the right direction. Sebastiano Carmine Petti: For Vicki, on Granite—should we anticipate bolt‑ons like this going forward: smaller systems that are adjacent versus big chunky deals? And does combining entities make it easier to REIT the tower business over time versus the current structure? Vicki L. Villacrez: Sebastiano, thank you. On the second question, we are not going to comment on any impact or implications of the offer on the table, and we cannot speculate on what the future will look like at this point. On Granite, this acquisition is consistent with our capital allocation priorities—building fiber and M&A acquisitions in the fiber space. It is a tuck‑in, it is accretive, and it is adjacent to our current markets in New Hampshire. It is 100% fibered up. We are excited to bring Granite State Communications on board and welcome all of the associates. It brings 11 thousand fiber service addresses to our portfolio. Operator: Thank you. As a reminder, if you would like to ask a question, please raise your hand. If you have dialed in to the call, please press 9 to raise your hand and 6 to unmute. Your next question is a follow‑up from Sebastiano Carmine Petti from J.P. Morgan. Your line is open again. Sebastiano Carmine Petti: For Chris, on the cost‑transformation efforts, is the $100 million run‑rate savings by 2028 still the right figure? Are we at a point where the cost savings are falling to the bottom line in 2026, or is there reinvestment going back into the business? Christopher “Chris” Bautfeldt: Hi, Sebastiano. Yes, we remain on track to hit $100 million of run‑rate savings by year‑end 2028. As you heard in my remarks, we are starting to see some of those benefits this year. The bigger benefits you will see in 2027 and 2028, but we absolutely are starting to see some of those benefits drop to the bottom line. As I have said before, we do not expect that entire $100 million to fall to the bottom line because some of that is helping offset inflationary cost increases. As we continue to expand our fiber footprint and customer base, we do plan to reinvest some of those savings. We are seeing nice benefits and remain optimistic about the full potential of this program. Sebastiano Carmine Petti: Thank you. And for Anthony, on the upcoming AWS‑3 reauction and upper C‑band next year—any change in conversations regarding monetization of the remaining C‑band and CBRS? Anthony Carlson: Thanks for the question. We continue to believe that the C‑band spectrum we hold is excellent and valuable spectrum, with an ecosystem to support it today. We are not going to be a forced seller in these circumstances. We believe the carrying costs are modest. While we are open to a deal at a fair value, we do not feel it is burning a hole in our pocket. We do not have further updates on a sale of our C‑band spectrum at this time, but we remain very optimistic about realizing fair value at the appropriate time. Operator: Your next question is from Richard Hamilton Prentiss with Raymond James & Associates. Richard, your line is open. Richard Hamilton Prentiss: On the service addresses, Ken, is the build plan still targeting 200 thousand to 250 thousand service addresses this year, and what would cause you to miss it versus hit it or beat it? Kenneth Dixon: Yes, that is still the target. I have a very good degree of confidence based on the crew counts we have starting the second quarter and the funnel and pipeline of addresses at a new record in terms of construction. I am very confident we are going to deliver within that target. Richard Hamilton Prentiss: And, Anthony, one of the themes at Connect(X) was high‑rent relocation efforts. Do you have an appetite to do some new builds there, and what capital commitment might you put to work? Anthony Carlson: To be very clear, as we have stated multiple times, we are laser‑focused on optimizing the value of the assets we have in hand and see significant upside from our current portfolio. That is not to say we are not open to opportunities, but the going rates we have seen for high‑rent relocations and participating in new builds have not been consistent with what we think we can achieve by optimizing our portfolio. On our own churn, a small nugget: we had only one total tenant churn in the entire first quarter, which speaks to the strength of our portfolio and its relative susceptibility to high‑rent relocation. Richard Hamilton Prentiss: One for Walter—an obligatory satellite question. How are you thinking about the somewhat existential threat of satellite coming into terrestrial, given your assets in broadband fiber and towers? Walter C.D. Carlson: That is an excellent question. Satellite is a technology that has gotten substantial additional focus over the last 18 months and substantial additional investment over the last 12 months. I think satellites will have substantial influence going forward on the communications industry. That being said, we feel very strongly about the continued benefit of a terrestrial tower portfolio, and we feel very strongly about the superior capabilities of fiber networks delivering specific communication into individuals’ homes and businesses without interruption and without fear of being impacted by weather. We are paying attention, and we feel very good about the thrust of both of our businesses. We are watching. Operator: Next question comes from the line of Sergei Dluzhevskiy with GAMCO Investors, Inc. Your line is now open. Sergei Dluzhevskiy: Good morning. First question on the TDS Telecom side. Last quarter, you expanded the fiber build target by 300 thousand edge‑out passings in, I believe, 50 adjacent markets to your current expansion footprint. How do the demographics and churn profiles of these markets compare to your older cohorts? Among this new cohort, what types of markets are you prioritizing for a build sooner rather than later? Kenneth Dixon: We are looking at markets where we have already planted a flag—where we have established our brand and deployed fiber—so we already have technicians and sales capacity. We have looked closely at demographics, competitive intensity, build costs, and expected returns, and then prioritized accordingly. That is our edge‑out opportunity. These markets check the boxes I mentioned, and because we were first to the original market with fiber, the extensions are a natural fit. We believe we prioritized the right markets first with the highest opportunities and returns. Sergei Dluzhevskiy: On cable, what do you like most about your cable footprint? Can you comment on the competitive environment and the investments you are planning—where the dollars will go and how quickly you expect those investments to pay off? Kenneth Dixon: From an investment perspective, our focus now is going to a multi‑gig environment in our cable business, which is the opportunity for 2026. We are operating in highly attractive markets—some with among the highest housing growth in the United States—so we see a definite opportunity going forward. Sergei Dluzhevskiy: On the Array side, the wireless partnerships produce nice cash flow every year. Any updated thoughts on monetizing those stakes? For example, recent transactions valued stakes at about 11.5x cash distributions. At that multiple, your stakes could be worth a significant amount. What could move you closer to taking that step? Anthony Carlson: As we have said before, we like the cash flows from these assets. There are challenges for us with transactions similar to the ones you mentioned. We have them at a very low tax basis. If you looked at the performance of those investments over the very long term and did a DCF, it would be challenging to get a multiple commensurate with the full value. We are open to offers that would deliver full value, but they would have to deliver full value net of taxes. We like those cash flows, so we are not in a hurry to sell. Sergei Dluzhevskiy: Lastly on Array, EBITDA is expected to be somewhat depressed in the medium term, pressured by transition and wind‑down costs. Can you talk about your targets, qualitatively and quantitatively, to take cost out and improve margins in 2026 and 2027? Longer term, post T‑Mobile transition, what kind of margins are realistic? Anthony Carlson: We think there is significant opportunity to improve Array’s margins. We focus on tower cash‑flow margins. First, land is our largest cost, and we have a much lower rate of land ownership than many large public players. There is significant value to be realized by, where appropriate, purchasing more of the land interests under our towers. Second, as a new tower company, we believe we have opportunities to improve as we transition from a maintenance posture aligned with operating a full‑fledged wireless company to one aligned with a tower company. Those are the two big cost‑side opportunities to improve tower cash‑flow margins, in addition to expanding margins by increasing colocations, which we work hard to do every day. Operator: There are no further questions at this time. I will now turn the call back to John Toomey for closing remarks. John Toomey: Thank you again for joining us today. As always, please reach out to us if you have any questions. I hope everyone has a wonderful weekend. Thank you. Operator: This concludes today’s call. Thank you all for attending. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the first quarter 2026 The E.W. Scripps Company Earnings Conference Call. At this time, 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Becca McCarter, Senior Director, External Communications. Please go ahead. Becca McCarter: Thank you, Didi, and good morning, everyone. Thank you for joining us for a discussion of The E.W. Scripps Company's financial results and business strategies. You can visit scripps.com for more information and a link to the replay of this call. A reminder that our conference call and webcast include forward-looking statements based on management's current outlook and actual results may differ materially. Factors that may cause them to differ are outlined in our SEC filings. We do not intend to update any forward-looking statements we make today. Included on this call will be a discussion of certain non-GAAP financial measures that are provided as supplements to assist management and the public in their analysis and valuation of the company. These metrics are not formulated in accordance with GAAP and are not meant to replace GAAP financial measures and may differ from other companies' uses or formulations. Reconciliations of these measures are included in our earnings release. We will hear this morning from Chief Financial Officer Jason P. Combs, then Scripps President and CEO, Adam P. Symson. Here is Jason. Jason P. Combs: Good morning, everyone, and thank you for joining us. We are coming into this morning's call with strong momentum and good news about our financial performance and other activity. Here are a few of the highlights. We are progressing rapidly on executing our comprehensive transformation strategy, which has helped drive significant improvement in our first quarter net leverage to under four times. Our Local Media division delivered a strong performance with industry-leading 7% core advertising revenue growth, driven by our unique live sports strategy. We launched the Scripps Sports Network, a premium free streaming channel. We are entering a midterm election cycle with strategic market exposure in key battleground states. And we continue to optimize our portfolio through strategic asset transactions, generating $123 million in gross proceeds from recent sales of two stations. We also continue to work towards the closing of our station swaps with Gray and pursue additional M&A activity to support debt reduction and enhance operating performance. In addition to those recent highlights, we are pleased to have just successfully completed a new affiliation agreement with our largest network partner, ABC, covering 17 ABC affiliates. With that overview as a backdrop, I would like to review our first quarter financial results, and then I will discuss second-quarter guidance, followed by details on our improving debt position. I will conclude with a review of our EBITDA improvement plan. I will present our first quarter Local Media division results on a same-station or adjusted combined basis, removing the Q1 2025 results of the two TV stations that we have now sold and reflecting our addition of the Lexington ABC affiliate. During the first quarter, our Local Media division revenue was $331 million, up 5.8% from first quarter 2025. Core advertising increased 7%. Our services, automotive, and gambling categories all grew in the quarter. Local core advertising year-over-year growth was largely driven by advertising sales tied to our National Hockey League telecasts. We saw a strong contribution from the addition of our newest rights agreement with the Tampa Bay Lightning, and beyond this new partnership, we also saw strong growth in our existing NHL deals with the Vegas Golden Knights, Utah Mammoth, and Florida Panthers. Our strategy is designed to drive year-over-year growth across both our existing deals and new partnerships. And last month, we announced a fifth full-season NHL sports rights agreement with the Nashville Predators to start this fall. The Winter Olympics and the Super Bowl also contributed to our Q1 core advertising growth. Political advertising revenue was nearly $9 million as we begin what is expected to be a record-breaking spending cycle for the midterm elections. This year, we forecast strong spending in our markets due to U.S. Senate and gubernatorial races in Arizona, Colorado, Michigan, Nevada, Ohio, and Wisconsin. We also are watching growing competitive situations in Florida and in Montana. Local Media distribution revenue increased 2% again, on a same-station basis. Expenses for the division increased about 2.4% year over year. Excluding the impact of our expenses tied to our new NHL team deal, expenses were flat. Local Media segment profit was $44 million compared to $32 million in Q1 2025. For the second quarter, we expect Local Media division revenue to be up low single digits. We expect core advertising to be down low single digits, without the benefit of live sports for most of the quarter. We expect Q2 Local Media gross distribution revenue to be impacted by our impasse with Comcast, which ran from March 31 to May 5. Based on that timing, we still expect full-year gross distribution revenue to grow in the low single-digit range but now expect net distribution revenue to grow in the low double-digit range, a slight change from our previous guidance. We expect second-quarter Local Media expenses to be flat to 2025. Now let us review the Scripps Networks division first quarter results and second-quarter guidance. Once again, I will be presenting the results on an adjusted combined basis, in this case adjusting for the impact of the Court TV sale. In the first quarter, Scripps Networks revenue was $174 million, down 9.5% from Q1 2025. Connected TV revenue was up 26% from the same quarter last year. The division's expenses for the quarter were $126 million, up 1%. Scripps Networks segment profit was $47.5 million compared to $66.8 million in the year-ago quarter. For the second quarter, we expect Scripps Networks division revenue to be down about 10%. The networks are facing a softer market from macroeconomic conditions impacting the direct response marketplace and external measurement pressure from Nielsen due to recent methodology changes. Adam will talk more about this in a moment. We expect Scripps Networks Q2 expenses to be up in the low single digits. Turning to the segment labeled Other, in the first quarter we reported a loss of $6 million. Shared services and corporate expenses were $26.6 million. In the second quarter, we again expect that line to be about $27 million. Higher medical claims and increased insurance premiums are causing that line to go higher than usual. For the first quarter, the company is reporting a loss of $0.20 per share. The loss included a $30 million gain on the sales of Court TV and two television stations, WFTX in Fort Myers, Florida, and WRTV in Indianapolis. These sale transactions decreased the loss attributable to shareholders by $0.25 per share. In addition, the preferred stock dividend has a negative impact on earnings per share even when we do not pay it. This quarter, it reduced EPS by $0.18. We had $20 million outstanding on our revolving credit facility at the end of the quarter. On April 30, we entered into an agreement to extend the July 7, 2027 maturity date of our revolving credit facility to July 7, 2029 with commitments of $200 million. For the first quarter, cash and cash equivalents totaled $84 million. Net debt was $2.2 billion as defined in our credit agreement. Also during the quarter, we paid down $10.2 million on our B-2 term loan. In addition, we paid down $20.4 million on our B-3 term loan. Since the end of the quarter, we have paid down an additional $30 million on the B-2 term loan, for a total of just over $60 million in term loan paydowns since the beginning of this year. Net leverage at the end of the quarter was 3.9 times, per the calculations in our credit agreement, which includes certain pro forma adjustments relating to our transformation efforts. As we announced in February, our company transformation plan includes growing enterprise EBITDA by $125 million to $150 million. Our EBITDA improvement plan balances rightsizing our current expense structure with implementing new ways to grow revenue and profitability. You will start to see the financial benefits of our plan in the second half of this year. We expect total in-year EBITDA impact of $20 million to $30 million and an annualized run rate of about $75 million as we move into next year. And now here is Adam. Adam P. Symson: Thanks, Jason, and good morning, everybody. At Scripps, we are in the midst of executing a significant transformation, moving now from the detailed planning stage into execution, and I am pleased to report that we are right on track. I like to say that this transformation is a refounding of the company. We are bringing the values, ethics, and mission of our founder, Edward Willis Scripps, forward 150 years to set the company up in a way I would like to think he would were he here today. I have been doing a lot of research on our founder. E.W. was fiercely protective of his newsroom journalism and editorial independence. He was entirely committed to serving the people in the communities where he operated, and he was well known, maybe even notorious, for his dedication to operating with efficiency to ensure he would have the margin to carry out the mission. A hundred and fifty years ago, E.W. focused on his consumers' problems and commercialized the solution. The assets that make up our company may be different today, but our transformation is grounded in the same customer-first focus. Here is an example of what this is looking like. In our newsrooms, we have already been changing the model. We are moving from a broadcast-centric operation that has historically served our audiences during defined time periods to news operations that leverage automation, AI, and technology to serve consumers when and where they expect to get their local news, especially as they have moved to streaming. Leveraging technology has allowed us to deepen our commitment to local news, getting more of our teams out of the newsroom and into the community, putting more reporters in the field to live in the geographic areas where they cover. All of it is in service to our vision: we create connection. This is not incremental change. It is a complete realignment of our newsroom operations, our business models, and our culture around the opportunities we see clearly: streaming platforms, productivity-enabling technologies, and our unrivaled ability to create connection for the people and the businesses in the communities we serve. This is just one example at Scripps of how we are upending what needs to be changed, fueling the fire where we see top-line growth, as we see in streaming, and going farther and faster with what is working well, like our sports strategy. Let us talk about sports. In Local Media, our live sports helped Scripps deliver an industry-leading core advertising performance in the first quarter, up 7%. As Jason said, this came from new partnerships and from organic growth in every one of the markets where we are executing the strategy. And we are far from done. Just a few weeks ago, we announced the new full-season local broadcast agreement with the NHL's Nashville Predators, and I expect more core growth-fueling opportunity to come. Now for the second quarter, the live sports action shifts to our Scripps Networks and the WNBA and the NWSL. The WNBA's preseason game between the Indiana Fever and the New York Liberty on April 25 was ION's most watched preseason game ever. Tonight, the WNBA regular season tips off with a doubleheader on ION, with tremendous excitement about the return of Caitlin Clark and this year's class of exceptionally talented draft picks. Scripps Sports will once again broadcast the most WNBA games of any network, bringing a WNBA doubleheader every Friday night all season long to fans nationwide. Advertiser demand is high for women's basketball, as well as for our full slate of women's sports. It is now clear that Scripps is the leader in women's sports, showcasing women's athletic achievement with rights for the WNBA, NWSL professional soccer, PWHL hockey, MLV volleyball, Athlos track, college basketball, pro cheer, and our newest partner, PBR's premier women's rodeo, which we will be bringing to our network GRYT and ION. We recognized early that Americans were embracing the quality and professionalism of women's sports, and we are pleased to have become the go-to platform for the brands that want to connect with fans. Next week, the Professional Women's Hockey League's Walter Cup finals will begin on ION. We are very pleased to bring this to national television for the first time and to have Amica serving as our presenting sponsor and Discover as an additional sponsor. They are just two of the hundreds of blue-chip advertisers we have brought onto our platform through our sports strategy. In March, to capitalize on the marketplace growth and our success in connected TV revenue, we launched the Scripps Sports Network, a new streaming channel that leverages our existing sports rights, some efficiently acquired new rights, and sports-themed programming. We are streaming more than 100 live games a year along with original sports programming, documentaries, and talk shows. And we have secured broad distribution across the major streaming platforms, including Roku, LG, and Samsung, making it easy for fans to find the sports, teams, and players they love. Connected TV continues to be a growth driver for Scripps, up 26% in the first quarter, and I expect we will continue to leverage our premium programming and live sports to make this a differentiator for us among our peers and competitors. While we expect to capitalize on live sports on ION in Q2 just as we have with our Local division in Q1, we are navigating some external challenges with national advertising revenue. As Jason mentioned, we are seeing some market softness due to the volatile economy. Networks' direct response ad spending, in particular, has been impacted as consumers feel the pain of higher prices, especially now at the pump. We have also been affected by a recent Nielsen audience measurement change that has artificially shifted household viewership weighting in favor of cable networks. Because all Scripps networks are distributed over the air, this change has negatively impacted audience delivery. Nielsen's new methodology is inexplicably resulting in frustratingly inaccurate reports of ratings declines for over-the-air viewing and streaming. This disproportionately impacts the measurement of our multicast network viewers who are most vulnerable to affordability issues, including those in rural communities, people of color, and older Americans. The fact is that we have seen no let-up in the demand for our advertising products in the general market, and sales execution is on point. But Nielsen's overnight change suddenly impacted our supply of impressions, impacting our revenue. We began seeing a revenue impact from Nielsen's methodology change in March, and since then, our team has been advocating aggressively for Nielsen to make a public disclosure outlining the magnitude of the discrepancy in their data. Of course, I cannot end the discussion on advertising without at least a nod to what we expect to be this year's political revenue windfall as a result of our excellent station footprint, our focus on sales execution, and the record amount of money expected to be spent on the upcoming midterms. We are off to a good start and expect political to be a great story on top of this year's industry-leading core revenue performance we are putting up this year. I would like to take a moment now to celebrate some important recognition of the work we do on behalf of our viewers and communities. Scripps has received recent awards and recognitions from three important national organizations. We were honored with six nominations for national News and Documentary Emmy Awards, including five for Scripps News and one for WEWS in Cleveland. Scripps News also was recognized with three prestigious National Headliner Awards, including a Best in Show honor, and two Deadline Club finalist nominations. Our local station KNXV in Phoenix also received three National Headliner Awards and WTMJ in Milwaukee received one. We are proud of the recognition of our commitment to journalism that improves the lives of those we serve, holds the powerful accountable, and upholds the tenets of our democracy. Serving our democracy is one of the things Scripps has done best for nearly 150 years. There is a lot of uncertainty in the world today, from macroeconomic to the media sector. At Scripps, we are acting with urgency on what we can control by employing new technologies to create operational efficiencies, capitalizing on accessible growth areas such as sports and CTV, and improving our balance sheet. This is the essence of our transformation plan, and you are beginning to see how this plan will carry us into the next bountiful chapter of our long history. We will now open the call for questions. Operator: As a reminder, to ask a question, please press 11 on your telephone. Our first question comes from Daniel Louis Kurnos of Stifel. Your line is open. Daniel Louis Kurnos: First and foremost, Jason, thanks for the recast; super helpful. Just a couple of housekeeping questions. The guide that you gave for Q2, that is relative to the adjusted combined recast, not the as-reported from February last year, correct? And then, Adam, on Scripps Sports Network—super smart—you have been leading the charge in CTV. You had your upfront in late March and launched the network before then. You picked up PWHL, PBR, and now women’s PBR. You have got a real leadership position on the women's side. Can you give us your thoughts on advertiser feedback and commits as we look ahead? And you have been very clever with rights acquisition in an inexpensive manner. Sometimes there is confusion between what you can show on streaming and what you can show on traditional broadcast, so help us think through that equation too. Jason P. Combs: That is off of the adjusted combined recast that we provided. Adam P. Symson: First and foremost, Dan, I like to think that we have embraced women's sports, not put it into a stranglehold, but I appreciate what you are getting at. We have been very intentional in the way we have been acquiring sports, both on the local side and the national side, and see our opportunity as recognizing the value of the distribution we bring to the table. Whether it was with our initial deal with the WNBA, the NWSL, or any of these other sports deals we have done, we have been looking for partners who recognize that we bring the opportunity to showcase their league, their games, their athletes, on the most ubiquitous platform available, because ION is uniquely positioned to be available on OTA, on pay TV, and on streaming. The launch of Scripps Sports Network is a continuation of that strategy because it not only positions certain parts of our broadcasts in additional new real estate in the streaming space through simulcasts—allowing us to take some of ION's most premium time periods and now simulcast them on streaming platforms, essentially expanding the reach of those games and our network—it also allows us to carefully and efficiently acquire new rights for insurgent or ascendant leagues looking to get distribution for their games and allows us to test and learn. For example, many of the PWHL games and Major League Volleyball are available on the Scripps Sports Network, and then the finals end up being broadcast on ION. Our move to put all of that on ION has been about really serving the advertising environment. We see significant demand from advertisers looking to invest behind women's sports, and we went to the marketplace knowing there was already demand for the assets we were acquiring. That will benefit us in linear and in the streaming space. We will continue to be careful and efficient in the way we acquire rights but also really aggressive in the way we demonstrate the value of our distribution. Relative to the ad marketplace, there has been no let-up in demand for live sports. When you look at our performance relative to general market cable and broadcast networks, you see the benefit of our sports strategy. We are just now moving into the second quarter where we have that benefit going into the summertime; we did not see that in the first quarter. Nevertheless, there has been some softness in the national ad market, and I think Jason can provide a little more color on the national ad marketplace and even a midterm view of what we expect from Networks margins. Jason P. Combs: We guided to down 10% for Scripps Networks in Q2, and that is driven by a couple of things: ratings declines tied to changes in Nielsen methodology that Adam talked about, as well as macroeconomic and geopolitical conditions that are driving uncertainty and have created a weaker marketplace for national advertising. Networks that over-index on over-the-air carriage are seeing pressure versus cable networks that are generally seeing significant ratings increases under the new methodology, and we will continue to engage because we believe that methodology is flawed. Beyond that, the current macroeconomic environment is impacting performance-driven advertisers in the direct response space. Inflationary pressure and higher fuel costs continue to weigh on the American consumer, and geopolitical instability has created some hesitation and ripple effects. In the short term, that has created a drag on revenue and margin in our segment. We worked hard to get Networks back to a 30% margin business. As you look at the implied guide for Q2 and our results for Q1, I would expect our second-half margin to be higher than our first half. Q3 is the heaviest sports quarter in terms of inventory, and Adam talked about the excitement we continue to see for premium sports inventory. Q4 also brings in seasonal healthcare ad dollars, and you will start to see some impact from the transformation efforts in the second half as well. We remain committed to the Networks business as a 30% margin business. Daniel Louis Kurnos: Understood. On monetization, we are seeing more live sports move towards programmatic, especially in CTV. How do you think about pushing deeper into DSP relationships, leaning into the ad tech ecosystem, and getting better fill—even if CPMs come under pressure—to ultimately improve monetization? Adam P. Symson: I would argue we are operating a best-in-class CTV platform. Going back to the earliest years of digital and CTV, we have been focused on maximizing the opportunity with direct sales and programmatic. The leadership we have at the Networks level focused on monetizing our CTV across the enterprise is second to none, and we are well invested. You can see that in the 26% growth, following significant growth in prior years. We have not just been riding market growth; we have been catalyzing our own opportunity—improving our programmatic stack, strengthening ad tech relationships, and leveraging our significant position with distributors. We represent some of the most watched premium channels in the CTV marketplace, which gives us leverage to negotiate terms and partnerships that benefit us and the platforms. There is incremental opportunity ahead, including leveraging technology to improve monetization in CTV and local CTV, and significant opportunity with political in CTV. We are already seeing that this year, allowing us to sell connected TV advertising out of our political office outside of the markets where we have local stations. Today, we sell nationwide, and a fair amount of the connected TV political advertising we saw in the first quarter came from outside our markets. We are off to a really good start there and will keep the pressure on. Operator: Thanks, Dan. Our next question comes from Craig Anthony Huber of Huber Research Partners. Your line is open. Craig Anthony Huber: Thank you. Can you give us an update on the $125 million to $150 million transformation program—specifically where you think the annualized run rate will be at year-end and any changes on that front? Jason P. Combs: Last quarter, we gave an annualized run rate of $60 million to $75 million for this year. We adjusted that this earnings cycle up to about $75 million, and we would say we are making good progress. I will also point out the move we had in leverage this quarter and explain that a bit. When we announced the transformation initiative, we did a lot of work to lock down our bankable plan of initiatives expected to be implemented over the next 12 months. Per the terms of our credit agreement, we are able to reflect those retroactively back into our trailing eight-quarter EBITDA for purposes of leverage calculation. That is the driver behind the move in leverage this quarter down to 3.9 times, tied to initiatives we expect to have fully implemented by the end of Q1 next year. Adam can talk a bit more about the bigger picture. Adam P. Symson: We are executing a comprehensive plan that allows us to rethink everything about how we deliver service to our customers—both audiences and advertisers. We spent months examining the opportunity to remake the company across every corner of the business, front office and back office, and now we are in implementation. I received a lot of comments about how confident I sounded last quarter when I said “take it to the bank.” I am as confident today that we are going to improve EBITDA by more than 30% to emerge a stronger, more nimble, and more aggressive company oriented for growth. It is all about our customer, and it is being done through the lens of our vision: we create connection. Much of it involves technology, AI, and automation and is oriented toward growth. Importantly, we are on track to achieve exactly what we set out to do. Craig Anthony Huber: On AI, can you give a bit more flavor on how you are using it for services and efficiency? Is it possible to quantify how much of the $125 million to $150 million improvement comes from AI? Adam P. Symson: I cannot quantify that yet. As we roll out different initiatives, when they are in the rearview mirror, we can provide more color. Broadly, technology has opened the door for all companies to be more effective and efficient. Traditionally, the broadcast industry has been too slow to adopt these technologies. We are now stepping back and rebuilding the company in both the front office and back office. Several years ago, we pioneered a new way of producing newscasts that leveraged technology to reallocate resources—putting more reporters in the field and paying higher wages. That became the basis for our neighborhood news strategy and geographic beats. We continue to have more reporters in the field than competitors, which is what consumers care about, and we are leveraging AI and automation to facilitate that. We also see significant top-line upside from technology in revenue yield management and account executive productivity—tools that let AEs spend more time prospecting and closing and less on administrative work. These are not themes; they are plans with real business cases developed by our employees. Even the cost savings opportunities will improve our product—both content and advertising—improving service to audiences and advertisers and generating additional top- and bottom-line value. Craig Anthony Huber: Lastly, on the macro environment, is it letting up or getting worse? Any categories beyond direct response that you would call out? And in Q1, did you see changes tied to geopolitical events, and has that continued? Jason P. Combs: On the Networks side, the impact is tied to macroeconomic conditions and geopolitical conditions—inflation, gas prices, all those things—which are creating headwinds in national advertising. We have not really talked about the Local ad marketplace yet. In Q1, Local core was up 7%, the best in the industry. For Q2, we guided to down low single digits, which is better than our peers. Unlike Q1, Q2 does not have the same level of premium sports inventory, and we are seeing a little noise in some categories, but all in all, from a Local core perspective, things are pretty stable. Operator: Thank you. Our next question comes from Avi Steiner of J.P. Morgan. Your line is open. Avi Steiner: A couple of questions on the ad environment. Can you refresh us on your exposure to direct response advertising and how quickly it typically snaps back in prior down cycles? Is it leading or lagging? Jason P. Combs: It varies by network, but we do have a material portion of Networks revenue tied to direct response advertising. DRA is tied to broader macro trends and can both downturn quickly and bounce back quickly as well. We are seeing some noise now tied to macroeconomic and geopolitical factors and the Nielsen methodology changes impacting ratings. Adam P. Symson: From a speed perspective, it snaps around quickly. A good example is what we saw in the fourth quarter: at the beginning, we were a little soft with DRA due to the government shutdown’s impact on employment and Medicare enrollment. When the shutdown ended, it snapped back. Uncertainty is not good for the American consumer; the greater the certainty, the easier things will be in the ad marketplace. Avi Steiner: On the enterprise value growth via cost savings and revenue growth initiatives, what is the cost to achieve for the transformation initiatives and timing? Jason P. Combs: We guided to EBITDA lift of $125 million to $150 million. We estimate $40 million to $50 million of cost to achieve, with the largest portion falling in the back half of this year. Avi Steiner: The recast financials in the supplemental disclosure were helpful. Could you provide the LQ8 EBITDA for the same base of assets underlying that disclosure? And what is left to close, and dollars in and out? Jason P. Combs: The LQ8 that supports the 3.9x leverage calculation is $568 million. We are awaiting closure of our swaps with Gray and also have a transaction with Inyo before the FCC and DOJ. On dollars, I do not have the specific number readily available on this call. The transformation-related cost savings embedded into that LQ8 are a little over $100 million annualized; in our most recent announcement, we cited $53 million, with the exact contribution dependent on timing. Operator: Thank you. Our next question comes from Shanna Qiu of Barclays. Your line is open. Shanna Qiu: Thanks for taking my questions. Could you give us a sense of how much of the Scripps Networks top-line guide decline in Q2 is related to the overall macro and ad environment versus the Nielsen methodology change? Jason P. Combs: We are not breaking it down specifically, but both are driving a material impact to the revenue guide. Adam P. Symson: On the Networks side, we sell impressions, and the impressions are determined by your currency. In mid-February, overnight, Nielsen's methodology change did not impact sales execution or demand; it impacted how many impressions we had to sell. We are working with Nielsen to right that ship and making changes on the marketing and programming side to bolster our programming strategy and increase impressions. That is separate from some of the macro softness in DRA. The general market has held up nicely, likely due to our sports strategy and strong sales execution. Shanna Qiu: You mentioned you expect full-year gross distribution revenue growth of low single digits. Any thoughts on the pending Charter–Cox merger, and is that reflected in your gross distribution guide? Jason P. Combs: We do not generally talk about specific contracts, but we feel good about that guide. We went through an impasse in the second quarter with Comcast and were able to maintain our guide on gross and make only a small change in our net guide from low teens to low double digits. While it creates a short-term blip in Q2 financials, we are pleased with what that deal means in the midterm and long term for us. Operator: We have a follow-up from Craig Anthony Huber of Huber Research Partners. Your line is open. Craig Anthony Huber: On the Nielsen change, are you willing or able to talk about the percent hit to impressions and how you view it? And has Nielsen provided any recast numbers? Adam P. Symson: I do not think quantifying it publicly benefits us. You have heard similar references from other companies with national broadcast network exposure. This is something all the broadcast networks and streamers are dealing with. We are working with Nielsen to address this so the ad marketplace can make decisions with a methodology that reflects what is actually happening. It is obviously not the case that cable is growing while streaming and OTA are declining. Everyone recognizes changes have to be made to improve accuracy. As for recasts, I cannot speak for Nielsen. The changes went into effect in mid to late February, and we have not seen public recasts. Operator: Thank you. Our next question comes from Steven Lee Cahall of Wells Fargo. Your line is open. Steven Lee Cahall: Thanks for fitting me in. Jason, can you help us understand the sequential change in Local core ad growth going from plus 7% to down low single digits? There is the change in local sports and the Comcast blackout. What does the underlying core look like within that—how much of the deceleration is sports versus underlying trends? Jason P. Combs: Q1’s up 7% had a significant benefit tied to our NHL deals and also the Olympics in the marketplace. If you take out the sports impact, the overall core marketplace is pretty consistent and not significantly impacted by broader economic factors. The down low singles we guided to for Q2 is better than most in our industry, which have guided down low to mid singles. From that standpoint, core is a strength right now. Adam P. Symson: I hope investors and analysts recognize that our first quarter performance is cause to celebrate because we are executing a strategy that creates significant growth opportunity—cyclical as it may be. As we move to Networks in Q2 and Q3, we will see that benefit there. Running a strategy that allows you to vacuum up more core revenue in a local market comes with cyclical dynamics tied to sports windows. Steven Lee Cahall: On Networks growth, Q3 is the biggest for sports, but sequentially 1Q to 2Q has more sports as well with WNBA restarting. If the market has not changed as we get past Q3, do we see a big drop-off in the rate of decline, or are there other levers—programming or pricing with the upfront—you will pull in the back half? Jason P. Combs: From a margin perspective, we expect the second half to be higher than the first half. We have some sports in Q2, yes, but they ramp to a full quarter in Q3. I would expect year-over-year changes to improve in the back half. You also pull in healthcare in Q4, and transformation benefits will start to roll through. Even though we are trending below the 30% target now, we remain committed to making the decisions needed to get Networks back to a 30% margin. Adam P. Symson: It is too early to talk about upfront volume or pricing. While Nielsen’s change may have negatively impacted impressions for OTA and streaming, the ad marketplace is responding very well to our upfront message: our distribution platform that grows OTA and streaming and our differentiated programming—live sports, specifically women’s sports. Advertisers recognize what is going on in cable and are shifting dollars into more premium products. That is behind significant new advertisers coming onto our platform, like Amica as presenting sponsor for the Walter Cup finals on ION, historically not an advertiser on our platform but now moving spend to reach their audience with our product and distribution. Steven Lee Cahall: Lastly, on leverage and preferreds: you are able to take advantage in your credit agreements of the transformation initiatives, which gives you some breathing room. Does that mean you can start to devote this year’s free cash flow toward the accumulated pref dividends or otherwise negotiating the pref? How are you thinking about it? Jason P. Combs: We were already well under our covenants, so while the transformation provides a benefit to our leverage calculation, there was already significant cushion. On the Berkshire preferred dividend, based on last year’s refinancings, we cannot pay the dividend until 2027 unless our leverage is below 4.25x—which we are—and we have less than $50 million outstanding on the B-2 term loan. Think of it this way: those are the requirements to begin paying the dividend. Once we meet them, we would intend to start paying the dividend again. Once we get leverage into the low to mid 3x, we would begin looking to address principal, not all at once but likely in $60 million increments. Operator: This concludes our question-and-answer session and today’s conference call. Thank you for participating, and you may now disconnect.
Operator: Good day, and thank you for standing by, and welcome to the Ispire Technology Q3 2026 Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded. I would now like to turn the conference over to James Carbonara with Hayden Investor Relations. Please go ahead. James Carbonara: Good afternoon, and welcome to Ispire Technology's fiscal third quarter 2026 earnings conference call. Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact in its announcement are forward-looking statements. Forward-looking statements are based on estimates and assumptions made by the company in terms of its experience and its perception of historical trends, current conditions, and expected future developments as well as other factors that the company believes are relevant. These forward-looking statements involve known and unknown uncertainties, and many factors could cause the company's actual results or performance to differ materially from those expressed or implied by the forward-looking statements. Further information regarding this and other risk factors are included in the company's filings with the SEC. The company undertakes no obligation to update forward-looking statements to reflect subsequent or current events or circumstances or changes in expectations, except as may be required by law. I will now turn the call over to Michael Wang, Co-Chief Executive Officer of Ispire Technology. Michael, you may begin. Michael Wang: Thank you, operator, and thank you all for joining us. This quarter marked a turning point for Ispire. Our business has stabilized. Our operating model is sharper and more disciplined, and we ended the quarter with $18 million in cash, up $468,000 sequentially. This sequential cash growth is one of the clearest signs of progress in the quarter. It demonstrates the improving financial control and a more focused operating posture and reinforces our confidence in becoming cash flow positive in the second half of this calendar year 2026. The transition we set out to make is behind us. Now we are executing against a phased growth roadmap, multiple catalysts, each tied to billion-dollar markets where we have clear competitive advantages. The first and most immediate of these is Malaysia. Our Malaysia manufacturing platform is live today, and we believe this is one of the most strategically important developments in the company's history. In addition, Malaysia provides us with an estimated 25% tariff advantage over China, giving us both economic and strategic leverage as we pursue opportunities in the $73 billion global vape market. This is both a manufacturing milestone and a structural advantage that we believe can support margin improvement, customer acquisition, and long-term market relevance. Second, plans are underway to launch our Vapor ODM initiative in July. This initiative will initially serve small and mid-sized brands with larger brand opportunities targeted for 2027. We see this as another practical commercialization pathway that can convert our manufacturing, design, and regulatory capabilities into higher-value customer relationships. Beyond these near-term drivers, we continue to build long-duration optionality through differentiated technology. Through IKE Tech, we believe our Age-Gating platform has the potential to help unlock approximately $50 billion to $70 billion U.S. flavored vape market, a market that remains effectively inaccessible today under the current framework. In parallel, our G-Mesh Glass Technology is growing interest in a $24 billion plus legal global market, including licensing discussions with major tobacco participants. These are proprietary assets that could materially expand our strategic and financial opportunities beginning in 2027 and beyond. The accomplishments we achieved during the fiscal third quarter are clear. We strengthened liquidity, improved operating discipline, and advanced the roadmap with multiple high-value catalysts. We believe that combination gives Ispire a stronger foundation for both profitability and the long-term shareholder value creation as we move forward. I will now turn the call over to Jie for a more detailed review of our financial results. Jie? Jie Yu: Thank you, Michael. For the fiscal third quarter ended March 31, 2026, Ispire reported revenue of $18.7 million compared with $26.2 million in the third quarter of fiscal 2025 and $20.3 million in the prior quarter. The modest sequential decline primarily reflected seasonal factory downtime associated with Chinese New Year and represents the most resilient second to third quarter performance pattern in our history. Gross profit for the quarter was $2 million and gross margin was 10.7%. Importantly, gross profit was impacted by approximately $2.2 million of one-time product returns from legacy cannabis customer with whom we have ceased doing business. We view those returns as part of final cleanup associated with our strategic repositioning, not representative of the normalized earnings profile of the go-forward business. In that sense, we view this quarter as one in which reported margin observed a legacy headwind, while the underlying business mix continues moving in an improved direction. On the cost side, we continue to make meaningful progress. Total operating expenses, excluding credit loss were $5.9 million, down 36% year-over-year from $9.3 million, and down 3.7% sequentially from $6.1 million in the December quarter. This performance reflects the impact of sustained cost discipline and a more focused operating structure. It also reinforced our belief that profitability is increasing a matter of near-term execution and scale. Credit loss in the quarter was $5.6 million, down roughly $500,000 year-over-year. This improvement is another indication that the financial cleanup tied to legacy activity is moving in the right direction. And we are committed to continued discipline around receivables and working capital management. Net loss for the quarter was $9.5 million compared with $10.9 million in the year ago period and $6.6 million in the prior quarter. While the quarter still reflects transition-related pressure, the broader trend is encouraging. We have materially reduced our cost base while positioning the company for higher quality revenue streams and better operating leverage over time. We ended the quarter with $18 million in cash, an increase of approximately $468,000 sequentially. This sequential cash growth is a meaningful achievement in the context of an ongoing repositioning. It strengthens our balance sheet, support our near-term growth investments, and underpin our confidence in reaching cash flow positive performance in the second half of this calendar year 2026. From a financial perspective, the foundation for improved profitability has been built. The company is leaner, more disciplined, and better aligned with high-value growth markets. I will now turn the call back to Michael. Michael Wang: Thank you. This quarter marks the beginning of a new phase for Ispire. The transition in our business reflects reduced exposure to low-quality revenue and is now about converting that reset into a stronger earnings model, a stronger cash profile, and a stronger strategic position in global nicotine and compliance technology markets. Our priorities are clear. First, we are focused on profitability and the path to becoming cash flow positive in the second half of this calendar year 2026. We intend to build on the momentum we have established this quarter through operating discipline, working capital management and the ramp of new revenue catalysts. Second, we are focused on winning from a position of strategic advantage. Our licensed manufacturing presence in Malaysia gives us a highly differentiated foothold in a critical geography with regulatory exclusivity and tariff advantages that we believe can translate into both commercial and financial benefits over time. Malaysia is a platform for expansion. And finally, we are building a company with multiple avenues for value creation, near-term scale commercialization through Vapor ODM, and longer-term upside through Age-Gating and G-Mesh. Together, these initiatives create a diversified roadmap that we believe is unusual in our industry and compelling from an investor perspective. Thank you for your time and continued support. Operator, please open the line for questions. Operator: [Operator Instructions] And today's first question comes from Nick Anderson with ROTH Capital Partners. Nicholas Anderson: Congrats on the quarter. First for me, just on the vape news and the recent flavored approval, there was discussion around the digital leash software, which maybe was the reason the FDA viewed that application favorably. I guess 2 questions off that. Do you believe proximity-based restrictions will be the path the FDA takes? And if so, do you have the capability to incorporate that tech into your -- do you have the ability to incorporate that into your tech if you don't have it already? Michael Wang: Nick, thank you. The first part of the question, actually, I will go straight to the second part. Yes, we do have that built into our solution. And from day 1, that was the key differentiation between our technology and other solutions out there. So more importantly, our platform is now moving out of the old app model more into a platform model. So this, again, reinforced the continuous authentication capabilities. And more importantly, because it's a platform, we would allow for brands to customize and set their own, I guess, performance parameter, you can say, really brand -- from brand to brand, we provide that capability because we also want to make sure brands in dealing with different regulations across the world, they can set the parameters differently country by country depending on regulations, too. So the simple answer is, yes, we have the continuous authentication capability, and it's in our solution. And the advantage really is, so many solutions out there, especially solutions developed years ago tend to be either having the device turned on after initial age verification and then stay on forever, which is, of course, highly undesirable from a regulatory point of view or they would have a periodic reauthentication or verification. That also creates gaps where potential misuse of the device could happen. So that's why from day 1, our solution was continuous authentication and that proved to be very important to regulators, not only with the FDA, but outside the U.S. as well. Nick, I hope I answered your question. Nicholas Anderson: Yes, that's perfect and very encouraging. Second for me, just on partnerships. This PMTA announcement also validated Age-Gating positioning and getting flavors to market. I know this is maybe too early, but what have you seen with discussions with potential partners in terms of potentially accelerating off of this approval? What has changed in the last few days in terms of the clients you're talking to? Michael Wang: You're right. Indeed, in the last 48 hours, up to 72 hours, the ground was moving per se. So that's really encouraging to us. President Trump's pressure on the FDA, obviously, went a long way for the industry. And the immediate approval of the 4 additional SKUs for glass sent a strong signal to the industry. So I think all the key players in the industry are familiar with the pros and cons of different solutions. Collectively, we have shared consensus that our solution is most advanced versus other technologies. So with the news over the last couple of days, certainly, we got accelerated existing conversations with brands. In a couple of situations we actually have even moved one step further discussing using our technology in some of their existing PMTAs through a so-called supplemental PMTA to accelerate the approval of their flavored products. So it's clear the industry recognize the flood gate is opening and Age-Gating is the only way to get flavored approval. And lastly, with everybody's understanding for our solution being far ahead of competition. So we are absolutely getting -- I would say, yesterday, put it this way, I worked for 17 hours. That's much longer than my typical day of 12 hours. So it says a lot about the effort we put into entertaining those conversations. Nicholas Anderson: That's great to hear. If I could squeeze just one more in on the state-by-state structures. With regulators becoming more constructive around vape, how do you anticipate states will respond? Several markets still have banned flavors, some have banned foreign imports. How do you see the state landscape changing as potentially more flavors come to market, in the legal market? Michael Wang: I think from a flavor ban point of view, those, I think, 5, 6 states literally are aligned with FDA's flavor ban. So they are just reinforcing these bans accordingly. So from that point of view, there is consistency. I certainly hope with FDA feeling comfortable with Age-Gating Technology and start approving flavors, those states would align as well, would support approved flavors. But of course, we all know the general flavor ban in place right now is really trying to minimize the impact of black market from selling devices to underaged users. So that was a real goal by those states. So I think from that point of view, there is a perfect alignment with the FDA. I certainly hope the state would follow FDA's lead in terms of supporting approved flavors. But regarding other state-by-state situation, Texas, for example, is driving toward banning China-made vaping devices. So that is absolutely supporting our strategy of producing our product in Malaysia. So I think that's a plus for us. But some other state-by-state restrictions, I think, involved in probably banning disposables. We all know disposables are not environmentally friendly approach to vaping. So I think the industry is moving further, further into pod systems versus disposable. And California, I think, as we know, ban online sales to further protect consumers. So I don't think that is going to change. That is the right policy because online sales is so hard to regulate and verify, certify. But ultimately, the true solution in protecting under-aged consumers or people and to protect adult consumers from using risky dangerous product is by FDA approving flavored devices with age-gating built in. So I think I'm happy for the industry, knowing to us devices were approved, and this is a new beginning for the industry. I'm happy for consumers. And certainly, this is a major win for the regulators as well. Instead of doing nothing for flavored products, finally, this is the right thing to do, using technology here to solve the problem. Nick, that's my answer. Nicholas Anderson: Congrats. Operator: And this concludes today's question-and-answer session. I would now like to turn the conference back over to Michael Wang for any closing remarks. Michael Wang: Thank you, operator. Obviously, this quarter is a low quarter in terms of revenue for us, but it's not a surprise. Q3 has always been a low quarter due to the Chinese New Year shutdown of the factories. But generally, from Q2 to Q3, we saw over 30% drop in business. For this time, it's only 8% drop. That's really, as Jie indicated, the lowest drop in history. So -- but I do believe from top line and bottom line point of view, Q3 was a low point. And we feel very strongly, as Jie stated, our foundation is set solidly. We have a lot of work to do, certainly to prove to investors that we're over the hump and we are now on an upward trajectory. So I look forward to sharing more performance and developments with investors in the coming months. Certainly, we are here to show what we can accomplish this current quarter and the September quarter. I hope there will be a trend to regain some of the investors' trust and confidence, and we'll never look back again. So thanks again to everybody on today's call. This concludes it all. Thank you. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Koppers Holdings Inc. First Quarter 2026 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. If you need assistance, please alert a conference specialist by pressing star followed by 0. Following the presentation, instructions will be given for the question-and-answer session. Please note that this event is being recorded. I will now turn the call over to Quynh McGuire. Please go ahead. Quynh McGuire: Thanks, and good morning. I am Quynh McGuire, Vice President of Investor Relations. Welcome to our first quarter 2026 earnings conference call. We issued our press release earlier today; you can access it via our website at coppers.com. As indicated in our announcement, we have also posted materials to the Investor Relations page of our website that will be referenced in today’s call. Consistent with our practice in prior quarterly conference calls, this is being broadcast live on our website and a recording of this call will be available on our website for replay through 06/08/2026. At this time, I would like to direct your attention to our forward-looking disclosure statement seen on Slide 2. Certain comments made on this conference call may be characterized as forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of assumptions, risks, and uncertainties, including risks described in the cautionary statement included in our press release and in the company’s filings with the Securities and Exchange Commission. In light of the significant uncertainties inherent in the forward-looking statements included in the company’s comments, you should not regard the inclusion of such information as a representation that its objectives, plans, and projected results will be achieved. The company’s actual results, performance, or achievements may differ materially from those expressed in or implied by such forward-looking statements. The company assumes no obligation to update any forward-looking statements made during this call. Also, references may be made today to certain non-GAAP financial measures. The press release, which is available on our website, also contains reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures. Joining me for our call today are Leroy Ball, Chief Executive Officer and Chair of Koppers Holdings Inc., and Brad Pearce, Interim Chief Financial Officer and Chief Accounting Officer. At this time, I will turn the discussion over to Leroy. Leroy Ball: Thank you, Quynh. Good morning, everyone. I am pleased to join you today to provide more insight on Koppers Holdings Inc.’s performance in 2026 as well as provide an update on how we are progressing towards our 2028 transformation targets. Let me start with our major news from this morning. At the present moment, I am in Chicago, where just a few hours ago I delivered the unfortunate news to our workforce here of our conditional decision to begin immediately winding down production at our Stickney, Illinois facility with a target to cease distillation by the end of this year. I note that I am using the word “conditional” because the decision is subject to the satisfaction of any bargaining obligations that might exist with the union representing certain employees at the facility. As outlined on page 4, this conditional decision impacting approximately 85 employees was driven by the continued challenging market conditions that have persisted for well over a decade. When we made the decision to close our other two U.S. facilities for CMC in 2016, approximately 565 thousand metric tons of coal tar were being produced and readily available in North America. After the most recent coke plant closure we announced earlier this year at Algoma Steel, the number has now dropped to 350 thousand metric tons, simultaneously putting pressure on raw material pricing and reducing our throughput. This has resulted in higher unit costs, which have not been able to be fully recovered in the form of higher pricing. Adding to the mix is that despite having spent over $100 million in capital at Stickney over the past five years, which is a multiple of the spending at any other Koppers Holdings Inc. site, we still find ourselves dealing with reliability issues, which means we would still have significant future capital requirements to address aging equipment. This is not a people issue, as the team at Stickney has done heroic work over the past ten years to try to get us to a better place, and I sincerely thank them for their efforts. But the bottom line remains that we feel we have done everything we can to make this operation viable, and we just do not see a credible path to get there. At this time, we are tentatively targeting 2027 for shifting production to our coal tar distillation facility in Nyborg, Denmark. In the meantime, we have further strengthened the supply chain from Nyborg to the U.S. through expanded shipping and terminal capabilities in order to ensure an effective transition for existing pitch and creosote customers. We anticipate investing between $10 million to $15 million to further strengthen that supply chain over the next few years, which can be done while staying within our annual $55 million maintenance CapEx as capital is freed up from Stickney. The discontinuation of production activities at Stickney is anticipated to result in pre-tax charges to earnings of $227 million to $262 million through 2029, which includes $170 million to $195 million of non-cash charges projected to be recorded in the second and third quarters of this year. Cash closure charges of $57 million to $67 million will be spent over a three-year period beginning in 2026. These charges will be funded by the operating and capital cash benefits generated by this action, which are expected to total $15 million to $25 million on an annualized basis and therefore will have little impact on our near-term free cash flow projections except for timing. At the same time, the longer-term result of this move will be significantly accretive to free cash flow. We are estimating that the adjusted EBITDA savings related to this action will reach an annual run rate of $15 million to $20 million in 2027 and beyond, which would result in a 75 to 100 basis point bump in adjusted EBITDA margin. Translating the adjusted EBITDA benefit to adjusted EPS would result in an increase of $1.00 to $1.20 per share. We also anticipate $8 million to $15 million in reduced future annual capital expenditures. I again want to thank our Stickney employees for their continued hard work and determination while operating under persistently tough circumstances. I understand that this situation is incredibly difficult and will have a real impact on our employees and their families, which we will make every effort to minimize. Our priority is to provide the support and assistance needed to help the employees navigate any transition as we map out the future of our CMC business. Now let us move on to page 5, which outlines our results for the first quarter, including adjusted EBITDA of $49.3 million, which is a 10.8% adjusted EBITDA margin. We had operating profit of $22 million and $0.57 in adjusted earnings per share. We generated operating cash flow of $46.3 million and free cash flow of $34.9 million, both cash flow metrics representing a first-quarter record. On a trailing twelve-month basis, operating cash flow of $192 million and free cash flow of $139 million also represent new highs. Capital expenditures, net of insurance proceeds and sale of assets for the quarter, were $11.4 million, and we also deployed $29 million in share repurchases and $1.9 million in dividends while keeping total debt consistent with December 2025. Now let us move on to our Zero Harm accomplishments, as seen on page 6. Thanks to the commitment of our worldwide team, 30 of our 40 sites were accident-free in the first quarter. Our European CMC and PC businesses, as well as our Australasian PC and CMC businesses, had zero recordables in the first quarter. Leading activities, a key contributor to our serious safety incidents, took a step back compared with the prior-year quarter; however, our recordable injury rate improved from prior year. The objective of Zero Harm is to constantly focus on what is most important, the health and safety of our team members, and we will never lose sight of our goal of zero by reinforcing the foundational elements of the safety culture, deploying additional tools and training, and driving environmental improvements in 2026 and beyond. Turning to page 8, we issued our 2025 annual report and 2026 proxy statement, which are available on the Koppers Holdings Inc. website. For more information, please use the QR codes to access these materials. As shown on page 9, Koppers Holdings Inc. gained additional recognition by being named to Newsweek’s 300-member listing of America’s Most Charitable Companies for 2026. This honor reflects our employees’ ongoing commitment to volunteerism and our corporate support of community initiatives and causes. It joins previous recognition of Koppers Holdings Inc. as one of Newsweek’s America’s Most Responsible Companies, USA TODAY’s America’s Climate Leaders list, and TIME’s America’s Best Midsize Companies. On March 30, our leadership team joined me to ring the closing bell on the New York Stock Exchange, celebrating 20 years of Koppers Holdings Inc. as a publicly traded company, as seen on page 10. In addition, I participated in an interview on the financial news program Taking Stock to share the story of our continuing path to sustainable profitability for our customers. Moving on to page 11, Koppers Holdings Inc. will be hosting an Investor Day on Thursday, September 17 in Atlanta. On September 16, the prior day, we will be conducting a tour of our research and development lab of our Performance Chemicals business. On Wednesday evening, the Koppers Holdings Inc. executive team will also host a meet-and-greet reception. Look for more details in the months to come. In the meantime, please mark your calendars and plan to join us for our Investor Day and related activities. I will return in a bit to provide my view on how we are seeing the current year within each business while also reviewing our outlook for the remainder of 2026. For now, I am going to turn it over to Brad to speak in more detail on our first quarter financial performance. Brad? Brad Pearce: My remarks today are based on the information in our press release. As seen on Slide 13, reported consolidated first-quarter sales of $455 million were essentially flat compared with prior-year sales. Relative to the prior-year quarter, RUPS sales decreased by $15 million, or 6%. PC sales were up $21 million, or 18%, and CMC sales decreased by $7 million, or 7%. On Slide 14, adjusted EBITDA for the first quarter was $49 million, representing a 10.8% EBITDA margin on sales, compared with $56 million and 12.2% in the prior-year quarter. By segment, RUPS generated adjusted EBITDA of $23 million, or a 10.3% EBITDA margin; PC generated adjusted EBITDA of $26 million, or an 18% EBITDA margin; and CMC reported adjusted EBITDA of $1 million, or a 1% EBITDA margin. Turning to the RUPS business, Slide 15 shows first-quarter sales of $220 million compared with $235 million in the prior-year quarter. Of the $15 million change in sales, approximately $10 million of the decrease came from the Railroad Structures business that we sold in 2025. The remaining decrease in sales can be attributed to customer mix and price decreases in our Class I crosstie business and lower activity in the Maintenance of Way businesses. These factors were partly offset by volume increases in our domestic utility pole business, higher commercial volumes, and $1.4 million in favorable foreign currency changes compared with the prior-year period, mostly attributed to our Australian utility pole business. RUPS delivered adjusted EBITDA of $23 million compared with $26 million in the prior year due to lower sales and lower sales volumes. Turning to Slide 16, our Performance Chemicals business reported first-quarter sales of $142 million, up from $121 million in the prior-year quarter. This increase was primarily due to a 15% volume increase, higher sales activity primarily in the Americas, and $2.7 million in favorable foreign currency changes from international companies. Adjusted EBITDA for PC increased to $26 million versus $20 million in the prior-year quarter. Profitability benefited from higher sales volumes and higher prices, partly offset by $2.4 million of higher raw material and operating costs. Slide 17 shows that sales in the first quarter for our CMC business were $93 million, compared to $101 million in the prior-year quarter. This decrease was primarily driven by $14 million of lower volumes related to our phthalic anhydride business, which was discontinued in 2025, and lower sales prices across most products, especially carbon pitch, which was down 9% globally. These were partly offset by volume increases in carbon pitch, naphthalene, and carbon black feedstock, as well as $7.6 million in favorable foreign currency changes from international companies. Adjusted EBITDA for CMC in the first quarter was $1 million compared with $10 million in the prior-year quarter due to lower sales prices and higher operating and raw material costs, partly offset by operating cost savings associated with discontinuing the phthalic anhydride business. Compared with 2025, the average pricing of major products was lower by 11% while average coal tar costs were slightly higher. As shown on Slide 19, we continue to pursue a balanced approach to capital allocation in terms of investments to position the company for the future. We spent $11.4 million in the first quarter for capital expenditures. We are anticipating a total of $55 million in gross capital spending for the full year of 2026. Our share buyback activity in the first quarter totaled approximately $29 million, including those associated with tax withholding from our incentive stock plans. We have approximately $45 million remaining on our $100 million repurchase authorization. We also continue to return capital to shareholders through our quarterly dividend of $0.09 per share. At March 31, we had $386 million in available liquidity and $877 million of net debt, representing a net leverage ratio of 3.5 times. We remain focused on our long-term goal of reducing the net leverage ratio to 2 to 3 times. Slide 20 provides additional detail on our total capital expenditures for the first quarter of just over $11 million. We deployed approximately $7 million to maintenance capital spending, with the remaining balance allocated to Zero Harm initiatives and growth and productivity projects. Capital expenditures were approximately $5 million for RUPS and $3 million for both PC and CMC. As highlighted on Slide 21, the Board of Directors declared a quarterly cash dividend on May 7 of $0.09 per share, reflecting a 12.5% increase from the prior year. The dividend will be paid on June 15 to shareholders of record as of the close of trading on May 29. While future dividends are subject to ongoing Board approval, maintaining a quarterly dividend at this rate will result in an annual dividend of $0.36 per share for 2026. With that, I will turn it back over to Leroy. Leroy Ball: Thank you, Brad. I will now review the market outlook for each of our businesses, starting with Performance Chemicals on Page 23. Despite a number of different headwinds on demand, such as the Middle East conflict, higher mortgage rates, lower housing turnover, and general inflationary pressures, our PC business still posted a healthy 15% top-line gain from volume in Q1. As we expected, the gains came from market share growth of about 9% and customer inventory build added about 6%, while organic volumes were mostly flat. Through Q1, that puts us reasonably on track to likely exceed our expected top-line increase of 11% as the inventory build will continue through Q2 and then taper off; however, we will only begin hitting our run rate for market share growth in Q2 as we finish the remaining plant conversions. As I mentioned, most external markers that drive the health of this business, such as mortgage rates, housing turnover, and repair and remodeling spending, are still lagging. But the recent move from our customers is more than it has been in some time that a recovery may be around the corner. We are discounting that optimism for now until we begin seeing it in the numbers. As a result, we are still forecasting flat demand on the base residential business, with a mid–single-digit volume increase expected for our Industrial Products segment as driven by growth in utility pole demand. On the cost side of the equation, there is a lot of noise in the system between potential ITC tariff recoveries, net exposure to the across-the-board 10% tariffs that were put in place in response to the EPA ruling, higher fuel costs from the spike in oil, and copper volatility. I would say we have more working against us than for us right now. With what amounts to a $5 million to $10 million current net exposure, our procurement team has been working hard to offset it by negotiating better pricing in certain materials, while our commercial team has been preparing to implement fuel surcharges. Copper has continued to hold its lofty pricing with modest periodic corrections, but it looks like mid- to high-$5 per pound copper is likely the new low water mark and we are now above the $6 threshold. That is going to require at least $50 million in price adjustments in 2027 to recover that increase. In summary, PC has gotten off to a strong start, giving us confidence to move our sales projection up slightly from our initial view of the year while holding our EBITDA projection where it was, as those additional sales get offset by a net cost increase. That is contingent on base residential volumes holding steady, and our ability to mitigate some of our cost exposure via pricing pass-throughs and other cost reductions. Moving on to our Utility and Industrial Products business, shown on page 24, market sentiment remains bullish for all the reasons we have continued to talk about, which include increasing electrical demand related to buildout of AI infrastructure, crypto mining, EV development, and new manufacturing. Our first-quarter sales increased by 12% due to volume, reflecting that bullishness, with 3% of that 12% resulting from the December 2025 acquisition of our Doug fir supply chain. In our targeted underserved regions, we grew volumes by 9% coming off growth in 2025 of 17%. Market demand remains concentrated on a limited range of pole sizes, and this has put pressure on fiber sourcing and driven up raw material costs, which we are working to recoup to return margins to our long-term target. We expect some cost relief on the whitewood side when our peeler in Leesville, which was damaged by fire last September, comes back online, which will enable us to bring more peeling capacity back in-house and lower our third-party costs. As mentioned earlier, our Doug fir acquisition is showing early dividends by increasing our access to this important fiber, enabling us to better compete for previously unavailable business. On the flip side, the Southern Yellow Pine market is under pressure due to closures of pulp and paper mills and lumber mills, as well as fires that destroyed tracts of timber in the Southeast. With sales volume strong and pricing relatively flat, we have more work to do to bring costs into check. Getting the Leesville peeler back online will help, along with the consolidation of Vance production into Kennedy, which began in Q1 and should contribute $2 million in savings by year-end. We are experiencing higher costs for fuel and freight that we are working to pass on. Additional Catalyst initiatives—our transformation program launched in 2025—are expected to generate further cost savings, which will help to overcome the additional corporate cost allocations that have been shifted to UIP this year and enable our pole business to contribute to the year-over-year EBITDA improvement projected for the RUPS segment. The market outlook for our Railroad Products and Services business is summarized on page 25. Our Q1 top line was down compared to prior year despite crossties sold being consistent with prior year. After adjusting for the sale of our KRS business last August, the main driver of our revenue decline was an unfavorable mix, with lower pricing having a smaller impact. We had a greater proportion of treatment-service-only sales in Q1 compared to prior year, combined with lower green tie purchases and black tie shipments. The severe winter storms that hit much of the country in Q1 knocked our plants offline for a number of days. This impacted production and shipping, which we began making up in March, but uneven customer car flow in and out of our plants also had an impact. Our customers have pledged to work on improving that situation, which should enable us to catch up as the year goes on. While we have had a few customers pull back on their demand for the year, most of it was known as we entered 2026, and a few others increasing demand are expected to more than offset the other railroad reductions. Commercial backlog remains as strong as ever, delivering 3% higher sales in Q1. The price reductions we exchanged for growing our piece of a smaller market this year will be made up through the year as we work to idle the Florence, South Carolina facility by October. We also continue to relentlessly go after costs, with Q1 representing the eighth consecutive quarter of reduced operating expense and direct SG&A compared to the prior-year quarter. While we expect to be in good shape from a demand standpoint this year, the overall lower industry demand is wreaking havoc on sawmills, resulting in reduced production and widespread mill closures. I mentioned our strong cash quarter during my earlier comments, while our RPS business led the way in that area with stellar working capital management, holding inventory in check during a period where we usually see a build. While we still expect strong sales in both RPS and UIP for the year, we are incorporating more of an unfavorable mix into our forecast for the year, also baking in some of the impact from higher oil. This is bringing our revenue projections down by $10 million on both the top and bottom end of our range, as well as bringing our EBITDA projections down proportionally. The outlook for our CMC business is summarized on page 26. Overall, the market continues to be in turmoil, with Q1 results reaching their lowest point since the beginning of our major restructuring efforts in 2016. The war in the Middle East, which began two days after our last earnings call, has only made the situation in this business more challenging as oil price shocks have resulted in rapidly escalating raw material costs. As higher oil prices hold, we will be playing catch-up over the next couple of quarters regarding passing on higher pricing. This is estimated to have a $5 million impact on CMC over the remainder of the year, in addition to the $1 million impact it had on Q1 for this segment. On the plus side, this could potentially create some market opportunity for Australian, European, and North American aluminum producers to fill the void of Middle East aluminum producers and will likely create an opportunity of more sales for Koppers Holdings Inc. The continued uncertainty in the carbon products markets only highlights the necessity to take a major action, which we are doing by ceasing production at our Stickney site. There is no need to repeat all the financial details I previously mentioned, but they are once again outlined on page 26 and speak for themselves. Once we felt comfortable that we had the capacity to reliably absorb the U.S. volume in Denmark and could beef up our logistics assets to further improve reliability, it became a very unfortunate but obvious no-brainer to move forward with shifting production to Europe. While there are no celebrations at Koppers Holdings Inc. to commemorate this action, it is an unquestionable win for our shareholders. This action is expected to pay for itself over the next few years while improving earnings and long-term cash flow significantly. In addition, by significantly strengthening our European operation, we increase the likelihood that weaker European competitors will eventually succumb to the challenging market conditions. For this year, though, we are going to have to reduce both our revenue and EBITDA estimates for CMC due to impacts from higher oil and generally worse market conditions. As shown on page 27, we are a little over a year into our Catalyst transformation and executing successfully on many initiatives. In Q1, we realized $14 million of benefits spread across our business segments and corporate functions. In PC, the driver was market share growth and new products. In RUPS it was the plant consolidation at Vance and market share growth. For CMC and corporate it was procurement savings. In addition, we are using Catalyst to improve our working capital discipline, delivering $16 million in benefits in Q1, driven primarily by inventory control in RPS. Adding the benefits from our Stickney announcement, we have now identified a minimum of $90 million of benefits to be realized from 2026 through 2028. Of that, we expect $30 million to $40 million of benefits in 2026, which is up by $10 million on the low end. This puts us squarely on track to deliver on our 2028 goals of adjusted EBITDA greater than 15%, a three-year EPS CAGR of more than 10%, net leverage of lower than 2.5 times, a three-year free cash flow average of a minimum of $100 million, and our combined PC and RUPS segments making up 80% to 85% or more of our sales. The result of reaching those metrics should result in significant shareholder value creation. Moving on to page 29, our consolidated sales guidance remains at $1.9 billion to $2.0 billion in 2026 compared with $1.88 billion in 2025, with higher sales in PC and RUPS more than offsetting lower CMC sales. The foundation of customer demand is proving to be solid four months into the year, especially for our PC and RUPS segments, as we have now turned the corner on PC market share loss from last year and are starting to see the needle move in the other direction. On Slide 30, we are lowering our adjusted EBITDA forecast to $240 million to $260 million in 2026 compared with $257 million in 2025. The major reason for shifting our previous range of guidance down by $10 million is the impact of higher oil across our entire enterprise. The war in the Middle East was not a variable we had contemplated when we communicated our 2026 guidance in February. While we believe it is contained to less than 5% on our consolidated EBITDA, we believe it is prudent to incorporate it into current guidance at this point while the various other puts and takes are projected to offset each other. Slide 31 shows our adjusted earnings per share bridge, which reflects a range of $3.80 to $4.60 per share in 2026 compared with $4.70 in 2025. Year over year, that represents a 3% increase at the midpoint and a 13% increase at the high end. Most of our projected improvement is expected to come from lower interest expense and benefits from a lower share count. On Slide 32, we now expect an even higher jump in both operating cash flow and free cash flow this year. This will provide the most cash we have had for debt paydowns since 2020, when we received the cash proceeds from selling our KJCC business. Not only would operating cash flow and free cash flow represent new highs at these projected levels, but more importantly, 2026 will represent an inflection point for our step change in cash generation as we expect these new higher levels to become the norm. Our current market cap equates to a 10% to 15% free cash flow yield and places Koppers Holdings Inc. at the top end of whatever industry you want to compare us to and provides several attractive options for how we deploy our excess cash. On Slide 33, in terms of capital spending, we continue to forecast $55 million for the year, consistent with $55 million spent in 2025. Currently, we are spending at a run rate lower than $55 million, but we will still likely spend at that rate for the year as we take dollars that we would have spent at Stickney this year and put them towards bulking up our logistics assets. The foundation we have built over the past decade has set us up to create significant shareholder value over the next several years, and I am confident we will deliver. We still maintain leading shares in niche markets that utilize our essential products with low capital requirements going forward. Coupled with the unlocking of significant cash flow, we find ourselves in a strong position to deliver shareholder value in multiple ways. While today represents a difficult next step, I believe it is the right one for our customers, our team members at Koppers Holdings Inc., and our shareholders who have patiently hung in while we have methodically built a model that is built to last. We will now open the call for questions. Operator: Thank you. We will now begin the question-and-answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star and then two. At this time, we will pause momentarily to assemble the roster. The first question will come from Gary Prestopino with Barrington Research. Please go ahead. Leroy Ball: Hi, good morning all. Hey, Gary— Gary Prestopino: Throughout your narrative on what you are looking for going forward in a couple of your segments, you mentioned you have to get some price increases to offset some of these input increases. In the past, how successful have you been at driving those kinds of price increases, and what is generally the lag? How long does it usually take relative to where we are right now in the next cycle? Leroy Ball: Yes, that is a good question. I think it varies and it varies depending upon business unit as well, but I would say for the most part we have been successful. There is a timing aspect to it. There have been some changes that we have made in some of our agreements, coming through COVID in that big inflationary environment that we were in, where we got caught for a period and were hamstrung in terms of being able to pass on some of these increases. We were able to make some changes in certain contracts that give us more flexibility to pass stuff on a little more currently. Generally, as it relates to passing on fuel surcharges and those sorts of things, I think we have an ability to do that more or less currently, so there is little to no lag that needs to happen there. We have tried, with some of the larger relationships we have, to understand whether this stuff was going to be sustainable or short term, but we have obviously gotten to the point now where we are moving forward on trying to work with passing that on. As it relates to some of the bigger issues in terms of impacts on raw materials that we know are going to linger for a bit, most of our contracts on the CMC side are at least a quarter to six months from being able to pass that on, which is why we talk about the impact we see more or less in the back half of the year that we will get to catch up on until we probably turn the page into either the fourth quarter or into 2027. On the PC side, we tend to go through multi-year agreements and the latest cycle wraps up this year, so discussions will be happening in the back part of this year. Actually, discussions are currently happening about trying to give them some insight into where their overall cost structure looks at this point and what to expect. We will have more news on that as we get to the back half of the year. As we talk about often, we are mostly hedged for the biggest piece of that as it relates to copper, but there will be a reset on that as we head into next year. We are also continuing to work on new products that can help minimize the amount of copper that needs to go in and/or retention rates, so there are all kinds of things that we are working on to try to mitigate and minimize the impact on our customer, hopefully put a few more dollars in their pockets as well as ours, and create more success for the industry. It is a mixed bag, Gary, but bringing the guidance down by $10 million on both the top and bottom end of the range was our best attempt at, from an unmitigated standpoint, what we would expect for the year related to the oil impact, which is the biggest—other than copper, it is the biggest impact that we are currently facing on an ongoing basis. We feel pretty good that we have that captured there with a little opportunity for upside on pass-throughs. Gary Prestopino: That is a good explanation. As it relates to what you are doing within the CMC business, I realize it is a difficult decision. It is always hard to tell people of a decision. Is it mostly cutting excess capacity—there just is not the end demand there—and by folding everything into Nyborg, you would expect that you would get more utilization of that facility and you can get your margins up that way? Is that how we should think about it? Leroy Ball: It is another consolidation play, yes. We have excess capacity at Nyborg that has freed itself up over the past couple of years. At the same time, raw material availability in North America has come down. With what we have remaining here in North America, we found that we could comfortably fit that into our Nyborg operation and have very little incremental cost to do so. We could essentially source raw material from North America, process it there, and still serve the vast majority of our customer base here in North America, and cut out a significant level of fixed cost in the process. So it is a consolidation play. Gary Prestopino: Thank you very much. Operator: The next question will come from Liam Burke with B. Riley Securities. Liam Burke: Thank you. Leroy Ball: Good morning, Liam. Liam Burke: With the shifting of production from Stickney to Nyborg, do you anticipate any competitive disadvantage? Having your in-house creosote for the coatings has been a competitive advantage. Does the greater distance affect that competitive advantage? Leroy Ball: No, we do not believe so. That is really happening today. We already bring a significant amount of creosote into North America. With where the cost structure was at, we believe we will be able to actually improve the reliability of the supply chain because, while certainly distilling in Chicago is closer to your customers, there is no question, the aging equipment that we have there has created a host of reliability issues over the years. We would find ourselves scrambling at times despite the fact that we had operations right here. Nyborg is a beautiful facility, it has been incredibly well maintained, and we do not deal with those sorts of issues there. Yes, you are extending the time to get product back and forth, but we are adding tank capacity here. We already have terminal setups and a fairly mature logistics operation that has been doing this for a while, and our competitor makes similar shipments back and forth across the pond as well. This is not unique, it is not new, and we believe it actually improves the reliability and competitiveness for us, which is a driver for making the decision. Liam Burke: Great. On copper pricing, you have been able to increase prices to your customer with margin, or is that going to create a competitive pricing problem? Leroy Ball: We will be pricing to market because we are not the only one in this situation. Our margins fluctuate; they range anywhere in that 17% to 22% range over time. We had one year where it fell below that—in 2022 or 2023—when we ate a lot of cost, and it was not necessarily on the copper side; it was on other raw material pieces that we were not able to pass through at that point in time. That was an anomaly. On occasion we have bumped above the 22% range. I see no reason why, going through this round, we will not end up somewhere in that range coming out of it. We will have to be competitive, and we will be, while demonstrating to our customers our commitment to them and to the industry in terms of developing new products for them to take to market and helping them from a profitability standpoint. I think we are in a good position to maintain that 17% to 22% margin range overall. Liam Burke: Great. Thank you, Leroy. Leroy Ball: You are welcome, Liam. Thank you. Operator: The next question will come from Michael Mathison with Sidoti & Company. Please go ahead. Michael Mathison: Congratulations on the quarter—you guys were very impressive. Just turning to my questions, you mentioned a $10 million impact this year from the increase in oil prices, which of course fluctuate. They were down a lot the past few days. Is there a rule of thumb that we can use that if oil prices move by X, impact to Koppers Holdings Inc. is Y percent? Leroy Ball: I wish it were that simple because there are so many tentacles to it that it is tough to put your finger on it with that level of precision. You can look at the current situation as a bit of a guide. With oil prices rising suddenly in February up into the $100 to over $100 per barrel range, we are saying that is going to have what we believe up to a $10 million unmitigated impact over the year. That gives you some sense in terms of that level of sensitivity. We do have abilities to pass some of that on, to negotiate higher pricing, because these sorts of things do not just impact us; they impact our competition as well. It is not a situation where any of this is Koppers Holdings Inc.–specific. I believe we will get it back over a reasonable timeframe, and that is what we will work to do. Overall, I mentioned this number is going to be less than a 5% impact. It is meaningful to the numbers we gave out, but in the grand scheme of things, not necessarily so, and it is something that we will be able to pull back in over the next three to twelve months, I would say. Michael Mathison: Fair enough. Turning to the future of the CMC business, if we look forward to 2027 after the planned shutdown at Stickney, is there an EBITDA margin target for CMC that you can share with us? Leroy Ball: We have run those numbers internally, and I would say it would be in line with our overall consolidated margin target. We have talked about one of our transformation target goals being at a 15% or greater EBITDA margin from an overall company standpoint, and our expectation is that this particular business will be right around that number. Michael Mathison: Perfect. Very helpful. Turning to PC, the sales growth there was especially striking. With flat overall market residential sales, what drove the market increase? Leroy Ball: It was a stark change last year as we took a market share hit. We had talked in the back part of last year that we thought we had opportunities to win back some of that market share, and we were able to do that to some extent, while also picking up additional market share from some of our larger customers who still had a little bit of business out there with other suppliers. Through product development we had done, we were able to get them comfortable to make some conversions on plants that were not in our network and get them moved over. On the industrial side, Tommy Kaiser and his team in PC have done a really good job of continuing to develop that business; it is in a nice, healthy spot right now too. Our sales team has consistently done a good job of building that customer and relationship network, and we have been successful more often in winning that business than losing it. You go through phases—we went through a good eight years of wins, and that just made us more vulnerable at some point that some business was going to move away, which happened last year. We did a reset and have proven to our customer base that we understand they are incredibly important to us and it is our job to help them be more profitable and open doors for them to be successful, because their success is ultimately ours. We had signaled that near the end of last year, and now it is being put into action. Michael Mathison: Thanks for the information, and good luck in the coming quarter. Leroy Ball: You are very welcome. Thank you. Operator: The final question will come from an Analyst with Singular Research. Please go ahead. Analyst: Good afternoon, gentlemen. My question is with regards to all this volatility in commodity markets and inflationary pressure. What are you sensing with regards to your competitors? Are you finding any M&A activity opportunities as a result of all this volatility in the markets? Leroy Ball: Yeah— that is a good question. Three of our four businesses hold such significant share that any sort of M&A consolidation activities for us in those businesses are really unlikely from an antitrust standpoint. It does not really matter at the end of the day as it relates to RPS and, for the most part, PC—certainly in North America—as well as CMC. UIP is a different animal and certainly we would have much more flexibility in terms of M&A in that space. We continue to keep up our relationships and have our conversations and see where they go. There are a lot of companies, certainly on the smaller end, that are feeling the pinch, but there is nothing that we have to report at this moment as it relates to that. We continue to monitor and keep our eyes on it, and if something pops up, we will evaluate it. If it makes sense, we will do it. If it does not, we will pass and go on from there. It is really only one business—UIP—where we have that sort of opportunity as it relates to the core business. Analyst: Thank you very much for that insight. Leroy Ball: You are very welcome. Thank you. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to CEO, Leroy Ball, for any closing remarks. Leroy Ball: Thank you. I really appreciate everybody’s patience and hanging in. It has been a tough, hard-fought last year, but the company and our team continue to do an amazing job keeping their fellow teammates safe and keeping everybody focused on the bigger goals at hand. While today is an unfortunate and painful chapter in our history from a people standpoint, for shareholders it is clearly a win, and we are seeing that reflected in the market today. We look forward to continuing to execute on our plans and updating you in the future. Thank you, everybody, for tuning in today. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Pat, and I will be your conference operator today.?At this time, I would like to welcome everyone to the Privia Health First Quarter Conference Call.? [Operator Instructions] I would now like to turn the call over to Robert Borchert, SVP Investor Relations of Incorporated Communications. Robert, go ahead. Robert Borchert: Well, thank you, Pat, and good morning, everyone. Joining me are Parth Mehrotra, our Chief Executive Officer, and David Mountcastle, our Chief Financial Officer. This call is being webcast and can be accessed in the Investor Relations section of priviahealth.com, along with today's financial press release and slide presentation.? Following our prepared comments, we will open the line for questions. Please limit yourself to one question only and return to the queue if you have a follow-up to get as many questions as possible. The financial results reported today are preliminary and are not final until our Form 10-Q for the quarter ended March 31, 2026, is filed with the Securities and Exchange Commission.? Some of the statements we'll make today are forward-looking in nature, based on our current expectations and view of our business as of today, May 7, 2026. Such statements, including those related to our future financial and operating performance and future business plans and objectives, are subject to risks and uncertainties that may cause actual results to differ materially. As a result, these statements should be considered along with the cautionary statements in today's press release and the risk factors described in our company's most recent SEC filings.? Finally, we may refer to certain non-GAAP financial measures on the call. Reconciliation of these measures to comparable GAAP measures is included in our press release and the accompanying slide presentation posted on our website. Now I'd like to hand the call over to our CEO, Parth Mehrotra. Parth Mehrotra: Thank you, Robert, and good morning, everyone. Privia Health delivered a strong first quarter as we continue to execute extremely well and drive growth across our markets. This morning, I'll summarize our first quarter performance and business highlights, and David will discuss our first quarter financial results and our updated 2026 guidance before we take your questions.? Privia Health's outstanding operational execution and the strength of our diversified business model clearly demonstrate our ability to perform in all types of market and health care regulatory environments. We are proud to deliver on our mission to achieve the quadruple aim, better outcomes, lower costs, improved patient experience, and happier and more engaged providers.? New provider signings and implementations remain strong. This provides great visibility through the remainder of 2026. We ended the first quarter with 5,535 providers, a 13.6% increase year-over-year, and with 1.6 million value-based attributed lives, up 26.5% from a year ago. The combination of implemented provider growth, attribution growth, and value-based care performance helped increase practice collections 14.6% from the first quarter last year.? We continue to show strong operating leverage across the platform and G&A expenses. Adjusted EBITDA for the quarter increased 36.3% to $36.7 million, with EBITDA margin as a percentage of care margin expanding 290 basis points to reach 28.5%.? Given our strong Q1 performance, we feel confident about our annual guidance across all metrics. Since it's still early in the year, we are maintaining our 2026 guidance, except for increasing our range for attributed lives given the strong first-quarter attribution growth.? Our ongoing business momentum is expected to drive EBITDA growth of approximately 20% at the midpoint of the guidance, while converting approximately 80% of EBITDA to free cash flow. Privia's national footprint now includes a presence in 24 states and the District of Columbia. Our 5,535 implemented providers care for over 5.9 million patients.? We continue to demonstrate very high gross provider retention and patient Net Promoter Score across our footprint. Our growth and momentum have positioned us as one of the leading primary care-centric medical groups and value-based care organizations in the country. We expect to expand our presence in existing and new states, both organically and inorganically, given our balance sheet strength.? Privia's diversified value-based platform serves over 1.6 million patients through more than 130 commercial and government contracts. Our total attributed lives increased over 26% from a year ago. This was driven by new provider growth and the addition of the Evolent ACO business.? Commercial attributed lives increased more than 17% from last year to reach 913,000. Lives attributed to CMS Medicare programs were up 62%. Medicare Advantage and Medicaid attribution increased 20% and 36%, respectively, from a year ago. We remain highly focused on increasing attribution and generating positive contribution margin across our value-based book.? Ultimately, our goal is to achieve consistent and sustainable earnings growth for our physician partners and shareholders. David will now review our first quarter financial results and updated 2026 guidance. David Mountcastle: Thank you, Parth. Privia Health's strong operational performance continued through the first quarter. Implemented providers grew 155 sequentially from year-end 2025 and increased 13.6% year-over-year. Implemented provider growth, along with solid value-based performance and ambulatory utilization trends, led to practice collections increasing 14.6% from the first quarter a year ago to reach $914.8 million.? Adjusted EBITDA, which is reconciled to GAAP net income in the appendix, increased 36.3% over the first quarter last year to reach $36.7 million, representing 28.5% of care margin. This 290 basis point margin improvement continues to highlight significant operating leverage.?We ended the first quarter with $219.5 million in cash and no debt following typical Q1 cash outflows from value-based care payments to providers and employee bonuses.? We are reiterating our full-year 2026 guidance metrics following our strong performance in the first quarter and raising our guidance range for attributed lives at the year-end. This guide implies adjusted EBITDA growth of approximately 20% at the $150 million midpoint, and we expect 80% of full-year EBITDA to convert to free cash flow as we become a full cash taxpayer.? While our guidance assumes no new business development, we have a robust pipeline of existing market expansion and new market opportunities. We will remain disciplined and strategic while leveraging our healthy balance sheet to grow the business and compound our EBITDA and free cash flow.? Over the last 2 years, our EBITDA growth rate has averaged 32%. Achieving the midpoint of our 2026 guidance will result in EBITDA more than doubling over the last 3 years. Our consistent growth and ability to compound EBITDA and free cash flow across economic, health care, and regulatory cycles over the past 9 years validate the strength of the Privia business model.? Privia's business momentum is powered by the consistent execution of our provider partners and our employees. This has positioned us well to continue to drive growth and profitability as we build and scale our national footprint. I would like to take this opportunity to thank each one of them for their hard work. Operator, we are now ready to take questions. Parth Mehrotra: Pat, we're ready for questions. Operator: [Operator Instructions] First question comes from the line of Jailendra Singh from Truist Securities. Jailendra Singh: This is Jailendra Singh from Truist Securities. Congrats on a strong start to the year. So you guys reported strong Q1, but now you are deciding to maintain the outlook on most metrics, except attributed lives. Is this you guys just doing the Privia approach of being conservative? Or are there any items we should be aware of in terms of puts and takes for the rest of the year compared to Q1? And related to that, are you guys still expecting shared savings to be flat year-over-year? Q1 figures are pretty strong. So just give us any color about the guidance here. Parth Mehrotra: Yes, I appreciate the question, Jailendra. Yes. So look, I mean, it's still early in the year. You've seen how we've done this for the last five years since we went public. Our approach is just to keep executing every quarter. There will be some puts and takes. But as we get more data, we get comfortable in then adjusting guidance. We just gave guidance about 50 business days ago. So if this continues, then obviously, hopefully, we'll just do what we've been doing in previous years. But I don't think shared savings should be flat if this trend continues, but we'll just see what data we get for any prior period stuff in the current year across our value-based book. But if the trend continues, then it should grow year-over-year. Operator: The next question will come from the line of Jessica Tassan from Piper Sandler. Jessica Tassan: So I know you emphasized just the focus on attributed lives. So I'm interested if you guys can discuss your perspective on Medicare Advantage, just given the final year V28. Is the space emerging as more attractive as you guys hear payers describe kind of prioritization of margin over growth for '27? And then just interested to hear what your appetite for that business is, whether you're seeing a sustained effort from the payers to subcap lives, or any change in payer appetite? And just any directional commentary on how we might think about the capitated business from here? Parth Mehrotra: Yes. Thanks for the question, Jess. So our answer is not that different from what I think came up on the last earnings call as well. MA has overall good tailwinds with the demographic changes that we'll see over the next 5, 10, and 15 years. So I think it's a pretty important program, whether you do it with CMS directly or through payers. We are really focused on the MA book. I mean, you can see now we have over 550,000 MA attributed lives between MSSP and then Medicare Advantage. And so I think we're highly focused on growing that book, both attribution and then performing in that. I think as it relates to capitation or subcapitation, I mean, you've seen our view that doing full capitation is not the only way to perform well in MA. We believe in sharing the risk. That view remains consistent. It avoids any potential conflict of interest as payers adjust in each state, in each local geography, with baseline trends, utilization, or their program designs or attribution changes. So I think as V28 flushes through, I think there are some other adjustments that CMS has announced that they will do with the program across the board. I think just generally having good hygiene around the program. So I think we'll just continue to work with the payers. The value we really bring is very low-cost, dense networks in all of our geographies. I think that's Privia's value proposition to any payer. That, I think, will speak for itself because we have the doctors, we have the patients. The patients don't leave the doctors, no matter what happens to V28 or the MA program or what some particular payer might do or not do. That relationship is what we bring to the table, and our ability to influence the total cost of care with that patient, starting with the lowest cost setting, I think it's very, very positive for our business and the tailwinds we have. So I think we'll continue to work with the payers. As long as our doctors get rewarded for taking risks, we will take more risks. We prefer the shared risk model. Some of our books will be capitated going forward as it is today. Some would be shared risk with a lot more upside. So we'll just see how this plays out in every geography because you're contracting at the ZIP code level, in different risk pools. And so even though the macro environment may get better and the payers come out of the last couple of years, how we contract with them just varies by geography. Operator: And the next question will come from the line of Matthew Gillmor with KeyBanc. Matthew Gillmor: I had a bigger picture question just on growth. Our thought is that there's going to be some washout with the industry, and perhaps you're seeing that already, and that stronger organizations with good balance sheets will benefit from that. Is that something you're seeing either from the business development pipeline or with M&A? Are there more opportunities than you've seen in the past? Or would you describe it as steadier? Parth Mehrotra: Yes, I appreciate the question, Matt. I think you're right. There were a lot of investments done, VCs entering the space, and private equity being very aggressive. I think with all of that dissipating, I think it bodes well for a business like Privia with a very strong balance sheet and free cash flow profile. I think also medical groups with ownership structures, which were pretty unique across the landscape, with physicians owning certain assets, small businesses owning certain assets, and smaller private equity firms owning certain assets. I think as they look for exit or they look for a much more permanent capital structure, I think they've seen what they have to see in the last four, five years. And I think they realize what a company like Privia is from that kind of ownership, permanent capital perspective. So I think our business development pipeline is really strong. We're looking at deals across the spectrum. And as you know, our platform is really broad in terms of acquiring service entities, tech platforms, ACO entities, medical groups, and tax IDs. So, it's really broad in terms of what we can do and how we can uniquely structure these deals. Ultimately, with the objective of creating these dense medical groups, ACOs, and full tech and services platforms in every state in a very integrated fashion. I think that's a very unique value proposition that we bring to the table for any physician group, any patient, any specialty, any type of value-based arrangement. So, I think we're keeping busy, and we'll continue to deploy capital to keep compounding the business. You've seen us do that last year. I think we'll continue to just do it, just be disciplined around it, just be patient with valuation expectations. But I think as there are less and less exit opportunities for some of these assets, I think we've become a pretty attractive option. Operator: The next question will come from the line of Elizabeth Anderson with Evercore ISI. Elizabeth Anderson: Congrats on the quarter. Maybe just to piggyback off of what Matt was saying. I mean, you've obviously built Privia around primary care and the entry point, expanding that. But it's like the network maturity grows, how do you think about adding more specialty or perhaps changing the mix? Is that sort of something that you just think will happen sort of naturally? Is there any change in how you're thinking about that as an attractiveness in terms of the mix? Parth Mehrotra: Yes. Thanks for the question, Elizabeth. So, I think that's already happening very naturally. It varies by geography because the physician mix is different in every geography we are in, and who we partner with initially is different. So today, even today, it's a 60-40 mix trending towards a 50-50 mix. And we define primary care pretty broadly. So, who's the first point of contact for somebody in the family to include pediatricians for the children, OB/GYNs, family medicine, internal medicine, and so on, and so forth? So, I think it's already happening. And even on the specialty side, we're not really focused on the surgical specialties. But over time, as volumes move outside of the health system, and we can focus on the total cost of care for certain procedures, surgeries move to the ASC setting. I think that becomes pretty attractive for a multi-specialty medical group like ours. And so, I think you'll continue to see us expand on that strategy. And we are set up really well to do that. 80% of the total cost is downstream from the PCP, with a lot of reimbursement still in fee-for-service. And so, I think the engine that we have today to add value to those practices, I think, is also very differentiated. And then over time, as value-based arrangements and programs evolve that include those specialists, I think we are very well positioned to capitalize on that opportunity. Operator: The next question will come from the line of A.J. Rice with UBS. Albert Rice: I thought I might ask you about this new lead program and your thoughts on that. We're hearing that some providers that maybe historically haven't been particularly well-positioned for some of the value-based care that this program is offering them some opportunities. And so, I wondered how you see it? And do you see this as something incremental that you have an interest in? Parth Mehrotra: Yes, I appreciate the question, A.J. So, really similar to REACH when that came about three years ago or so, I mean, we evaluate all the programs from CMS. I think given what we see today, it's unlikely we'll move our MSSP ACO into lead, just given how well we perform, the nature of the program, you can do one versus -- you can't do both with the same tin. So, you've got to pick one, really. And I think MSSP is designed really well. Our hope is that some of the elements of lead as CMS experiments with these and changes some of these programs to make them more long-term sustainable. I think you could see more convergence between MSSP and Lead as an example, because a lot of the baseline program structure is pretty much the same, with some added benefits in Lead. So again, it's a new program. It comes into effect next year. We'll evaluate it. I don't think you should expect us to move our existing MSSP book, but we have the flexibility to add new providers and lives into lead in new geographies, or if we acquire a business that has reach, it makes sense to move them into lead. I think we'll look at that. So, like any other program, we just evaluate it, but we think it's a step in the right direction, and CMS continues to evolve its thinking and take out some of the program structures that make it more attractive for a certain set of providers, like health systems, and so on and so forth. So, we'll just see how it comes about. Operator: Next question will come from the line of Sean Dodge by BMO Capital Markets. Thomas Kelliher: This is Thomas Kelliher on for Sean. On the attributed lives on the commercial side of the business, the number of lives where you're taking downside risk is up about 60% over the last two years. Can you walk us through how risk works in commercial? And then how does the shared savings potential per individual and the volatility of that shared savings compare to some of the government programs? Parth Mehrotra: That's a great question. I appreciate it, Tom. So look, I think it speaks to the value prop that Privia brings to payers, where, just backing off of what I said earlier, once you bring a very large, dense, low-cost medical group structure in any geography, we are one of the very few entities that can do commercial value-based at this scale. OptumHealth does it really well in certain geographies. And I think the value prop is really converting the traditional fee-for-service payment stream into helping the payer take care of these lives, manage the total cost of care, having some quality metrics around different subsets of populations, whether it's children, whether it's working adults, whether it's pre- The Medicare population is between 50 and 65. So, we are converting some of the work we do into our ability to take some risk on those lives, helping the payer manage their MLR really better. And honestly, the payers are willing to compensate us in addition to the fee-for-service reimbursement on a care management PMPM basis, as well as certain quality-based bonus payments, and then ultimately, shared savings if we bend the MLR cost curve for them. So over time, we're not going to take a lot of risk at this point because it's an open-access product. The commercial patient has the ability to go wherever it likes, pretty much for different needs, especially if there's a specialty event. But again, we have corridors at risk. But as you're seeing, we are working with more and more payers across our geographies to implement some of these contracts and try to perform well. Our objective remains the same. We give value to the payers. It reduces their MLR. Our doctors and medical groups need to get compensated for it. And it's really an effort to move some of the traditional fee-for-service payments into a more value orientation. It's still, give or take, 50% of the population is commercially insured, give or take the geography.?And so this is really trying to do value-based care at a very, very broad scale for the working-class population. Operator: All right. That concludes our question-and-answer session. I will now turn the call back over to Robert... Robert Borchert: I'm sorry. Pat, we're still taking questions. Operator: So the next question will come from the line of?Matthew Shea?with Needham. Matthew Shea: I wanted to touch on technology. We picked up, I think, in April that you guys brought on a new Chief Technology Officer. Seems to bring a good background to an interesting moment, particularly as you're expanding the implementation base. So would love to hear what gets you excited about this appointment. And I know you touched on some of the tech investments you were making last quarter, but it seems like AI is becoming a louder theme in health care. So curious if the new hire changes any of your thinking or maybe accelerates some of your initiatives. Parth Mehrotra: Yes, absolutely. Appreciate the question. So we had Konda join us from Optum Insights, really good background. It's on the website. And then Chris Foy, our long-standing CTO, finally retired after a very long career. He's been working tirelessly with us since the inception of Privia, pretty much. So we're just lucky that we don't lose our great people to any competitors.? So look, I mean, we are really excited. Konda brings a great background and renewed enthusiasm to the team. We talked a lot about our tech stack and what we are doing with AI across all aspects of our business. And we have to link that with the margin profile of the business ultimately. So I think I'll just reiterate that we are looking to implement different AI applications across our whole tech stack in 3 broad buckets. Whether it's the Privia Enterprise, which is our core corporate functions, care center operations, and those are broken into fee-for-service, value-based care, and then again, patient interaction.? And then the third ultimately is care delivery. And then in each of those buckets, we are working with a lot of existing players, like we're on Google Suite and Gemini for all our corporate functions. We have Salesforce and Workday. We are also focused on every single function where we could use generative AI to increase productivity, ultimately reduce costs, or, as we grow, do not add costs, existing partnerships with Snowflakes on their Coreex AI as an example. So I think this will evolve as applications are just getting better every 3 to 6 months.? And then on the care center side, we're looking at literally every single workflow in the doctor's office. On the fee-for-service side, some examples we have iterated last time were prior auth, autonomous coding, and referral management. On the value-based side, we are focused on care gap closures, chart prep, patient scheduling, and patient interaction, which is a big focus with Agentic AI. We're looking at automated outreach, Agentic AI engagement with the patients, self-service tools, virtual health, obviously, I think we'll get much more efficient.? And then ultimately, with care delivery, you're looking at completely accurate coding, clinical decision support, suspect medical conditions, things like that. So I think there are a whole host of companies that are coming about. I think you'll see us just evolve this strategy, again, using our build-to-partner approach. But I think a company like ours, with 6 million patients, with 1.6 million in value-based lives, complex workflows around physician practices with our scale, I think we're just set up really well to benefit.? Then I think we talked about the margin profile. I mean, we are already approaching the low end of our long-term margin target, EBITDA to care margin of 30% to 35%. Our guidance this year gets us close to 29%. I think if we look at the next 5 years with everything we see that we can do with AI, I think we'll easily be close to the high end, if not exceed the high end of that margin target. So we're really excited on what we could do with all the innovation and really excited about what our new CTO can bring to the table here. Operator: [Operator Instructions] So the next question will come from the line of Andrew Mok with Barclays. Andrew Mok: Just wanted to follow up on the shared savings revenue. Could you elaborate a little bit more on the drivers of strength in the quarter, including how much corresponds to prior year performance versus current year performance? And related to this, it would be helpful to hear an update on how the Evolent assets are performing. Parth Mehrotra: I appreciate it, Andrew. So look, like last past quarters, I mean, we don't usually break down. I mean, there's always some dry period at this point in the year as 2025 closes out, and it's across the book, commercial, MSP, and MA. And then there's obviously, we get good data, and then we see what our actuaries believe about how we can perform in the current year. So there's always a mix between the 2. It varies quarter-by-quarter. So for me to give you something, it's going to change next quarter. So I think if you just look at a rolling 12-month basis, you'll see the increase over time. But it's pretty much across the book. There was not one particular area that stood out, which just bodes well for us. Andrew Mok: Sorry, could you repeat the second question? I thought I was. Just an update on the Evolent assets. Parth Mehrotra: Yes. So I think it's going really well. I think we're ahead on the integration. We feel really good about the asset. It's a core MSSP and some commercial lives. So I think we're really excited that the team is pretty integrated in the first 3 months. The tech stack is pretty much integrated. We're ahead on schedule a little bit there. So kudos to the team for doing a very hard job out of the gate here. And we look forward to working with those provider partners and continuing to increase their performance. So I think hopefully, if all that works out well, that will be good for shared savings as well as we close out this year. Robert Borchert: [Operator Instructions]. Operator: The question will come from the line of?Daniel Grosslight?with Citi. Daniel Grosslight: I actually had a similar question to the last part of the previous question, but I was hoping to get a little bit more granular detail, specifically on the sell-through of the full Privia platform into the physician base.? What's been the early reception there? Are there any metrics you can give us on what that sell-through has been and the progress you're really making in the six new states? Any stats or quantification you can give us where Evolent gave you that beachhead in those newer states? Parth Mehrotra: Yes, I appreciate the question. I mean, it's still early days. The cross-sell takes time. We're just less than five months into the acquisition, which closed in December. So job number one was making sure the team is integrated, making sure the tech stack is integrated, making sure we reach out to the practices and implement how we work on these programs, on MSSP in particular. So I think that's been our focus. Our sales team obviously reaches out to these practices to deliver the full Privia stack, but that happens usually over time. Our sales cycles are three to six months. When you're cross-selling, it's a new relationship, and you just don't want to disrupt what's there initially. So I think that will come over time. We just don't break out externally what portion of those practices move over. I think that's just part of our existing book. So you'll see that in the implemented provider numbers, which only reflect the providers that are on the full stack and part of the single-TIN from a fee-for-service perspective. So that will just happen over time. Operator: The next question will come from the line of Brian Tanquilut with TD Cowen. Unknown Analyst: This is Will Spak on for Brian. Most of my questions have been asked, but I guess, is there any color you can provide around the $11 million repurchase of NCI in the quarter? And then just a quick one on, it didn't seem like there was a major impact, but anything from weather and weaker respiratory on ambulatory utilization in the quarter? Parth Mehrotra: So, on the repurchase of the noncontrolling interest, we just acquired the minority interest in some of our markets. We expect it's going to lead to better cash flow and net income. We're constantly looking in our current markets where we have minority interests for these opportunities, and we just executed on a couple of those in the quarter. On the second part, look, I think it's important to distinguish, as we've said before, ambulatory and community doctor utilization for flu or other respiratory diseases versus the inpatient setting. We didn't see any major swings relative to previous years. The flu season comes and goes. Some years it is better, some years it's worse. Our book is very diverse. So we didn't experience the kind of change that I guess you all wrote about for some of the hospital companies reporting results in the past quarter. I think inpatient care can vary a lot more than ambulatory. Preventative care continues to be pretty good around flu, people getting their vaccinations, going in if they have symptoms, and so on and so forth. Even with snow days, telehealth is fully embedded in. It's really efficient. People know how to use it. So that's reflected in our results. You didn't see practice collections dip because of that. I think it just speaks to the diversification of our business. Operator: Next question will come from the line of Whit Mayo. Unknown Analyst: The press release didn't mention $600 million of cash at year-end, probably nothing really to read into that, but just maybe update on expectations for cash this year. And Parth, just wanted to maybe take your temperature on how you guys are thinking about buybacks at some point. Parth Mehrotra: Yes, I appreciate the question, Whit. The guidance is the same. We reiterated 80% of EBITDA would convert to free cash flow if you exclude any BD line items, including things like purchasing minority interests. So really, if you look at what cash was at the end of the year and just add free cash flow to it, which is cash flow from operations less CapEx, I think you should get close to that number. I don't think our guidance is changing there. But that does not include, obviously, the business development line or any spending on acquisitions, which is not included in our guidance. So that $600 million round number, excluding that, remains if things go well. And then look, our preference is, given the TAM out there and the opportunity to continue to consolidate different assets in this industry around community-based physician groups, ACO entities, IPAs, MSO entities, and so on and so forth. I think the best value creation opportunity for shareholders here is for us to keep compounding the business. Using our balance sheet cash to acquire these assets, integrate them, synergize them, and then just keep running that playbook, that's focus number one for deploying our cash. You've heard us say we like to keep some "sleep-well-at-night" money for a rainy day, pandemics happen, hurricanes happen, and so on. And then look, we always have the flexibility to return capital. That's an easy trigger if the value in the stock price is well below what we think is the intrinsic value for the company. But our preference is to compound earnings and free cash flow and continue acquiring businesses with our balance sheet cash. It just depends on when BD deals happen. So you can have cash accumulate, and then we could do larger transactions that are more meaningful and value-creating. We'll just see how that plays out over the next 24 months. Operator: The next question will come from the line of Jeff Garro with Stephens. Jeffrey Garro: I wanted to ask about the strong implementation of provider growth. One question, but I'll throw three parts at you. First, any callouts by market or specialty? Second, any update to contributions from provider-to-provider referrals? And third, how is the current visibility into the signed-but-not-yet-implemented providers and the current pipeline of provider prospects? Parth Mehrotra: Yes, I appreciate the question, Jeff. I'll take them in order. Look, I think given now that we are in 15 states with the single-TIN model and then another nine with the ACO-only model, the market or specialty mix just varies by quarter and by geography. As a sales team builds its pipeline, they convert, and then some markets get hot one year or one quarter, and then the others catch up. So, given the diversification of the book, it really varies each year. I think the strength of the overall business just speaks for itself. As we get bigger, we've talked about this earlier, the snowballing effect happens in this business. In our most mature markets, 50%, sometimes even 60% or 70%, of the referrals are from existing Privia practices to their colleagues. They are the best salespeople, our doctors. They've worked with us. They know what this model is. We perform for them. So, for them to refer another physician who has very high conversion rates. The LTV to CAC is off the charts in this business, some of the best that I've seen. We've talked about our payback period being less than a year. LTV to CAC is well over 10 years if somebody even decides to leave, and then our attrition rates are very, very low. So, provider-to-provider referral is very strong. And then the visibility is exceptional in this business. I mean, this is our sixth year reporting as a public company. You've seen the track record. It's a three- to six-month sales cycle, a four to five to six-month implementation cycle, given just the length of the size of the group. And so by this time of the year, pretty much every provider that has to be implemented is pretty much sold. So the visibility is over 90 percent at this point in the year. And that's why we're really confident about the guidance. And that hasn't changed much. If anything, it improves as the book of the business gets bigger. So again, the metrics around the business, the conversion rates, all are trending really, really well. We're really pleased with how we're performing. Operator: The next question will come from the line of Ryan Daniels with William Blair. Ryan Daniels: Parth, maybe a strategic one for you, and you alluded to this earlier, but it seems like there's a lot going on in real time with acute care hospitals and health systems and movement of volume to lower-cost settings. So you've got teams rolling out with entire episodes of care. You've got things like the inpatient-only list being dissolved. And I'm curious what that is doing strategically with your conversations with health systems as a potential partner to help them deal with all these pretty big changes they're facing. Parth Mehrotra: Yes, I appreciate the question, Ryan. That's a good one. Look, I do think the pressure on the traditional health system model and how they were kind of monetized is going to be higher for all the reasons you outlined. You could add the 340B program if something changes there, inpatient-only list, the willingness for them to employ primary care doctors, or certain nonsurgical specialties, and subsidize them. I mean, a lot of you have written about that over the years. I think it's going to be tough. The changes to the Medicaid or the ACA exchange population and how that filters through different health systems are also going to add pressure. So look, I think it bodes well for a business like ours as physicians look to come out of these settings into more outpatient settings and as different health systems figure out their strategy. I think it's going to vary by health system, different strategies in different communities. They have a different mandate. A lot of them are not-for-profit and are delivering care to really low-income populations. So I think it will vary by geography. But generally speaking, I think as these pressures mount up, we should expect this consolidation that's happened with physician practices at the health system setting to start to unwind a little bit, and physicians looking at businesses like ours to be a natural landing spot or even as they complete their residency as a very viable option to start or join an existing independent practice. And then it also adds to the question that was asked before around certain specialties and ASC opportunity, and our willingness to have a very strong referral base with primary care doctors having the pen in directing where the patient goes. So I think we're going to look at all of those strategies to keep expanding our network. And just given our platform that focuses on creating large multi-specialty groups in every single geography that we are in and then offering that to payers of health care in unique ways, mainly on the commercial population as well, it's a big differentiation. And I mean, you're seeing that in the results somewhat. They're very stable across cycles. And I think it's part of all of these strategies is playing out. So I think we're just going to keep looking for opportunities that we can keep compounding with that. But great question. Operator: [Operator Instructions] So the next question will come from the line of Constantine Davides with Citizens. Constantine Davides: Yes. Just two really quick ones for me. David, it looks like capitated profitability really stepped up in the first quarter. Just wondering if there's anything to call out there? And then second, Parth, you just talked about Medicaid and low-income populations. And you guys had a really nice or pronounced step-up in your Medicaid attributed lives. So, just wondering if you can talk about your Medicaid arrangements and what's prompting that growth. Parth Mehrotra: Yes. Thanks for the question. Yes. So again, this is just the first quarter of the year. The timing of data can vary quarter-to-quarter. As we always like to say in the capitated, both look at the full 12 months and a rolling 12 months. This quarter, we did get some prior year adjustments that benefited both revenue and margin. So I would say our prudent approach to the book is, at some level, paying off as we continue to see more data. We continue to get some good news there. And again, we just continue to follow our same consistent and prudent, I'll say, accrual methodology. It's a long period of time we need to review this information. But again, as good news comes in, we're able to see a little bit of additional good news. And then on the second part, Constantine, look, I think we service the entire panel in every physician's office. So organically, as we grow in existing states or new states, some part of the panel is Medicaid patients. So I think the strength of our implemented provider growth and what our sales team is able to do in certain geographies, I mean, this organic Medicaid attribution growth. We continue, again, to work with payers to figure out the right value-based strategy in that book. The gap between what any provider business would like to do and what it could get paid for is still very big, especially for the population. I mean, they have special needs, transportation needs, nutrition needs, just getting people to see the doctors, single mothers, very low-income families, so on and so forth. So I think while we can do a lot more, the willingness of the payers to reimburse us for some of those strategies is there, but there's still a gap. So while we'd like to continue to grow that book, as you can see in our Slide 6, it's all 100% upside-only deals, where again, we are taking the network to the payers, asking them much like our commercial book where we can do certain things with the population, impact the annual well visit rates with the children, with women, with working adults, making sure that they're at least seeing the doctors, getting the vaccinations, getting their screenings done. And for that, the payers are willing to pay a certain PMPM, a certain quality bonus. And then if we impact the MLR, there's shared savings to be had. But to take a risk in that book is tough. Unless the payer is really willing to get behind us and solve for some of these things. So I think we'll continue to grow it. I don't think you should expect us to take downside risk in Medicaid unless there's a unique opportunity. Operator: The next question will come from the line of Jack Slevin with Jefferies. Jack Slevin: Nice job on the quarter. I guess maybe not to backtrack over this too much, but just on the Medicare Advantage discussion, because there's pretty palpable excitement across payers and the value-based care space around that environment improving. My understanding or my read is really that many investors think that some of the moves you took to pare down risk meant that you don't necessarily participate in upside in the same way on some of the tailwinds that are now behind the industry. Maybe just breaking down that book across the 71% in upside only, the 19% upside, the downside, and the 9% cat book. Can you just talk a little bit about how better rates or more margin favorable payer bids flow through to you in each sleeve of the book there? Parth Mehrotra: Yes, it's a great question. I think the biggest dichotomy lies in the fact that broad industry sentiment does not necessarily translate into the ground-to-ground payer contracting discussion with any particular payer in one geography with a certain book of business in MA. So I think overall, I don't think reimbursement is going to increase massively over time. I think what CMS is trying to do is make sure that everybody is getting reimbursed appropriately, whether that comes through star scores or risk adjustment or whatever other mechanism they can look at. I think they had a one-time adjustment. The system got a shock. Some of the payers, I mean, these cycles have happened with MA payers over the last 20 years. You can see every 4, 5 years, payers grow their book, they overshoot, they make a correction, and then the lives move from one to the other, and then somebody is left holding the bag until the cycle repeats itself. So I think while you're coming off the trough from a payer perspective and you're seeing those results after the last 2, 3 years, how a provider business contracts at the ground level kind of remains the same. We're going to look at each geography, each book of business. And then we continue to believe, I think, this broad-based view that capitation is the only way to capture the upside. I think it's certainly myopic. I mean that you've seen the last 5 years play out. I mean, it's not like any other provider group was making a lot of money in capitation 5 years ago in '21 when they were really talking about it, and we'll see how the next few years play out. And then there's an economic profit that is there to be shared between the payers, the doctors, and the providers. Our view is that economic profit should be shared and not just captured, or the risk should not be borne by one while the economic profit is shared. So I think it's a shared risk arrangement is much more sustainable. I think you prevent some of the anomalies, some of the potential conflicts that can happen. So I think we'll just continue to work with our payers and continue to capture the upside based on the value that we provide. It does not necessarily have to happen in a capitation. Some businesses might like that volatility and play for that extra risk for the additional downside potential. But our view is to have, as we've said, sustainable earnings is sustainable earnings. And you've seen us do that over the last 6 years as a public company and then even before that. So our strategy is going to be the same. And if there are opportunities for us to take more risk, we'll take more risk. Operator: All right. The next question comes from the line of Ryan Halsted with RBC Capital Markets. Ryan Halsted: Most of my questions have been answered. But maybe just a question, any views or thoughts about payers reform on prior authorization policies, I would think certainly potential implications for your fee-for-service business, perhaps opposite implications on value-based care, but just any thoughts on that would be helpful. Parth Mehrotra: Yes. I mean, look, there's a lot of noise in the media around it these days. I think the focus there is for higher value claims, probably in the acute setting, more so than the ambulatory settings with community-based doctors. 95% to 99% of claims are resolved on the first pass. It's mainly at the specialist level where you need prior authorizations. I mean, for a primary care-centric group, it's pretty low-value claims in the first place. Ultimately, I think, look, with AI, there will be an equilibrium where the payers and the larger providers in the acute setting will just settle out on prior auth. I think it's in everybody's interest not to have extended timelines for those. It doesn't bode well for the ultimate patient who gets stuck in the middle of these, either as a surprise bill after care has been delivered or is just waiting for prior auth. So I think everybody's interest is aligned with that patient ultimately, but I think we just go through a period where some of this stuff will just get settled out. But I don't think it really impacts our business in that big of a way relative to the acute setting. I think we obviously continue to work with payers in making sure that if there are certain areas of specialties where we feel there's some friction, we smooth that out. And I think a lot of the payers have the right intent to continue to not have this as a source of friction, especially when it impacts patient care. Operator: And our last question comes from the line of David Larsen with BTIG. Jenny Shen: This is Jenny Shen on for Dave. I was wondering if you could comment on medical cost trends, how that compares to a quarter ago, and maybe a year ago? And then also, any updated thoughts on your general appetite for risk? It sounds like it's pretty consistent, but whether that has changed at all. Parth Mehrotra: Yes, I appreciate the question, Jenny. So the medical cost trend is pretty consistent. I mean, you've seen that result in our value-based book and how we perform. Again, we like to look at it over a 12-month rolling basis, as David was saying, and that's broadly across our book. So nothing jumped out quarter-over-quarter here for us. There are some impacts of the flu season, but that happens every year. So we'll just continue to look at data and then see. But from our perspective, what's in our accruals, what's in our guidance is pretty consistent. If anything, we like to be pretty prudent. And if we are wrong, there should be upside, like we've always said. So I think that's how we look at it. And I think we answered the other question previously already in terms of our ability to take risks. Operator: All right. That concludes our question-and-answer session. I will now turn the call back over to Robert Borchert, SVP, Investor of Corporate Communications, for closing remarks. Thanks. Robert Borchert: I'll hand it over to Parth. Parth Mehrotra: Thank you for listening to our call today. We appreciate your continued interest and look forward to speaking to you again in the near future. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the GoodRx First Quarter 2026 Earnings Call. As a reminder, today's conference call is being recorded. I would now like to introduce your host for today's call, Aubrey Reynolds, Director of Investor Relations. Ms. Reynolds, you may begin. Aubrey Reynolds: Thank you, operator. Good morning, everyone, and welcome to GoodRx' earnings conference call for the first quarter of 2026. Joining me today are Wendy Barnes, our Chief Executive Officer, and Chris McGinnis, our Chief Financial Officer. Before we begin, I'd like to remind everyone that this call will contain forward-looking statements. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including, without limitation, statements regarding management's plans, strategies, goals, and objectives, our market opportunity, and our anticipated financial performance. Underlying trends in our business and industry, including ongoing changes in the pharmacy ecosystem, our value proposition, our long-term growth prospects, our direct and hybrid contracting approach, collaborations and partnerships with third parties, including our point-of-sale cash programs and our integrated savings program, our e-commerce strategy, and our capital allocation priorities. These statements are neither promises nor guarantees but involve known and unknown risks, uncertainties, and other important factors. These factors, including the factors discussed in the Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2025, and our other filings with the Securities and Exchange Commission, could cause actual results, performance, or achievements to differ materially from those expressed or implied by the forward-looking statements made on this call. Any such forward-looking statements represent management's estimates as of the date of this call, and we disclaim any obligation to update these statements even if subsequent events cause our views to change. In addition, we will be referencing certain non-GAAP metrics in today's remarks. We have reconciled each non-GAAP metric to the nearest GAAP metric in the company's earnings press release, which can be found on the overview page of our Investor Relations website, @investors.goodRx.com. I'd also like to remind everyone that a replay of this call will become available there shortly as well. With that, I'll turn it over to Wendy. Wendy Barnes: Thank you, Aubrey, and thank you to everyone for joining us today. We delivered a strong first quarter with performance driven by continued momentum across our strategic growth priorities. We are seeing strength in revenue, disciplined execution on profitability, and healthy engagement across the platform. Overall, we feel confident these results validate that the strategy we laid out last quarter is working and that we are building a sustainable value proposition designed to deliver resilient long-term growth. That momentum is coming from the parts of the business we've been investing in. Pharma Direct continues to scale, supported by strong demand for manufacturer-sponsored pricing programs and continued momentum in GLP-1 access. Our subscription offerings, led by GoodRx for weight loss, are growing and driving deeper consumer engagement. Rx Marketplace is delivering performance in line with internal expectations, supported by the continued expansion of our e-commerce footprint and the strength of our direct contracting model. At the same time, the broader health care environment is evolving in ways that align with our strategy and create meaningful opportunities for us to capture additional value. Coverage gaps are widening, out-of-pocket costs remain elevated, more Americans are finding themselves uninsured, and consumers are demanding greater transparency in how medications are priced and accessed. As a result, affordability is becoming a more central factor earlier in the patient journey, with consumers and providers actively evaluating cost before prescribing and filling, pharmaceutical manufacturers accelerating direct-to-consumer strategies, employers looking for new ways to support high-cost therapies, and pharmacies adapting to more transparent, digitally driven models of fulfillment. As these dynamics evolve, how affordability is presented and experienced by consumers is becoming increasingly important, shaping not just awareness, but whether patients ultimately move forward with treatment. GoodRx is well-positioned to respond to these changes. Over the past several years, we have been focused on evolving our platform from an affordability destination into a true access infrastructure. We have built a digital storefront where consumers can easily understand pricing across generics and brands and access those options through a more integrated experience. At the same time, we have developed the underlying capabilities that allow manufacturers to leverage our platform to deliver self-pay programs directly to consumers at scale. This is expanding the role GoodRx plays in the prescription journey and positioning us to be at the center of how medications are evaluated, accessed, and filled. With that, I'll walk through our business updates, starting with Pharma Direct. GoodRx Pharma Direct continues to be a key growth engine for the business. In Q1, Pharma Direct saw 82% growth year-over-year, reflecting the continued expansion of manufacturer-sponsored pricing programs on our platform. We now have more than 125 self-pay programs live, reinforcing the growing role GoodRx plays in enabling modern pharmaceutical access. A key driver of momentum in the quarter was our continued support of highly anticipated GLP-1 launches and expansions. Since the start of the year, we have helped enable access to Ozempic Pill, Wegovy HD, Wegovy Pill, Boundeo, and Zepbound KwikPen. To provide a sense of the scale we are driving, a third-party source indicates that we accounted for approximately 1/3 of all Wegovy Pill transactions in the first 2 months post-launch. This reinforces the increasingly central role GoodRx plays in helping manufacturers bring therapies directly to the patients who need them with transparent pricing and broad pharmacy access from day 1. Beyond GLP-1s, we are continuing to expand Pharma Direct across therapeutic areas and program types. In the quarter, we announced a collaboration with Viatris to support savings availability for 17 of its established brand medications. We also introduced significant discounts from Pfizer on more than 30 of its essential medications, spanning women's health, migraine, arthritis, and rare disease, made available through a dedicated Pfizer-branded storefront on GoodRx and on TrumpRx as part of our integration. As these programs scale, our focus is shifting from launch to how affordability is surfaced and discovered by consumers. In response, we are developing new ways for manufacturers to engage patients on GoodRx. Branded storefronts are a key example, providing a simple, trusted entry point for consumers. Turning to explore a manufacturer's full portfolio of savings in one place. And when manufacturers leverage GoodRx as a channel, those programs are available across our nationwide pharmacy network, supporting broad consumer choice and convenient access. We believe this model represents a more cohesive and consumer-friendly way to present affordability offerings at scale. We are also seeing encouraging traction from TrumpRx, where GoodRx enables pricing for many of the brands available on the platform. Early data shows strong demand concentrated in GLP-1 therapies and, importantly, the volume appears to be incremental, expanding access to new patients rather than shifting existing demand. That is a meaningful signal for manufacturers and reinforces the value of transparent pricing delivered through consumer channels. Overall, Pharma Direct is evolving GoodRx beyond the pricing solution into a broader consumer access platform for pharmaceutical manufacturers, enabling them to reach patients directly, convert clinically appropriate demand, and deliver pricing seamlessly at the pharmacy counter. Now diving into the Rx marketplace. In Q1, Rx Marketplace delivered steady prescription transaction performance that was in line with internal expectations, supported by continued operational execution across the business. Monthly active consumers were flat quarter-over-quarter, reinforcing consistent engagement on the platform. Following the significant expansion of our e-commerce retail network late last year, Q1 performance demonstrated the scalability of our model, with both order volume and total claims more than doubling quarter-over-quarter. As more consumers seek convenient digital ways to access medication, expanding our e-commerce capabilities remains an important part of improving the GoodRx experience and capturing a greater share of the prescription journey. At the same time, we continue to make progress on strategic initiatives designed to strengthen the long-term economics of the marketplace. This includes advancing direct retailer agreements. We have direct contracts in place with 9 of our top 10 retail pharmacies nationwide, and are enhancing our pricing capabilities, including partnerships that enable pharma direct net pricing claims to be delivered directly at the pharmacy counter. These initiatives improve the consumer experience, create operational efficiencies for retailers, and support healthier marketplace economics over time. Turning to subscriptions, which is a key growth priority for the business. In Q1, our subscription offerings continued to scale, and the number of subscription plans returned to year-over-year growth, driven by purposeful investment, growing consumer adoption, and continued expansion across our condition-specific programs. We are seeing increasing engagement as more consumers choose GoodRx, not just for savings, but as a more integrated way to access and manage their care. GoodRx for weight loss remains the primary driver of momentum within this category. Since our last call, we expanded the platform to support all available FDA-approved GLP-1 therapies, with the Wegovy pill performing particularly well since launching at the start of the year. More broadly, our weight loss offering continues to demonstrate the value of the integrated experience we are building. By combining clinical care, transparent self-pay pricing, and broad pharmacy availability, we are creating a seamless path for evaluation to therapy initiation, helping consumers easily start and stay on treatment. Beyond weight loss, our ED and hair loss offerings continue to contribute to growth while also demonstrating the broader applicability of our subscription model across additional conditions. Overall, we believe subscriptions are becoming a more meaningful part of how consumers engage with GoodRx and are strengthening our ability to build deeper, more recurring consumer relationships over time. Combined with our Pharma Direct solutions, it also creates a strong foundation to extend our model into the employer channel. Through GoodRx Employer Direct, self-insured employers can offer manufacturer-sponsored pricing to their employee populations and choose to directly subsidize the amount with employer contributions layered seamlessly on top of the manufacturer's approved price. This creates a clear, reduced out-of-pocket cost for employees while giving employers a more flexible and predictable way to support high-impact therapies. We are already seeing this model in practice through our work with Eli Lilly and Company on Zepbound KwikPens, which enables employers to subsidize Lilly's $449 price across all doses. This is a clear example of how pharma direct pricing can be extended into the employer channel without requiring changes to the core benefit structure. We are also extending our subscription offering into this channel. Employers can offer a customized version of GoodRx for weight loss, integrating clinical care, transparent pricing on FDA-approved therapies, and broad pharmacy availability into a single streamlined experience. This approach allows employers to address coverage gaps without redesigning their core pharmacy benefit while delivering meaningful savings and improved access for employees. I will now turn the call over to Chris to discuss Q1 results. Christopher McGinnis: Thank you, Wendy, and good morning, everyone. For the first quarter, we delivered revenue of $194 million and adjusted EBITDA of $58.3 million, representing an adjusted EBITDA margin of 30%. Looking at revenue in more detail, prescription transactions revenue was $113.7 million, down 24% year-over-year, reflecting the continued lapping impacts from 2025 as well as the unit economics pressure we previously discussed. Importantly, volume trends stabilized with monthly active consumers flat sequentially at $5.3 million. Pharma Direct revenue grew to $52.2 million, up 82% year-over-year, driven by strong momentum with manufacturer partnerships and continued expansion of our self-pay pricing, specifically with the successful launch of the Wegovy pill. Pharma Direct delivered consistent sequential growth throughout 2025, which continued into the first quarter of 2026, supporting the year-over-year increase and reflecting the ongoing ramp of our consumer direct pricing offering. Subscription revenue increased 16% year-over-year to $24.4 million, supported by the ongoing adoption of our condition-specific offerings. For the full year 2026, we are raising our guidance and now expect revenue to be in the range of $765 million to $785 million and adjusted EBITDA to be at least $235 million. While we expect continued pressure on prescription transactions revenue in 2026, our increase in guidance is driven primarily by stronger-than-expected performance in Pharma Direct as we continue to build momentum in our consumer direct pricing offering. Consequently, we now expect Pharma Direct revenue to grow over 50% year-over-year. Subscription revenue is also expected to build throughout the year as our condition-specific programs continue to scale. With that, I will turn the call back over to Wendy. Wendy Barnes: Thank you, Chris. Q1 was defined by execution, but more importantly, it was a quarter where we saw a clear validation of the strategy we're executing and the sustainable value proposition, we believe it creates. We delivered strong performance in Pharma Direct, accelerated growth in subscriptions, and stable engagement in the Rx marketplace, reflecting progress against the priorities we outlined coming into the year. Across the business, we are making it easier for consumers to access medications and navigate the prescription journey while creating value for manufacturers, employers, and pharmacy partners. As the market continues to evolve, we believe this positions GoodRx to play a more central role in how patients evaluate affordability and access to treatment. That momentum gives us confidence in the opportunity ahead, and we remain focused on disciplined execution as we continue to scale the business and drive durable long-term growth. With that, I'll turn the call over to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Michael Cherny of Leerink Partners. Michael Cherny: Maybe just one quick one first for Chris, so I can understand the change in guidance. It seems that Pharma Direct has gone up, I think this implied subscription has gone up. What is the change in view, if any, on the PTR revenue base that's embedded in the new guidance? Christopher McGinnis: Yes. Thank you, Michael, for the question. First of all, prescription transaction revenue met our internal expectations. I know we didn't guide specifically to it, but I think when you look at the MAC sequentially, it was slightly up-rounded to flat, but slightly up quarter-over-quarter, and then the reflected unit economics that we talked about, I think it was largely in line. Relative to the full-year guidance, I think being down in this 24% range is probably in line with how we thought about it. I would think about the year-over-year full year as about the same. And then obviously, we're focused on the pharma Direct and the building momentum in our condition-specific subscriptions offering as well. Michael Cherny: And so that leads me to my, I guess, follow-up second question is on that subscription side. It's great to see the condition-specific growth playing out. We all know this to be a highly competitive market, with both established and fly-by-night players. As you think about what's driving your improvement in the subscription base, what do you think it is that GoodRx is doing better, differently, that's allowing you to drive that improved stability? Wendy Barnes: Michael, it's Wendy. I'll start, and Chris, by all means, chime in if you've got additional thoughts. Look, I think it's a combination of a couple of things. One, our brand recognition and consumer engagement have long positioned us as really the #1 digital drug pricing platform. So, that top-of-funnel connection we already have with consumers is, in fact, strong. And when you tie that and point that back to conversations with pharma, where they look at the connectivity we have with consumers, that absolutely drives an engagement on the brand deals that they want to strike with us, which, of course, then feeds into the success of those subscription offerings. Yes, you've got to have exceptional service in those programs, but you've also got to have competitive pricing on the drugs that those patients are seeking, in addition to potentially telemedicine. I would also say our connectivity to a broad and unbiased retail network is a competitive advantage. We are not purposely launching these programs where you've got to use a specific home delivery provider. But I would footnote, we're happy to support home delivery or retail. At the end of the day, it's really about consumer choice. And so, when you think about those 3 elements, again, our connectivity on brand, NPS with prescribers, in addition to that vast retail network, we believe that is what gives us a competitive advantage and why we're finding success and also aligns to our reason for investing in the business when we originally outlined that thesis, I think, mid last year. Anything you'd add, Chris? Christopher McGinnis: Yes. I would say from a financial perspective, Michael, what I'm encouraged by is that we largely started to build momentum on the subscription offering without a lot of marketing dollars pushed in. If you look year-over-year, we're actually down a little bit from Q1 from a marketing spend perspective. So that is reflective, I think, of Wendy's point about the volume of consumers that are visiting our platform organically, and we got a lot of tailwinds from that. We're pushing marketing dollars. I expect to spend more dollars throughout the rest of the year on marketing and specifically towards our condition offerings. So, I think we're encouraged by the early momentum we're building, and I think we'll continue to invest dollars there throughout the year. Operator: Our next question comes from the line of Jailendra Singh of Truist. Payton Engdahl: This is Payton Engdahl on for Jailendra. I wanted to hit on the Surescripts' partnership you guys announced. It's been about like 5 months since that partnership was announced. I was wondering if you could provide just an update on that, and also if that had led to any type of outperformance in the quarter. Wendy Barnes: Yes, I would say nothing material at this point. We remain partnered but continuing to figure out how best to deploy that offering. Not a lot to comment on at this point, but we appreciate the question. Christopher McGinnis: Yes. From a financial perspective, nothing material and really nothing built into the guide on that either. Payton Engdahl: And then I also just want to hit really quickly on the ISP. You guys noted some volume reduction in one of your integrated savings programs. Just any color on that, that you could provide. And if this was the same ISP partner that you guys saw last year as well, the same issue. So any color would be helpful. Christopher McGinnis: Yes. Thanks for the question. And for clarification, there's no volume reduction in 2026. Anything we've referenced is a volume reduction associated with 2025 in the past. So, we are only referencing it as a comp relative to the lapping impact, and the year-over-year impact from the volume that was included in '25 is not recurring this year. But so far this year, the ISP programs are performing consistently with our expectations, and the volume looks relatively stable. Operator: Our next question comes from the line of John Ransom of Raymond James. John Ransom: Just a couple for me. This is a little tangential to what you do, but some other players who focus on manufacturers, particularly on the software side, have noticed a pause in their marketing spend, Novo being called out specifically. What behavior, I mean obviously, your numbers didn't show any of that, but would you call out any changes in behavior as you're having dialogue with these folks in terms of how they're thinking about marketing spend and go-to-market, that either is a good guy or a bad guy? Wendy Barnes: John, good to hear from you. No, we're actually not seeing any impact. I would say quite the opposite. I mean, having recently returned from Asembia, not that we're not engaged continually with these same partners, but obviously, that's a forum where you get to see everybody in the span of about 48 hours. Feedback continues to be leaning in even more so, I would say, I think largely as a result of the success we've had to date. Laura, I believe, joined us for our last call, where she indicated that we're seeing success even earlier in the year than we had previously, and that a lot of that revenue was pulled forward that we typically book. So far, we are demonstrating exceptional ROI for the dollars that pharma is investing with us. And I'll give the regulatory environment a little bit of credit here, too, to suggest that the push on affordability and direct-to-patient programs coming out of various sources is continuing to help fuel pharma's motivation to do deals and/or expand with us. Christopher McGinnis: John, I would say the first of all, the one thing to note is that our point-of-sale buydown programs are not a part of those marketing budgets. So, that's not impacted in terms of what you may be seeing in the marketplace. And the only dynamic I think that we really noted is Laura, who joined us last quarter, who's the President of our Pharma Direct businesses, noted that the number of deals was down a little bit, but the dollar amount of those deals was higher. So net-net, we're up across the board across Pharma Direct. So we're seeing positive contribution from all aspects of that line of business. John Ransom: And then just going back to the old core business, Rx Marketplace. I know it's been a slog, but are you implying at least stabilization in terms of transactions and monthly MAC and transactions subscriptions? Do we look for that to stabilize and flatten? Or is there continued longer-term pressure there? Christopher McGinnis: I think it's a great question, John. I appreciate it. So, I do believe that our MAC will, I would call it, flatten. If you look back to last year, certainly with the impacts from the Rite Aid store closures and the ISP programs, other things we noted, we saw sequential declines. As I noted in my prepared remarks, we're actually slightly up. It rounds to flat quarter-over-quarter. We've modeled in some continued erosion in MAC, but much more flatlined relative to last year's trajectory. So, I do expect that to stay a little bit under pressure. But look, the start to the year was strong. It built some momentum, but I think we're taking a very conservative approach for the rest of the year. John Ransom: I mean, we look at like CVS, for example, and clearly, they're on offense, taking share. I don't know what's going on with Walgreens anymore, but sorry, -- my dog is going crazy. But if the retail marketplace continues to concentrate to the winners, is that neutral, flat, good for GoodRx, or is it not? Wendy Barnes: For clarification, John, do you mean primarily just cash customers that CVS is attracting? I want to understand what you mean by the CVS comment or other retailers. because, of course, we don't work with all of them. John Ransom: What I mean is that the stronger players in retail pharmacy are taking share from the weaker players. And so is that neutral positive to GoodRx or not? I mean, I know the loss of Rite Aid was a bad guy, but let's assume the retail market stabilizes and the strong get stronger. How do you view that in terms of your position in the market? Wendy Barnes: I mean, look, in general, I would say we work with all of the top players. I mean, full disclosure, of course, we do have slightly different economics depending upon who the retail player is. But all things in the aggregate, all of our retailer partners are quite happy with the profitability they're experiencing in partnership with us. Again, you heard us talk through historically how we are prioritizing margin accretion to retailers with the direct deals that we've been striking. So, having said that, we, on the whole, in the aggregate, are somewhat indifferent to where our consumers choose to go. Again, not to disregard the fact that, of course, we do have slightly different economics, but not materially so. Rite Aid was the outlier at the time, which, of course, was why the impact was, I think, so significant last year. But beyond that, we're focused on striking fair deals with each such that we're not in that situation again, whereby any type of shift of our consumer set to a different retailer should things end up not going well with the retailer shouldn't provide such an outsized impact to us again. Operator: Our next question comes from the line of Charles Rhyee of TD Cowen. Charles Rhyee: Chris, maybe I can ask this question for you. So obviously, we have the manufacturer-direct bucket, which is doing very well. We have the older PTR. And obviously, it's good to see that MAC is flattening out. Subscriptions are growing. If we think about all those buckets together, and maybe think about what the total prescriptions processed by GoodRx were in the quarter? And what was that growth year-over-year? And is it may be better for us because I know we've all been very focused on MAC and PTR? But as the model shifts, is it better to look at what our total prescriptions are that we are touching and processing? And maybe if you can give us a sense for what that looks like and what growth has been, that would be helpful. Christopher McGinnis: Thanks, Charles. Appreciate the question. I think it's a fair question to ask about additional metrics that we might point to. We haven't disclosed the consolidated prescription transactions across the entire business. So, let us take that away and think through it a bit. But I think part of your underlying point to the question is that if our business model works correctly, there is some cannibalization of our core business into pharma Direct. And if you think about GLP-1s is a great example that last year, prior to the pharma-sponsored point-of-sale programs, retailers and consumers were paying full price, and that was clearly coming through our PTR line, and it had higher PTR per MAC, et cetera. If those same consumers are getting that same prescription through now a point-of-sale buydown program, it shows up on the pharma Direct line. So, there is interplay in terms of one side of our business cannibalizing the other, and that's actually preferred to us. It's a much longer-term, durable revenue stream for us. But I think the point of your question is the takeaway for us and let us think through that. Charles Rhyee: And that would be great in the future. But do you have a sense right now whether, if you looked at all the prescriptions that you touched, regardless of what bucket was in, would you say that we're seeing growth? Are we seeing up slightly, flat? Just curious, any commentary there? And then maybe one other would be a lot of other companies have called out weather impacting the first quarter, obviously, with a lot of the storms earlier in January and February. Just curious if that had any impact in the quarter? And if you could size that for us. Christopher McGinnis: Let me take your first one first. In terms of your first question, if you imply with our MAC count, which is largely driven by the prescription transactions revenue, that was flat, right? And pharma Direct is growing. So, I think the implied impact is that our total prescription service on a consolidated basis is up overall. In terms of weather impacts, I mean, the flu season was a little bit longer and later than we thought. We didn't see really… Wendy Barnes: I can take that question. I mean, I will say, look, we track volume by geography just like a large retailer does. And true to form, you're not wrong. Whenever there's a random storm, yes, on the whole, volumes dip, but you almost always see those recover in the following week. So follows a similar cycle to pharmacies, if you will, in that regard, because that, of course, is where our consumers, in fact, get billed. But usually, if a consumer is motivated to get a prescription, they'll just then push it into the following week if they were unable to do it based on whatever natural event took place. Operator: Our next question comes from the line of Steven Valiquette of Mizuho Securities. Steven Valiquette: I guess for me, I just have a couple of quick confirmatory questions around the accounting and revenue recognition on the subscription side. So just mathematically, the revenue per subscription is moving up from, call it, roughly $10 to $11. And I'm wandering around the GLP-1s. Are you just booking the $39 per month for the unlimited online care in the subscription revenue? Just want to confirm that first, and that's why maybe that's why that's moving up. I just want to get more color on that first. Christopher McGinnis: That is correct, Steven. Steven Valiquette: And then, as far as some of the other companies around booking the drug revenue, some of your peers are booking the compounded drug revenue on their P&L, but not the branded drug revenue. So, I don't know if there's any clarification on that on your P&L one way or the other, and where that's showing up, if at all, but I just wanted to get just a quick confirmation on that as well. Christopher McGinnis: It's helpful. Thank you. So as I said, the $39 you referenced, which is a monthly subscription fee, is hitting the subscription line. To the extent it's going through our point-of-sale buy-down programs, you're seeing that portion of the revenue actually getting picked up in Pharma Direct. It does not get grossed up treatment the way you're suggesting others do it, especially like the compounders. We don't do any compounding. We only deal with the FDA-approved drugs that are branded drugs on the Pharma Direct side. So we don't have any gross-up of the drugs included in our revenue. Operator: Our next question comes from the line of Brian Tanquila of Jefferies. Brian Tanquilut: So, maybe just to follow up on some of these discussions. When we think about the pull forward in Pharma Direct that you spoke about earlier, should we still expect sequential growth going forward this year in that? And then, can you just give some more color on the growth in that space? Like when you think about or talk about the shift of claims and high cost branded from core to the Pharma Direct segment, like how much of this is actually affecting either line item? Christopher McGinnis: Thanks, Brian. Appreciate the question. The answer is yes. If you look at our guide of 50-plus percent growth and the $52 million we put in Q1, I think you would imply continue sequential growth throughout the rest of 2026 for Pharma Direct, and we have pretty strong conviction at 50-plus percent growth on Pharma Direct for the remainder of the year. Wendy Barnes: This is Wendy. I'll take the second half of your question. So, as we think about just a longer-term outlook and what does the runway looks like for Pharma Direct, look, in our ongoing conversations and partnerships with these same manufacturers, they truly are starting to view us as the best channel solution for engagements with patients. So that continues to bolster our confidence in the pipeline of opportunity, not just this year, but well into the out years. I mean, added to the wraparound regulatory environment, which would suggest there will be more motivation for manufacturers to strike direct-to-patient deals, no doubt, GLP-1s have been a significant component of the growth we've experienced this year. But to be clear, there are a number of other GLP-1 molecules that we'll be launching. And outside of GLP-1s, we've continued to see material growth in our pharma Direct business. So, that continues to give us confidence that we're going to continue to see this line item grow. Hence, our commentary on that being one of our key strategic growth drivers for the business. Operator: Our next question comes from the line of Allen Lutz of Bank of America. Allen Lutz: Wendy, at the top of the call, you talked about 1/3 of all Wegovy Pill transactions in the first 2 months coming through GoodRx. I mean, congratulations on that. That's really, really strong. Can you talk about the trajectory from launch to maybe the March exit rate or anything you're seeing early in April? How should we think about the contributions from that over the course of the quarter? And then how are you thinking about contributions from that through the remainder of the year? Wendy Barnes: Sure. Well, I'll start maybe more philosophically, just saying that this is just an exceptional example of what a brand launch with a cash strategy or point-of-sale buydown can do in the market. We have been partnering very closely with Novo on the timing, the PR tied to it, and the marketing elements. They, of course, owned their portion of what needed to happen, including embedding an EHR such that prescribers could see the doses of the pill to readily be able to write for it. They had gotten well ahead of ensuring that supply was available so that pharmacies could, in fact, dispense the same medication. And so all of those things tied together pointed to just an incredibly strong performance out of the gate. I will also say, I think there's something to be said for utilizing the same brand name that was used in their auto-injector. So, there was consumer familiarity with just the brand name, which we can discount if you want, but we do think it made a meaningful difference. And how that program has continued to perform. As we look into the future and how we're anticipating the performance of that drug, look, we don't see demand abating for GLP-1 therapies. And so for that reason, we continue to be pretty bullish on its performance, of course, even amidst other molecules launching, which, of course, will provide more consumer choice. And I think if the economics continue to hold the way most brands continue to launch, and then you end up with multisource brands, maybe pricing will come down further in the back half of the year. I mean, these prices for all of these programs continue to fluctuate, and we're keeping our finger on all of it such that we will be positioned to win both through the weight loss subscription program or for consumers who simply want to get their fill without utilizing the weight loss program. Allen Lutz: And then one for Chris. As we think about the composition of revenue at GoodRx, a little bit less emphasis on PTR, a little bit more emphasis on subscribers, and the Pharma Direct business. I guess, Chris, conceptually, as we think about where you're advertising and where you're spending marketing dollars, 2025 versus 2026, is there anything that's materially changing in terms of where those dollars are going? And would love to get a sense of if there are some of the early ones you've had there. Christopher McGinnis: Thanks, Allen. Appreciate the question. We have pivoted our marketing budgets to me, more directed at our condition-specific subscription offering. We believe that there continues to be a brand halo effect from that specific advertising. So in the past, where our marketing dollars were more generally brand, we are targeting the subscription offering much more heavily in 2026 comparatively. Operator: Our next question comes from the line of Craig Hettenbach of Morgan Stanley. Jialin Jin: This is Jialin on for Greg Henck. I just want to follow up on the comment that PTR is in the down 24% range. I know it's early but just wondering if you can share any thoughts on the trends beyond 2026. When you say like the lower unit economics in exchange for durability, is there like an expected timeline for when that process would bottom out? Christopher McGinnis: Thanks. I appreciate the question. In terms of down 24%, I do think Q1 is probably in the range of how we think about the year-over-year comp for 2026 relative to 2025. I think that when you think about macroeconomic trends, something we're watching closely with MAC being up sequentially, we've got early information, but obviously, we're dealing with 1 quarter, and we're thinking about how to think about that for the rest of the year. We know there's a change in the macroeconomic environment relative to 2025. You've got more people uninsured this year. You've got some underinsured. You've got Medicaid eligibility changes. You've got the subsidies for the ACA lives. So, there are a lot of factors that we're watching pretty closely to try to understand what's going to happen to the business over 2026 and beyond. But I think relative to like beyond 2026, we don't really have a lot of guidance for the longer term, but I think the business largely can flatten out throughout this year. We'll watch our MAC pretty closely. And then as we get to the back half, we can start to provide some more color around how we think about 2027. Operator: Our next question comes from the line of Louis Mario Higuera of Citi. Luismario Higuera: This is Luis on for Daniel. I know you described the TrumpRx platform as incremental to volume on a net basis, but can you give any details on what the economics of the partnership actually look like? And would it represent a meaningful revenue opportunity? Or is it more strategic positioning? Wendy Barnes: Thanks for the question. This is Wendy. Look, we have been overt in commenting that most of the volume we're seeing come through, to be clear, is largely GLP-1s coming out of TrumpRx, and there are, of course, a number of other drugs that we support on that same platform. But for now, our analysis would suggest, in fact, most of that volume is, in fact, incremental. There are new consumers on our platform who have previously not claimed with us. From an economic perspective, just as a reiteration, I think we may have talked about this previously, these are actually our direct deals with pharma. So, we do not have a contractual relationship with TrumpRx, nor does anyone else. It's just reflective of our pricing. And then in turn, when a consumer goes to choose said pricing, they're utilizing our same flow pricing economics that we have directly with the manufacturer. So there is no distinction in the economic model for us. It is our brand point-of-sale deal, no different than if someone had come to us distinct and separate from TrumpRx, if that's helpful. Operator: Our last question comes from the line of Maxi Ma of Deutsche Bank. Maxi Ma: This is Maxi on for George Hill. The GLP-1 space has become increasingly competitive with manufacturers, telehealth platforms, and pharmacies all building direct-to-consumer capabilities. Could you talk about how you differentiate your GLP-1 offering from others? Wendy Barnes: Sure. Happy to take that question and thank you for it. I think, similar to the question that may have been phrased a little differently earlier in the call, it largely has to do with where we sit in the ecosystem. So one, we have the benefit of really being the top brand recognition for consumers when it comes to looking for drug pricing, whether it's through web or app, so effectively our digital assets. We also have incredibly high NPS and brand recognition with prescribers, so they routinely use it in their workflow and in their conversations with patients. Not only do they check GoodRx for themselves, but we also have a product whereby there's their own provider portal where we will present pricing to them in their unique environment, in addition to just how consumers engage with the platform. Then, of course, you've got our connectivity to a really broad retail network. We do work with most retail pharmacies in the U.S. and some home delivery providers. And when you stack up all of those things and think about consumers engaging with us routinely already for checking their basket of drugs in combination with being able to choose where they get fulfillment, and/or if they want to utilize our subscription offering, to your point, that really is a key differentiator compared to these other programs that aren't tapping into a broad retail network. Sorry, did you have a follow-up there? Hopefully, that answers your question. It sounds like maybe you had a follow-up there, but we couldn't hear it if you did. Operator: Hearing no response. This does conclude the question-and-answer session. I'd like to thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Good morning. My name is Aaron, and I'll be your conference operator for today. At this time, I would like to welcome everyone to the Better Home & Finance Holding Company First Quarter 2026 Results Conference Call. [Operator Instructions] And with that, I'm pleased to turn the call over to Tarek Afifi, Senior Corporate Finance and Investor Relations Manager. Tarek, with that, you may begin. Tarek Afifi: Welcome to Better Home & Finance Holding Company's First Quarter 2026 Earnings Conference Call. My name is Tarek Afifi I'm Better's Corporate Finance team. Joining me on today's call are Vishal Garg, Founder and Chief Executive Officer of Better; and Loveen Advani, Chief Financial Officer of Better. In addition to this conference call, please direct your attention to our first quarter earnings release, which is available on our Investor Relations website. Also available on our website is an investor presentation. Certain statements we make today may constitute forward-looking statements within the meaning of federal securities laws that are based on current expectations and assumptions. These expectations and assumptions are subject to risks, uncertainties and other factors as discussed further in our SEC filings that could cause our actual results to differ materially from our historical results. We assume no responsibility to update forward-looking statements other than as required by law. During today's discussion, management will discuss certain non-GAAP financial measures, which we believe are relevant in assessing the company's financial performance. These non-GAAP financial measures should not be considered replacements for and should be read together with our GAAP results. These non-GAAP financial measures are reconciled to GAAP financial measures in today's earnings release and investor presentation, both of which are available on the Investor Relations section of Better's website and when filed in our quarterly report on Form 10-Q with the SEC. More information as of and for the period ended March 31, 2026, will be provided upon filing our quarterly report on Form 10-Q with the SEC. I will now turn the call over to Vishal. Vishal Garg: Thank you, Tarek. Good morning, everyone. Q1 was a strong quarter for Better. We generated approximately $1.64 billion in funded loan volume, exceeding the high end of our prior guidance and growing funded loan volume approximately 89% year-over-year. Revenue from continuing operations grew approximately 52% year-over-year to $47.5 million, and our adjusted EBITDA loss was approximately $19 million, which was a 48% improvement year-over-year. Just as importantly, we continued scaling the Tinman AI platform and expanding our partnership ecosystem, which remain the core drivers of our long-term strategy. Before discussing product innovation and partnerships, I want to address the macro environment directly and explain how we are thinking about the business in the current rate backdrop. The company entered 2026 with strong momentum, generating funded loan volume of $450 million, $521 million and $673 million in January, February and March, respectively, a month-over-month growth of 16% and 29% in February and March. What's more in late April, pre-approval volume for our biggest Tinman AI platform partner went from approximately $100 million per day in preapproved customer volume to over $200 million per day in pre-approved customer volume. That being said, the prolonged conflict in the Middle East has started to show a market impact on interest rates across the mortgage industry with rates for consumers on our platform growing from 5.75% to well over 6.5% in the last few weeks. And this is causing consumers to get stuck in the middle of the funnel, hesitating to lock at a higher rate, particularly if they feel the rate increase is temporary due to the situation in the Middle East. With our partners' help, we are converting some of these customers who need cash now to HELOCs. But for those looking just for savings per month, we are in a waiting pattern where we will go back to them with a lock as soon as rates come back down. So the bad news is that conversion rates are down from where they were in Q1 due to macro factors. The good news is that partner volume continues to increase dramatically as the partner opens us up to a broader section of their customer base and products. Despite the macro noise, we are structurally better positioned than most mortgage platforms for three reasons. Our partnership model creates structurally lower customer acquisition costs and scalable distribution and doesn't require us to spend money upfront, which then can get hung up when conversion cycles blow during volatile market periods. Tinman AI continues to improve conversion efficiency and operating leverage. Our diversified product mix spans across purchase refi and HELOC. And when refis become more difficult, we can convert a segment of those into HELOCs, which is a tool we didn't have in prior rate cycles. That positioning is reflected in our Q2 guidance. We expect funded loan volume of approximately $1.65 billion, representing approximately 37% year-over-year growth, slower than what we had originally anticipated going into Q2. Importantly, while funded loan volumes are expected to remain approximately flat sequentially, revenue is still expected to grow meaningfully due to continued mix shift towards higher-margin HELOC products. We currently expect approximately 15% sequential revenue growth in Q2, which we believe is an important signal that the strategy works and the platform works despite the macro backdrop. We also continue to believe the business is positioned for substantial operating leverage as volumes recover. At the same time, we want to be direct with investors. The timing on when we achieve our $1 billion monthly funded volume target will depend in part on the rate environment. It looked highly doable this time last month. And right now, sitting for this month, it looks like it's going to be deferred. The long-term trend remains intact, but near-term visibility continues to be impacted by macro volatility and what that does to consumer benefit on a refi. That said, if rates improve meaningfully, we believe the lead funnel is already in place and positions us to accelerate towards that target relatively quickly. Regardless of the environment, we continue to execute aggressively. In April, we announced a series of deliberate steps to strengthen operations and continue our progress towards profitability. These actions are on track and are even more important against the backdrop I just described. First, we're removing at least $25 million of annualized costs from our operations beginning in Q2 2026. Second, we expanded our total warehouse capacity by 48% to $850 million since the start of Q1. And third, in early April, we raised $69 million in equity that further strengthened liquidity and operational flexibility. All of these actions, along with greater focus on AI efficiencies, deep cuts in corporate overhead and the adjusted revenue growth and the change in the mix to HELOC versus refis means we remain in sight of the target of adjusted EBITDA breakeven by the end of Q3 2026. Turning to partnerships. Our Credit Karma Finance of America and top five non-bank originator partnerships are all live and ramping. These partnerships are especially important because they leverage existing customer ecosystems rather than paid acquisition channels. For example, an increasing portion of Credit Karma's 140 million members are exposed to Credit Karma Home Loans powered by Better at zero upfront CAC to us. We believe that structural CAC advantage will become increasingly important as the industry consolidates. In late January, we marked the one-year anniversary of our partnership with NEO. NEO grew from a $1.5 billion run rate at onboarding to $2.9 billion in March 2026. Our Tinman AI platform generated approximately $821 million in funded loan volume during Q1, accounting for approximately 50% of total funded loan volume, up from 44% in Q4. That progression is important. Tinman represented 0% of funded loan volume in 2024, approximately 36% in full year 2025 and now approximately half of total funded loan volume. We expect that percentage to continue increasing in the coming quarters ahead. Now to product innovation. We had two recent launches I want to highlight, both of which serve buyers in this environment. Last week, we announced the launch of the Better Home Equity card in partnership with Stripe. The card is a Mastercard linked to a Better HELOC, letting customers spend funds drawn from their line with a single flight. Even more, customers get 1% cash back on all spend, which further lowers their total cost of financing and extends their stickiness in the Better ecosystem from a one-time transaction to a 30-year relationship. We believe HELOC demand remains durable across rate environments, and this product materially simplifies homeowner access to instant long-term liquidity against the value of their home. In March, we also launched the first Fannie Mae eligible token-backed mortgage in partnership with Coinbase. Qualified customers of Coinbase can pledge Bitcoin or USDC as collateral to fund their down payment without liquidating their holdings, triggering a taxable event. We have a large pipeline of Coinbase customers who are signed up on waitlist for the official commercial release of the product in Q2. We see digital assets increasingly becoming part of mainstream consumer finance infrastructure, and we intend for Better to lead that transition inside mortgage origination to leverage refi technology to fundamentally lower the interest rates on home finance products for consumers. We believe the foundation is now in place for Better across our tech platform. Our distribution partnerships, our product expansion and our cost structure and the proof points are becoming visible in revenue growth and path to profitability in sight despite a choppy macro environment. With that, I'll turn it over to Loveen. Loveen Advani: Thank you, Vishal. The Q1 financials reflect continued progress and growing operating leverage from our platform and improving efficiency in our business model. Funded loan volume grew approximately 89% year-over-year to $1.64 billion, while revenue from continuing operations increased approximately 52% year-over-year to $47.5 million. Importantly, total expenses grew approximately 27% year-over-year. That spread between revenue growth and expense growth reflects the operating leverage embedded within the Tinman AI platform. As Tinman AI volumes scale, revenue growth outpaces headcount and infrastructure growth. In Q1 2026, our adjusted EBITDA loss was approximately $19 million. That's a 48% improvement year-over-year and a 16% improvement quarter-over-quarter. Looking at product trends in Q1, refinance grew 542% year-over-year. Home equity grew 30% year-over-year, and purchase grew 2% year-over-year. By product mix, 50% of funded loan volume in Q1 was refinance, 36% was purchase and 12% was home equity. By channel, approximately half of funded loan volume in Q1 came through the Tinman AI platform and the other half through direct-to-consumer. As Vishal discussed, we're starting to see the impact of the prolonged conflict in the Middle East on rates. However, one of the most important dynamics in our model today is mix shift. HELOC products carry materially higher gain on sale economics, which allows revenue growth to outperform funded volume growth, which is reflected in our Q2 guidance. In Q2, we expect funded loan volume of $1.575 billion to $1.725 billion, of which the midpoint represents 37% growth year-over-year. We expect total net revenues of $53 million to $56 million, of which the midpoint represents 28% growth year-over-year. We also expect an adjusted EBITDA loss in the range of $12.5 million to $14 million, of which the midpoint represents 42% improvement year-over-year. Importantly, we continue making progress on our path towards breakeven while simultaneously strengthening the balance sheet and improving liquidity. We previously announced at least $25 million of annualized cost reductions beginning in Q2. These reductions are underway and include lower corporate overhead, vendor rationalization and the planned divestiture of our U.K. bank. On the balance sheet, we ended Q1 2026 with approximately $136 million of liquidity, which includes cash and cash equivalents, restricted cash and net assets held for sale. This does not reflect our recent capital raise of $69 million, which closed after quarter end. We believe the balance sheet today is materially stronger and appropriately positioned to support our path towards profitability. In addition, we expanded warehouse capacity from approximately $575 million at year-end to approximately $850 million today, representing a 48% increase. That expansion reflects both lender confidence in our platform and the infrastructure required to support future partnership growth. As Vishal discussed earlier, based on our current operating structure and ongoing cost initiatives, we remain focused on adjusted EBITDA breakeven by the end of Q3. The timing for reaching that level will depend in part on the macro environment and the pace of rate normalization, but the operating model continues to move in the right direction. We believe Better today is materially more efficient, more diversified and more scalable than it was even 12 months ago. With that, I'll turn back to the operator for Q&A. Operator: [Operator Instructions] Our first question for today comes from the line of Kyle Peterson with Needham. Kyle Peterson: I guess I just wanted to first start off and clarify a couple of the moving pieces in the guide. I guess, one, have you guys assumed that the macro and kind of this frozen pipeline due to some of the Middle East tensions, have you assumed any improvement or resolution in the back half of the quarter or more of a status quo? And then I guess also, could you guys just give us a quick reminder on some of the relative gain on sale rates, specifically on the HELOC side. Obviously, it seems like that's really offsetting some of the volume difference, but I think a reminder there would be helpful for everyone on the call. Vishal Garg: Sure. I mean we are assuming no resolution. And so I think we've been very conservative with respect to what we're guiding towards because going into April, we knew that volume top of funnel was about to almost double. And going into April, we were very confident in the number that we were quoting, which was $1 billion of volume. And then the rate spike, the escalation in the Middle East, basically, all that new volume came top of funnel. I think we shared that it went from about $100 million a day top of funnel for pre-approval volume to $200 million a day in the back half of April. But those customers are not converting at nearly the same rate. We're converting a bunch of them to HELOCs, but a bunch of them that come in just to do a rate term refi or do a debt consolidation to bring down all the rates. They're going to save more if they wait it out than they would getting into it right now. And so we have to give them the right advice for them, and that's what we've always done, prioritize the long term over the short term. So that's what we're doing. And we think that, that's a coiled spring for when things die down in the Middle East, you're going to see some bumper months as we convert all those customers who are effectively on a wait list to lock when rates come back down. On the gain on sale, HELOCs are averaging between six to seven points total gain on sale in combination of origination fees and gain on sale premium, whereas traditionally, mortgage on D2C has averaged 2.5 points and on NEO has averaged 3.5 points. Kyle Peterson: Okay. That's really helpful. And then I guess a follow-up on the HELOC card initiative that you guys have launched. That seems like a really interesting product, I guess. How are you guys thinking about when that goes live later this year, ways whether that increases engagement gives you a competitor edge or monetization opportunities? Just any more color there on how you think that fits in and could potentially help you guys kind of continue to accelerate growth in HELOCs would be great. Vishal Garg: Yes. So I think there are many utility functions of the home card. The first utility function is it tracks all your home spend. So it helps you effectively monitor that, and it provides discounts on things that you use for your home. Two, you get 1% cash back. So for a customer, they're effectively getting their rate or fees bought down as a result of that 1% cash back. Three, it creates a 30-year relationship with the consumer for us versus having a onetime transaction, which means that recurring refis for that consumer, cash out refis will be nearly instant and super -- creates a super engaged customer base for which then we can market other products like what we've done with homeowners insurance, which typically comes up for renewal every year, life insurance, any of these other products that we've traditionally had, we can then have an always-on relationship with the consumer versus a once every three-, five-, seven-year relationship with the consumer. I think it moves into basically Better being a home finance home operating system for the consumer rather than just a onetime home transaction system. And we think that our partners have already started asking for it. It's just another really good way for a partner to service their customer and maintain that. So a number of our partners are already asking us to replicate what we're doing internally for our D2C business for that. So it gives us another feather in our cap when we go and pitch HELOCs or home equity as a service to other companies or mortgage as a service to other companies. Operator: Our next question is from the line of Ramsey El-Assal with Cantor Fitzgerald. Ramsey El-Assal: Has the more challenging macro backdrop caused any slowdown in your partnership discussions or partnership pipeline conversion? Vishal Garg: I think it's accelerated, especially within the traditional mortgage broker and retail mortgage lender channel. A lot of people were hoping '26 was the year that they were going to thrive in. And it's looking like with the Middle East conflict, things are tougher. So more and more banks are still looking to get into the business. Of course, the Middle East conflict and higher elevated rates and oil prices has an impact on the number of customers eligible for refi, but it has an even bigger impact on unsecured consumer credit. And so we're starting to see a lot of inbound from other fintechs, other large consumer credit companies to pivot from their traditional unsecured offerings into a secured offering like a HELOC. Ramsey El-Assal: Okay. And could you also comment on the loan mix between Tinman and direct and kind of how the changing environment might play out in terms of your target there. I think it was 60% Tinman by the end of the year. I was just curious if the changing backdrop here has any impact on that target. Vishal Garg: I think we're well on our way to achieving that target. Loveen Advani: Yes. I think, Ramsey, you're hitting on a great point. Had we been a traditional D2C play, we would have spent money on these leads upfront and not have them convert. Because we're now relying on our partnership volumes, right, we're somehow derisking ourselves from that eventuality. Operator: Our next question is from the line of Rohit Kulkarni with ROTH Capital Partners. Rohit Kulkarni: One kind of just comparison of unit economics to the extent you can, can you just flag what's the difference between Tinman platform generated volume versus D2C specifically, like relative kind of CAC profile gain on sale? And longer term, do you see a scenario where the contribution margin for the platform volume would actually be structurally higher than your traditional D2C business? Vishal Garg: That's a great question. Right now, we try to price our platform partnerships. So, we make the same amount of contribution margin. Revenue can change, right, because different partners are asking us to do different services for them. But we try to make the same contribution margin that we do on D2C in our platform business. And so as we scale, we're hoping to make sort of around $2,000 per loan contribution margin on mortgage and slightly less than that on HELOCs in our Tinman AI platform business. Over time, as it becomes -- the sale becomes more and more software, like margin profile is much better on Tinman AI platform. But in the right now, the gains from AI are captured first in D2C, which is why you saw our continued improvement in our unit economics on the D2C business. And then we port those things that work in D2C into the Tinman AI platform business. Rohit Kulkarni: Okay. Got you. And regarding the current macro environment and rate kind of changes in the last 45 days. Historically, what is the typical lag in consumer behavior and how that impacts your business, assuming there's a pathway towards more stable macro in the next 60, 90 days. How does that -- how do you anticipate that to impact your business? And over what duration and -- sorry for a multi-quarter here and that, are you assuming any improvement in macro in your 2Q guide? Vishal Garg: We're assuming no improvement in the macro in our 2Q guide. And so, we're being conservative there. And we are -- the typical cycle is you can start to see on refis in particular, on rates on refi, in particular, you can see immediately within a week, if a consumer comes in as a pre-approval, if they're going to lock or not or if they're hesitant. And usually, when they are hesitant, we register in our data, the price point at which they would transact and then we hold them until they come back, kind of like -- think of it like a limit order in stock trading. And then -- so we see that behavior manifest itself out in refis. Purchase, as you know, is like a six-month cycle. And HELOC, depending on the use case, if it's for debt consol, it can take the consumer a month to decide on what debt to pay off or not and what things that they care about or not. If it's more for home improvement or tuition or other things like that, they typically have a need that needs to be satisfied within a week, two weeks, three weeks. Loveen Advani: Yes. Rohit, I think to go with this is, as we think about beyond the second quarter, if the environment stays where it is, we'll have increased indexation towards HELOCs and less so towards refi. And if the macro changes, then that equation will flip. Rohit Kulkarni: I see. I got you. And then I know you reaffirmed breakeven EBITDA by end of Q3. Q2 is still close to negative $13 million in EBITDA. Can you help us kind of what specifically bridges that Q2 to Q3? What are the factors under your control? And maybe just layer in the $25 million cost reduction program, how much of that is in Q2? And what other levers do you have in Q3? Loveen Advani: Absolutely. Yes, that's a great question. So today, our current financials exclude the U.K. business, which is we're considering that as discontinued ops, right? As we think about getting to our breakeven targets, our current cash OpEx is about $68 million. That's the guidance that we're giving, right? So for us to get to profitability by the end of Q3, we'll have to get to a revenue mix or a revenue component of around low to mid-70s for us to breakeven at the end of Q3. Operator: Our next question is from the line of Owen Rickert with Northland Capital Markets. Owen Rickert: Could you talk a bit more about how some of those newer partnerships are ramping today? Are you seeing encouraging trends in engagement and conversion rates so far? And how have those partnerships trended on a monthly basis throughout the quarter? Vishal Garg: The newest partnership are ramping extremely well. I mean we literally in the month of April, went from $100 million a day top of funnel to $200 million a day top of funnel. $200 million a day top of funnel just multiplied by 250 business days is $50 billion of pre-approval volume. And we're still just scratching the surface. Our biggest partner, Credit Karma, we are exposed in many of the products to less than 1% of their customer base. for the top five retail lender, we're just ramping up their salespeople on the HELOC product, and they have hundreds of billions of dollars of MSR on their books that we're going to be targeting, which has a very, very high conversion rate. Our top three fintech, they're scaling. They're becoming a reasonably decent size of our HELOC volume. And so you've seen like monthly HELOC volumes start to continue to trend up. A little bit of that has been. And then we've got a couple of banks in the queue off of our ChatGPT announcement that we did, I think, about two months ago, and we're hoping to get them closed and operational and live shortly. Owen Rickert: Got it. And then on the technology side, where are you seeing the biggest operational or customer-facing benefits from tools like Betsy, Tinman AI and the broader machine learning initiatives? Vishal Garg: The biggest benefit is in customer contact capability where consumers are now able to transact with Betsy 24/7, 365. And we're increasing the exposure of Betsy branded for our partners in their funnels. So I think the biggest uplift is going to actually be when we are able to fully deploy Betsy in our partner funnels, not just in our D2C funnel. Operator: [Operator Instructions] Our next question comes from the line of Kartik Mehta with Northcoast Research. Kartik Mehta: Vishal, one thing you've talked about are partnerships and your partnerships are growing. If in the interim, the mortgage market stays soft, but all of a sudden, we get a big bump up, the war is over and all of a sudden, you get a lot of activity. How do you manage the infrastructure if demand spikes? Vishal Garg: We are already getting geared up for something like that. The best thing that we can do is in the old days, we have to rely on humans to staff up and pick up the phone, work late shifts, work weekends. And now we are able to simply leverage Betsy. Betsy loan officer, Betsy loan processor, Betsy loan underwriter. And in preparation for some of that, we're actually taking off some of the gloves where Betsy was recommending a particular task or a particular path to both a consumer or an internal person and then the internal person was sending it out. We're now just having Betsy be on autopilot after close to over 1.5 years of learning data. And so I think that, that's just going to crush the operating cost framework and allow us to capture all the volume as it comes in. Kartik Mehta: And Vishal, on a couple of partnerships, you're not the only mortgage provider, but it seems as though you have a competitive advantage because of your technology. Have you seen your partners or talk to your partners about comparing your ability to serve their customers versus others that might be on the platform? And if so, what type of advantage is that giving you? Vishal Garg: Our partners typically see an improvement of 2x relative to the incumbent in terms of both productivity and customers served. So that's really the promise that we make to them is "We're going to help you double revenue, and we're going to help you cut your cost structure by 30% to 50%, and you'll make 4x, 5x, 6x more money." And that's how it's playing out for our existing partners. That's why there's a waitlist of people to get on the Tinman AI platform, the ChatGPT Enterprise Edition. We just are -- we're continuing to work through that and the value prop to the partners is high. But as you know, like the mortgage industry is an industry that the Internet basically forgot. And so we have lots and lots and lots of mortgage people who are still operating on really old antiquated systems. And what we're also finding is that their staff are used to just those systems. So frequently, we go in and they tell us that, "Hey, we'll keep this staff and then the rest of them, why don't you like adapt them to the new system?" And what they find eventually is that we have to do it all for them. So I think that is also upside in the margin profile that we land with a particular product or a particular implementation and then we expand from there. Operator: Our next question is from the line of Brendan McCarthy with Sidoti. Brendan Michael McCarthy: Just wanted to ask a quick question on Birmingham Bank, the U.K.-based bank. I know you classified it as discontinued operations held for sale. Can you give us any detail on when we might expect a sale regarding timing? Can you give us any color on potential capital release from that sale or perhaps sale proceeds? Loveen Advani: Yes. So Brendan, this is Loveen. We're in an active sale process. We had an investment bank to lead that. We're in active discussions with potential buyers, right? That's all I want to disclose at this time, given that we're in active discussions. Even if we do sign, there's a regulatory approval process in the U.K., which is going to take about two to four months. So think of the impact in Q4. Brendan Michael McCarthy: Understood. Looking at the Coinbase partnership with the crypto-backed mortgage product, can you kind of walk us through the economics of that, the revenue profile there and perhaps the launch time line of when we might see an impact in the P&L? Vishal Garg: The currently publicly stated launch time line is sometime in late Q2. The revenue profile from that product is starting to manifest itself. Obviously, we have more pricing power in that product than we do in your traditional direct-to-consumer product. And so you should start to see like NEO-like margins on that product. Brendan Michael McCarthy: Got it. That's helpful. Last question, just back to the Q3 breakeven guide for adjusted EBITDA. Just to clarify, I know you mentioned you're assuming a pretty stable environment as it relates to the macro. But is there any risk to achieving that breakeven if rates move meaningfully higher or maybe the Middle East conflict is more prolonged than expected? Vishal Garg: We're going to have to cut costs deeper. I think we're pretty committed to that number. Operator: And ladies and gentlemen, that will conclude our Q&A session for today. Vishal, I'd like to turn it back over to you for any closing comments. Thank you. Vishal Garg: Thanks, everyone. Q1 was a really good quarter for us. We signed a bunch of really big deals, and we executed on our plan and we beat guidance. I know it's disappointing for the Q2 guidance for us to not get to the $1 billion mark of loan originations that we had planned to in May, but we're going to make up for that in the context of cost cutting, deeper cost -- change to a HELOC product, which doesn't have a $350,000 balance, has a $100,000 balance, but makes basically the same amount of revenue and using that to continue to drive revenue growth and a path towards profitability, which is what we are expecting in our Q2 guidance, and we're confirming again that we will achieve by the end of Q3 2026. So, thank you all for continuing to have an interest in believing in Better, and we appreciate you all. Operator: Thank you, everybody. Have a great day.
Operator: Hello, and welcome to the Q4 2026 Haemonetics Corporation's earnings conference call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Olga Guyette, Vice President of Investor Relations and Treasury. Please go ahead. Olga Guyette: Good morning, and thank you for joining us for Haemonetics' Fourth Quarter Fiscal Year 2026 Conference Call and Webcast. I'm joined today by Chris Simon, our CEO; and James D'Arecca, our CFO. This morning, we released our fourth quarter and full fiscal 2026 results and issued fiscal year 2027 guidance. The materials, including our earnings release and supplemental earnings presentation, are available on our Investor Relations website and also in this morning's press release. Before we begin, I'd like to remind everyone that we will use both reported and organic revenue growth rates that exclude the impact of FX, the divestiture of the whole blood product line, and the exit of certain liquid solutions products. Organic growth ex-CSL also excludes the impact of the previously disclosed transition of CSL's U.S. disposable business. Our fiscal year 2027 organic revenue guidance is also adjusted for the impact of the 53rd week. We'll refer to other non-GAAP financial measures to help investors understand Haemonetics' ongoing business performance. Please note that these measures exclude certain charges and income items. A full list of excluded items, reconciliations to our GAAP results and comparisons with the prior year periods are provided in our earnings release. Our remarks today include forward-looking statements, and our actual results may differ materially from the anticipated results. Factors that may cause our results to differ include those referenced in the safe harbor statement in today's earnings release and in other SEC filings. We do not undertake any obligation to update these forward-looking statements. And now, I'd like to turn it over to Chris. Christopher Simon: Thanks, Olga, and good morning, everyone. We delivered fourth quarter revenue of $346 million, up 5% reported and 9% organic ex-CSL, with adjusted EPS of $1.29, up 4% year-over-year. For the full fiscal year, revenue was $1.3 billion, and adjusted EPS was $4.96 per share with improved adjusted earnings, higher adjusted margins, and stronger free cash flow than in the prior year despite $153 million of nonrecurring revenue from portfolio transitions. Our performance reflects the strength of our core platforms with plasma and TEG driving momentum, margin expansion, and reinforcing our leadership in attractive end markets. This foundation enabled targeted investments to position interventional technologies to contribute to growth in fiscal '27 and beyond. At the same time, we advanced our innovation agenda with U.S. FDA clearance of Persona PLUS, the expanded indication for VASCADE MVP XL, a submission to expand the VASCADE label in Japan and the acquisition of Vivasure. Moving on to our business unit results. Hospital revenue was $160 million in the fourth quarter and $588 million for the full year, growing 8% in the quarter and 4% for the year, or 7% and 4% on an organic basis, respectively. Results were supported by strong performance in blood management technologies, partially offset by interventional technologies, consistent with trends we've discussed throughout the year. Blood management technologies delivered a record quarter with broad-based performance driving revenue growth of 21% in the quarter and 14% for the year. Hemostasis management grew in the high teens, fueled by sustained strength in TEG 6s, higher disposable utilization, continued capital placements and strong European momentum following the HN cartridge launch. Transfusion management delivered outsized growth in the quarter, contributing nearly half of the franchise growth as we continue to gain share through the adoption of our integrated solutions that enhance hospital safety and efficiency. In interventional technologies, revenue declined 10% in the quarter and 9% for the full year. Vascular closure was down 8% in the quarter, reflecting 6% decline in MVP and MVP XL in electrophysiology and continued softness in lower growth coronary and peripheral procedures. Performance in EP was affected by share loss in the first quarter of fiscal 2026 and evolving procedure dynamics. Sequentially, EP grew 8% and sensor-guided technologies returned to growth, partially offsetting the continued impact of PFA on esophageal cooling. Over the past year, we strengthened our commercial organization, equipped our teams with better tools and advanced our product portfolio. Q4 was our strongest quarter of fiscal '26, and we have renewed confidence in the trajectory of IVT. Importantly, the headwinds that drove approximately 80% of the decline in fiscal '26. First, OEM-related softness in sensor-guided technologies. And second, PFA impacts on esophageal cooling have now been lapped or reduced to a nonmaterial base. With the expanded MVP XL label and the anticipated release of PerQseal Elite, we are strengthening our competitive position and reenergizing the business as we enter fiscal '27. Turning to plasma and blood center. Plasma momentum continued with another quarter of growth driven by category leadership, differentiated innovation, and strong market fundamentals. The franchise delivered $130 million in revenue in Q4, up 3% reported and 13% organic ex-CSL as we annualized the last of the discontinued CSL U.S. disposable supply agreement. Full year revenue was $524 million, down 2% reported, but up 20% organic ex-CL (sic) [ ex-CSL ] above our revised guidance range of 17% to 19%. Market fundamentals remain highly attractive, supported by resilient immunoglobulin demand and continued global expansion in plasma collections. Our share of U.S. plasma collections grew in the high single digits in both the quarter and full year with double-digit growth in Europe as customers increasingly rely on our platform to drive efficiencies. Persona PLUS is the next step in our innovation cycle, further strengthening our competitive position by enhancing percent yield by mid-single digits on average, supported by a large randomized clinical trial of over 30,000 donations and underpinned by our proprietary patent-protected technology. It has been met with strong customer enthusiasm with multiple adoptions underway. Blood center also contributed positively to the fourth quarter, generating $56 million in revenue, up 1% reported and up 6% organic. For the full year, revenue was $221 million, down 15%, reflecting the whole blood divestiture, but up 5% on an organic basis. Performance was driven by continued strength in global plasma demand and stable and growing U.S. red cell collections despite our ongoing portfolio rationalization efforts. For the full year, total company revenue declined 2% reported due to portfolio transitions, but grew 10% organically ex-CSL, at the upper end of our guidance. We expect growth to continue in fiscal '27 with projected revenue growth of 4% to 7% reported and 3% to 6% organic adjusted for the extra week in FX. In hospital, we expect mid-single-digit growth with both franchises contributing. We anticipate continued expansion of the TEG 6s installed base and increased HN cartridge utilization in blood management technologies. In IVT, we are ending the year with a stronger commercial organization, improving market dynamics, and a more competitive portfolio, supported by the MVP XL label expansion. With most headwinds now behind us, we are focused on translating these improvements into consistent growth. Our guidance excludes any contribution from PerQseal Elite, which is currently undergoing FDA review. In plasma, consistent with our FY '26 approach, our mid-single-digit growth outlook is grounded in controllable drivers, share gains, the rollout of Persona PLUS and modest collection volume growth while retaining upside if collection trends remain strong and/or adoption accelerates. We remain confident in the durability of growth and our ability to further extend our leadership in this attractive market. In blood center, strong plasma-driven demand and customer relationships will continue to support performance. However, ongoing portfolio rationalization remains a near-term headwind, and we expect revenue to decline in the mid-single digits. We're encouraged by our progress, and we remain focused on consistent execution to deliver growth and sustainable value for our customers and our shareholders. James, over to you. James D'Arecca: Thank you, Chris, and good morning, everyone. We closed the year with strong execution and meaningful progress in strengthening the quality of our earnings, expanding margins, improving cash flow, and further aligning our portfolio with higher growth, higher-margin markets that will continue to support our growth aspirations in the long run. Adjusted gross margin in the fourth quarter was 59.7%, down 50 basis points year-over-year, primarily reflecting the absence of the prior year CSL shortfall payment and the impact from tariffs enacted earlier in the year, partially offset by a structurally higher margin portfolio. For the full year, adjusted gross margin expanded 280 basis points to 60.3%, driven by portfolio transformation, strong volume growth in plasma and blood management technologies, and continued strong demand for our market-leading innovation. Adjusted operating expenses in the fourth quarter were $122 million, up 5% year-over-year, largely driven by the addition of Vivasure and the impact from tariffs, coupled with higher-than-expected costs from the self-insured portion of our benefits plan, higher performance-based compensation, and a deliberate step-up in targeted investments to strengthen our commercial capabilities. Together with the adjusted gross margin dynamics in the quarter, this resulted in adjusted operating income of $85 million and adjusted operating margin of 24.4%, down 50 basis points year-over-year. Adjusted operating expenses for the full year were $465 million, up 2%, driven by continued investment in R&D and selling and marketing, the acquisition of Vivasure, and higher performance-based compensation. Adjusted operating margin for the year expanded 140 basis points to 25.4%, reflecting structural improvement from portfolio transformation even as we continue to invest for future growth and absorb macro cost headwinds. The adjusted tax rate was 24.8% in the fourth quarter and fiscal year '26 compared to 22.2% and 23.2% in the prior year, respectively. Adjusted EPS increased 4% to $1.29 in the fourth quarter, inclusive of a modest benefit from share count, which was more than offset by higher interest, tax, and FX. For the full year, adjusted EPS was $4.96, up 9%, demonstrating the strength of the underlying business and disciplined capital allocation that helped offset the impact of portfolio transitions, which are now fully behind us, partially offset by higher interest and tax. Now turning to the balance sheet and cash flow. Cash generation continues to be a defining strength of the business and a key source of strategic flexibility. With our major device investments and productivity initiatives largely behind us, the business has returned to a strong and sustainable cash flow profile. In the fourth quarter, we generated $45 million of free cash flow, bringing the full year free cash flow to $210 million with the free cash flow to adjusted net income conversion ratio of 89%. While free cash flow in the quarter was down versus last year, mainly due to the timing of income taxes paid and accounts receivable, full year free cash flow increased by $65 million, largely driven by better working capital management and less CapEx. We ended the year with $245 million in cash after deploying $175 million to repurchase over 3 million shares, investing $61 million in the Vivasure acquisition and continuing to fund organic growth, reflecting a balanced capital allocation approach that supports both organic growth and shareholder returns. We enhanced capital structure flexibility and positioned the business for continued deleveraging that can be supported by strong cash flow. While total debt remained unchanged at $1.2 billion, we refinanced $300 million of convertible notes with the revolving credit facility, ending the year with $700 million of convertible notes due in 2029, $239 million of term loan A debt and a revolver balance of $300 million with a net leverage ratio as defined in our credit agreement at 2.73x EBITDA. On that note, let's move on to discuss the rest of our fiscal year '27 guidance. Consistent with the strong foundation and momentum Chris outlined, we expect fiscal 2027 revenue growth of 4% to 7% reported and 3% to 6% organic. We expect continued margin expansion with adjusted operating margin improving 50 to 100 basis points year-over-year, driven by continued strong momentum across our growth franchises, innovation, and operating leverage as we begin to scale IVT. Also included in that expectation is a full year of dilution from the Vivasure acquisition with no associated revenue in our fiscal year '27 guidance, additional impact from tariffs, ERP-related costs, and continued investment in targeted high-return growth initiatives. At the earnings level, we expect adjusted EPS to grow broadly in line with revenue as improvements in operating leverage and mix benefits are assumed to be largely offset by higher interest and tax, which is expected to be higher by about 100 basis points than in fiscal '26. Importantly, the business is expected to continue to demonstrate strong earnings quality, supported by a highly recurring revenue model and disciplined capital deployment. We expect free cash flow conversion of approximately 80%, reflecting a disciplined approach to working capital that preserves flexibility to manage inflationary and tariff pressures and invest in growth while enabling organic investment, deleveraging, and opportunistic share buybacks. With that, I'll turn it back to Chris for closing remarks. Christopher Simon: Thanks, James. I want to share a few closing thoughts about our journey over the last 4 years. Fiscal '26 marked the culmination of our long-range plan for transformational growth, whereby we fundamentally repositioned Haemonetics into a more focused, higher quality, and more resilient company with significantly stronger growth, margins, and cash flow. We evolved and rebalanced our portfolio. In plasma, we drove broad adoption of NexSys and Persona while advancing the next wave of innovation with Express Plus to reduce procedure times, Persona PLUS to further improve yield and Device360 to digitize and streamline center operations. We rationalized our blood center portfolio, including the divestiture of whole blood to drive margin expansion. We broadened the clinical utility of TEG 6s with the HN cartridge, extending into high acuity settings such as cardiovascular surgery and liver transplantation and advanced international expansion with CE Mark certification. We strengthened the VASCADE platform with MVP XL for larger sheath procedures, enhanced our clinical evidence, scaled commercially, and expanded into large bore closure with PerQseal Elite. We also revamped the operating model of the company, advancing operational excellence, scaling and automating our manufacturing and supply chain capabilities, progressing our ERP digital transformation, and building the commercial and clinical infrastructure required to sustain growth, including a robust NexSys capital cycle to support ongoing global share gains. The results, low teens compounded average organic revenue growth ex-CSL, high teens adjusted EPS CAGR, low 60s adjusted gross margins, 660 basis points of adjusted operating margin expansion, and $636 million of cumulative free cash flow, results achieved while investing for growth, navigating dynamic markets and macro environments, and overcoming $153 million of nonrecurring revenue from portfolio transitions. With the transitions behind us, we expect growth to reaccelerate and become more consistent, supported by a structurally more attractive mix of recurring revenue from high-growth, high-margin platforms. Our priorities for fiscal '27 are clear: Continue to win in plasma, extend our leadership in TEG and reinvigorate growth in vascular closure while driving greater operating efficiency. Quality earnings growth will further strengthen our balance sheet and create opportunities for value creation through disciplined capital allocation, including organic growth, delevering and opportunistic returns of capital to shareholders via buybacks when appropriate. Thank you, operator. Please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Andrew Cooper from Raymond James. Andrew Cooper: Maybe first on plasma. I don't think you shared, and apologies if I missed it, but U.S. collection volume trends you saw in the quarter at kind of the market level. And then as you think about the end market views for '27, given discussions with fractionators, would love just kind of the latest and greatest thinking that's included in the guide. And then secondly, if you could give a little bit more on the Persona PLUS rollout in terms of how the base has adopted it, how much has adopted it thus far? And then are you able to take some price with that? Or is this more of a tool to extend contracts, ensure stickiness, et cetera? So just would love kind of how that rollout is shaping up. Christopher Simon: Andrew, thanks for the question. Look, FY '26 was a record year for plasma. We overcame that hangover that's been out there for a bit now and had what we describe internally as the trifecta of growth, where we had price from the remaining Persona rollout. We had a meaningful uptick in share gains, which is something we're obviously quite proud of and a return to double-digit growth on collection volume in the latter part of the year. So real strength there. In the fourth quarter, in addition to the normal seasonality, we lapped our price gains on Persona. So that was not a meaningful contributor in the quarter. We do have some ongoing share gains from earlier transformation, earlier transitions, modest tick down in collection volume. But again, quite consistent with what we see as kind of the long-term trend for growth. FY '27 guide, we took a page out of our playbook for FY '26, and we're really only talking about the things that we directly control, the annualization of share gains and the committed upgrade to Persona PLUS. We didn't really include any collection volume, I think 0% to 2% again this year. We don't control that. Obviously, as I said in the prepared remarks, if collection volumes remain hot and/or the pace of adoption of Persona accelerates, then we have meaningful upside from what we otherwise view as very prudent guidance with mid-single-digit growth for the year. In terms of PLUS, it's the next stage of our advancements. Nobody can match it. It's another -- Persona on average gave 10% benefit. This is another 5% on average above that. Tremendous acceptance into the market. We've already begun the upgrade cycle. And while we don't talk about price explicitly, the value of dropping that additional 5% yield to our customers creates a lot of room for mutual benefit, right? So you should absolutely expect price to be part of the equation as we roll forward this year. But as our convention, we won't put it into the guide until it's fully contracted and we have a committed timeline for implementation. So more to come there. We think it gives us some breathing room as the year progresses, some potential upside, but really excited about it, puts just another step forward for the platform to advance and really be unrivaled in the market. Andrew Cooper: And if I can just ask one more, maybe on margins. I think you sort of forecasted the 50 to 100 basis points as a reasonable starting point, but you're coming off a little bit lower of an exit rate here. So when we look at 4Q for you, James, maybe you called out increased investments, some of which I assume will persist versus things that are maybe a little bit more onetime in terms of benefit costs. I think you called out performance comp and tariffs. So just if you could break that down for us a little bit more and lay out how those things flow into the '27 guide as well. James Owens: Yes, sure. Thanks, Andrew. On Q4 operating margins, the results certainly were lower than we initially expected, and it really comes down to the 3 items, which I think you mentioned. First, tariffs were higher than anticipated. We saw roughly 60% of the annual impact in Q4 as our plasma inventories were depleted. Second, as you mentioned, we had the higher claims expense for our self-insured medical plans. And third, we stepped up sales and marketing investment ahead of our FY '27 launches, including MVP XL and PerQseal Elite. When I look to FY '27, we expect the operating margin expansion to be driven primarily by gross margin improvement, but also by greater operating leverage. So on gross margin, we expect the benefits from our plasma innovation cycle, which Chris just talked about, including Persona PLUS, along with volume-driven leverage. And we also expect a favorable mix shift as hospital, which runs close to 70% gross margins contributes more of the growth. Offsetting some of that, we did incorporate higher tariff costs into our standard costs and we're assuming a 15% tariff level versus the current 10% that we're paying. So that differential is already built in. Overall, on operating expenses, I'd say we're investing. So expenses are going to be up, including with Vivasure, but we're expecting operating leverage as revenue growth and gross margin expansion outpace expense growth. We're staying disciplined, and we're looking to protect our profitability while funding the launches. So overall, we do think some of those items will recur like the tariffs we're building in, higher costs for medical, and we do have those bigger investments in there for S&M. But that's all built in to the guide. And we look forward to improved operating margins next year. Operator: Our next question comes from the line of Marie Thibault from BTIG. Marie Thibault: Maybe I'll pick up where Andrew left off and ask about hospital. I thought it was really encouraging to hear. You're feeling reenergized about the interventional tech trajectory. So just want to get a little bit more detail on the dynamics you're seeing stabilization, signs of improvement. Certainly, you've got the expanded label for MVP XL. So I would love more details on that and the cadence for how you think fiscal '27 could unfold for this part of the business? Christopher Simon: Yes. Thanks, Marie. We -- I think quite clearly, whether it's 6 or 9 or 12 months from now, we will look back at this point and say that was the inflection point. Fourth quarter of fiscal '26 is when Haemonetics IVT turned the corner. And we understand we were down 9% for the year. When you step back from that number, and there's no apologies here, but the reality is fully 80% of that 9% decline was attributable to 2 factors: the releveling of the guidewire OEM business with J&J's acquisition of Abiomed, they took the inventory down, rebalanced their sourcing a bit, and that was a big chunk of the hit. The other hit, of course, was ensoETM, which is on the wrong side of the PFA adoption curve. The good news is we've lapped the first, and the second is now at a level where roughly $2 million per quarter, it can't hurt us. So what you will see from us going forward is threefold. You will see a return to growth at or above market rates for vascular closure led by electrophysiology. You'll see SavvyWire, the direct retail business that we control, growing disproportionately. And with any luck, we'll launch the PerQseal Elite product later this year, and we think that's a novel offering for large-bore closure, which gives us a lot of encouragement. In short, the enthusiasm you're hearing from us is a better team, better tools, a better product and a more accommodating market overall. So we understand our win-loss ratio. We understand what this team is capable of. We've equipped them. You heard from James, the investments we've made throughout the year, but especially in the fourth quarter, to position them for stellar performance in FY '27, and that's exactly what we expect. Marie Thibault: A quick one maybe for James here. Free cash flow conversion, I think you cited 89% this fiscal year, which is tremendous. You're pointing to 80% conversion next fiscal year. Obviously, nothing to sneeze at. It's still very impressive. But what's behind that trajectory, the 80% versus the nearly 90% this year? James Owens: Yes. For the most part, Marie, that's just a bit of conservatism being built in. We know that we have to increase our inventory levels. So it's working capital related really driving most of that, but also a healthy dose of conservatism in there. Operator: Our next question comes from the line of Anthony Petrone from Mizuho. Anthony Petrone: Maybe one on plasma, one on IVT. On plasma, maybe just a recap on the landscape there. Some chatter that there's some discounting going on by some of the fractionators in that space. And then in addition to that, there's a shift as it relates to CIDP prescriptions. In other words, the FcRn competition question. So maybe what's the latest in terms of what you're hearing just on just finished good IG inventory as well as FcRn competition in CIDP? And I'll have a quick follow-up on VASCADE MVP. Christopher Simon: Hello, Anthony, it's Chris. Thanks for the question. We remain really bullish on plasma. It defines durable growth in our portfolio and is a major source, not only of earnings, but free cash flow and return on invested capital. So we look at this. There are certainly others that are more expert beginning with our customers. But our understanding is quite positive with regards to the long-term demand of IG-derived pharmaceutical therapies. What gets lost in the chatter, I think, is that fully half the market -- more than half the market and a disproportionate source of growth of the category is primary and secondary immune deficiencies, which tragically are being driven incidence and prevalence by cancer therapy. And so there is no alternative to IG in that space, and we see that growth unabated. On the other side, autoimmune, what we look to primarily is new patient starts. And what we see is IG remains the standard of care. Now I think folks misinterpret that when they see growth in VYVGART that, that must come at the expense of IG. And the reality is that's just a misinterpretation of the facts. The reality is both can grow because the primary use for VYVGART in those autoimmune categories is as secondary therapy for when their patient is nonresponsive to IG or that they want to overlay anti-FcRn in addition to IG to get an optimal result. There's very few examples of naive IG patients being started on the alternative therapy. And there's none that I'm aware of where someone is being switched off of IG who was otherwise well tolerated and well treated. Some of that's economics, some of that's just the base underlying efficacy of IG therapy. So there will always be noise in the system. There will always be a degree of cyclicality. Inventory levels are more art than science as we understand it. But we remain very bullish on the near, the intermediate, and the long-term demand for IG therapy and the need to collect accordingly. Anthony Petrone: And then just quick on MVP, VASCADE. All of the PFA companies reported here, it looks like the market for cardiac ablation slowed a little bit in 1Q. Just from the vantage point of Haemonetics, where does it see just the underlying market for EP volumes? Christopher Simon: Yes. Thanks, Anthony. I think one of the positive silver lining, if you will, of the pace of PFA adoption and the changing modalities associated with it is that it is very quickly settling in, which is helpful for us because we have a dual effect. Higher procedure volumes is obviously a good thing, but the reduction in access sites works against demand for our product. Because this is now leveling, you will increasingly see demand for closure track with the underlying demand for procedures, which is meaningfully ahead. When we go back and estimate FY '26, the underlying growth in access sites was probably mid-single digits, perhaps as low as 3.5% or 4%. What we expect for this year is certainly higher than that, probably in the mid- to high-single digits, which bodes well for us given our aspiration to grow at or above the market fairly quickly here. So from our vantage point, we're ubiquitous, particularly with the label expansion and the added clinical evidence, which is really outstanding. We are indifferent between which therapy is used. We have the best access closure for small and mid bore, soon to be large bore as well. And so from our vantage point, we think we can grow at or above market. If the market modulates down a tad, that probably just gives us a chance to catch our breath and get back on our front foot. Operator: Our next question comes from the line of Allen Gong from JPMorgan. K. Gong: I guess like one that I have is on PerQseal. I know you're not including any contribution in your current guidance, but just remind us on the pathway to market there and potential upside to the guide from that. Christopher Simon: Yes. Hello, Gong. As is our convention, we've included all of the launch expense, which actually began last quarter to prepare the team, the product and the market for a truly outstanding launch whenever that comes this year. The product has been submitted to FDA. It's under review. We'll have the normal ongoing process. I don't want to comment about the timeline. It's just unpredictable in that regard, particularly in this current environment. But we really like the data submission. It's based on a set of trials that have been well vetted by the academic community. And so we feel quite confident in the product's profile and its eventual approval. We didn't include any of the revenue because we don't control it. And so whenever it comes, we will be ready to go. And we think this will really be a meaningful novel offering for large-bore closure up to 26 French outer diameter. And so we think it will strengthen our play, not only in vascular closure more broadly, but in structural heart as well. So it's a nice complement. It's a true tuck-in. We don't need to add additional resources beyond what we already have in place. We just need to make sure those resources have the tools and are properly trained and equipped to be able to create launch intensity, which we expect later this year. K. Gong: And then just as a quick follow-up to an earlier question just on plasma supply. I just wanted to confirm when we think about some call-outs of maybe abnormal stocking and potential destocking dynamics in the quarter, that's not something that you're seeing. That's not something that you're necessarily concerned about for the rest of the fiscal year. I just want to make sure that's the right way to think about it. Christopher Simon: Yes, Allen, I'd just go back to our guidance at mid-single digit. We have included 0% to 2% collection volume growth for the year. So if what you are describing is right, we're indemnified from it, right? We didn't anticipate collection volume growth. Anything that is above that 0% to 2% is going to be upside for us as the year progresses. What we'll lean into is an expedited rollout of Persona PLUS, where we have meaningful innovation-based pricing that will really help the market. There have been -- in prior yield rollouts, there have been trade-offs made where folks collect less because -- less total collections because they're getting more per collection from us. That's part of our value proposition. It drives margin expansion, and it helps with the overall profitability and the durability of what we're doing. But the actual inventory levels, I think the numbers get confusing because you've got individual customers at very different stages in the life cycle. So for us, with north of 50 share of the total collection market between the U.S. and Europe, we have more ability to kind of balance that out perhaps than some. Operator: Our next question comes from the line of Larry Solow from CJS Securities. Lawrence Solow: It's [ Pete Lucas ] for Larry. Just following up on PerQseal. Should we expect incremental sales and marketing investment in fiscal year '27 ahead of when approved? And how should we kind of think about that? Christopher Simon: Yes. I'll let James walk through the details of it, Pete. But we -- our guidance of mid-single-digit growth for hospital and 100 basis points of margin expansion fully anticipates the resourcing of that launch for success. And good news is we were able to do a bunch of that work in the fourth quarter. Some of it will continue into the year, but it's fully reflected in our guidance. What's not reflected from my answer to the prior question is any revenue attainment. We'll -- if and when, we'll adjust accordingly. James Owens: Yes. When you look at the numbers, it was -- Vivasure was roughly $0.05 or so dilutive in Q4. If you take that and multiply it by 4, that would give you about $0.20 dilution for Vivasure for the full year. Operator: Our next question comes from the line of David Rescott from Baird. David Rescott: Two quick clarification questions and then I had a follow-up. And it sounds like you kind of just answered part of the first one as it relates to the contribution from these launch investments for Vivasure. But maybe can you think about or help us think about when we look at the margins in the quarter, I think operating margins in plasma was down 650 basis points year-over-year. If you know, what maybe that baseline operating margin, overall was in -- in your mind, maybe taking out that $0.05 kind of gets you to what that adjusted ex-Vivasure number is. And then as it relates to the guide for 2027, you called out EPS growth comparable to that of revenue. Just curious if that's specific to the reported revenue growth or the organic revenue growth guidance for the year? And then I had a follow-up. James Owens: Yes. On the second one, the EPS is commensurate with the reported revenue growth because that includes all 53 weeks. On the operating margin question on plasma, there's a couple of things that drove the decline versus Q4 in the previous year. One, I would say, as I mentioned, was we had some tariff expense that came in, in the quarter that was higher than what we anticipated. That pushed it down. The other thing that pushed it down was as we got into the fourth quarter, we hit some of the higher tiers on our volume-based pricing, and that also pushed it down a bit as well. But the baseline plasma operating margin, if you took the average of the year, excluding the $16 million that was in the first quarter for software, that should get you something close to a baseline amount there for plasma. Christopher Simon: David, it's Chris. If I could just jump in on that, if I may, because I think one thing that may get lost in the shuffle is we fully expect FY '27 to be a robust year of product launches. It will include the heparinase neutralization cartridge, which is now in Europe, but we will take more broadly, the MVP label expansion, which gives us tremendous cache at IDNs and ASCs and just a broader opportunity to promote the product directly in the market. We talked about Persona PLUS and what we think that will mean. We expect everyone to adopt that over the course of time here. And then PerQseal Elite when it comes. And so we factored in what we believe are the costs associated with making sure this goes. That's part of the guide. If we surprise ourselves positively, then the revenue forecast and the associated margins with that will look prudent in hindsight. David Rescott: And then maybe on the assumptions for the plasma guide in the year. I appreciate the color you provided on that already. But when we look back to the NexSys Persona Express Plus launch a couple of years ago, you had the improved yield benefits coming out of that in the period exiting that, the underlying plasma market growth declined or was slower than expected. And I know we don't definitively know what the reason was, but perhaps you could assume that better yield was a factor there. As you think about launching the new Persona PLUS system with a better yield enhancement coming with it, how, I guess, do you potentially expect that to impact the overall plasma collections if, again, perhaps the reason why you had slower growth in the prior couple of year period may have been related to the initial new product launch? And feel free to tell me if you think that's wrong as well. Christopher Simon: David, I don't think we have clairvoyance on this, right? We continue to believe plasma will play an outsized role in terms of durable growth, free cash flow and return on invested capital. The guidance of mid-single-digit growth for FY '27 includes the annualization of share gains, which have already been implemented, right? So share gains, we grew 20% in fiscal '26, as you know, fully half of that growth or share gains. And so that is still annualizing as we speak and will continue certainly through the first part of the year. Innovation-based pricing, important lever for us. We've annualized all the Persona gains previously built in. What we will have is potential upside associated with the Persona PLUS and accelerated adoption there, given what that means to the market. In terms of volume, again, 0% to 2% because we don't control it. The dynamic you described is very much what took place for the second wave of Persona rollout where some of the largest collectors took the 10% yield and met their annual objectives, and we're able to meaningfully lower cost per liter as a result. The first wave of Persona rollout was the opposite effect, which is folks that were intended to grow 10% for the year grew 20% to meet their individual demand at the time. So it will vary by individual customer. It's really difficult to call. We feel like we're well insulated at that mid-single-digit overall guide given that 0% to 2% is what's attributable to volume at this point. Operator: Our next question comes from the line of Mike Matson from Needham. Unknown Analyst: This is [ Joseph ] on for Mike. Maybe just one on plasma and then a quick follow-up on Vivasure. So 4Q looks like plasma growth ex-CSL maybe slow compared to the last 3 quarters. But I'm just wondering, was there any weather disruptions early in the quarter that affected plasma there? And how should we be thinking about Q1? I believe it's usually the seasonally weakest. So should we expect sequential decline from here? And then just with fiscal '27 being, I guess, the first clean year without the impact from CSL. Can you maybe tell us if there's any residual impact on the business that maybe investors aren't considering? Or is it completely headwind free from here? Christopher Simon: Yes. Hello, Joe, thanks for the questions. Let me answer them in reverse order. I used the phrase in a public setting recently that the fog is clearing and it's going to reveal the forest for the trees. I think the $153 million of overhang or hangover depending on who you're talking to, does clear entirely. And it will be nice to be able to talk with you guys without the asterisks and the but fors and what sounds like a list of apologies, just durable growth, cash flow and return on capital, which that business is known for. So yes, we are very much looking forward to a clean print in FY '27 and beyond. In terms of the fourth quarter, first quarter dynamic, you are right in the seasonality. Actually, our fiscal fourth quarter, which is the first calendar year that we just concluded, typically is the weakest collection period of the year. There's lots of things that get attributed this year to your point. Yes, we had some heavy storms that prevented donors from getting into the centers back at the very beginning of the quarter, that seemed to normalize and correct out. There are a lot of speculation about tax refunds and given the changes in the tax laws that refunds were larger, but then some were delayed. And so I don't really know how to handicap the ups and downs on that. We had a good quarter. Plasma did what we needed it to do to round out the year. In terms of first quarter softness, it's not what we're experiencing, but again, we don't control it. So we're going to remain prudent and conservative around that. But typically, first quarter begins to build, and it gains real momentum in second and third quarter, and we would expect this year to look similar. Unknown Analyst: And then yes, just a quick one. Are you guys seeing any early commercial signals? Obviously, not launched, but any early signals with your customers for interest in the Vivasure platform, PerQseal? And maybe how large could that opportunity be in fiscal '27? I know it's more of a second half later in the year launch, but any help -- any color there would be helpful. Christopher Simon: Sure. The early signals are overwhelmingly positive. I think the readout of the various DCT and HRS and elsewhere have been uniformly positively met that there's a novel new therapy coming for large-bore closure where there's just tremendous unmet need in the market today given the existing therapies. The product is approved for sale in Europe. We've intentionally not leaned in because as part of our integration planning, we have work to do in terms of manufacturing scale-up, reduction in cost of goods sold, make the product accretive, not just on a top line basis, but also to our margin expansion. So we are working diligently on that. What we see in Europe, though, because we've done a very controlled process where we're working with major academic centers around Europe is really meaningful interest and excitement about what the product means for the marketplace. When we step back on a global basis, we estimate the TAM for that opportunity at roughly $300 million. And we know where we sit vis-a-vis the competition. We know what we need to do to be successful on the launch. Let's wait for the release from FDA and the ultimate label that we receive, and then we'll be more than happy to drill down on exactly what this means. And when I use the term launch velocity, we'll put numbers behind it, that will be easily quantified. Operator: There are no questions at this time. I would like to thank you for your participation in today's conference. This does conclude our program. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the BlackSky Technology First Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Aly Bonilla, Vice President of Investor Relations. Aly, please go ahead. Aly Bonilla: Good morning and thank you for joining us. Today, I'm joined by our Chief Executive Officer, Brian O'Toole; and our Chief Financial Officer, Henry Dubois. On today's call, Brian will provide some highlights on the quarter and give a strategic update on the business. Henry will then review the company's first quarter financial results and updated outlook for 2026. Following our prepared remarks, we will open the line for your questions. A replay of this conference call will be available later today. Information to access the replay can be found in today's press release. Additionally, a webcast of this earnings call will be available in the Investor Relations section of our website at www.blacksky.com. In conjunction with today's call, we have posted a quarterly earnings presentation on the Investor Relations website that you may use to follow along with our prepared remarks. Before we begin, let me remind you that we'll make forward-looking statements during today's conference call, including statements about our plans, objectives and future outlook. Actual results may differ materially as these statements are based on our current expectations as of today and are subject to risks and uncertainties, including those stated in our Form 10-K. BlackSky assumes no obligation to update forward-looking statements, except as may be required by applicable law. In addition, during today's call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA and cash operating expenses. Definitions and reconciliations between our GAAP and non-GAAP results are included in our earnings press release and presentation, which are posted on our Investor Relations website. At this point, I'll turn the call over to Brian O'Toole. Brian? Brian O’Toole: Thanks, Aly, and good morning, everyone. Thank you for joining us on today's call. Beginning with Slide 3. I'm happy to report that we are off to a strong start to 2026. With up to $160 million in contract awards, we are rapidly growing backlog, accelerating revenues and on track to deliver strong earnings growth driven by demand for our Gen-3 solutions. This quarter, we achieved a clear inflection point in our business as Gen-3 capabilities are now fully operational and delivering mission-critical intelligence to customers worldwide. Demand for our Gen-3 capabilities has never been stronger. And as a result, we are growing our pipeline and transitioning new and existing customers from early pilot programs into long-term 7 and 8-figure subscription contracts. Based on the strong year-to-date sales performance, in-year revenue visibility and accelerated pipeline growth, we are increasing our revenue and adjusted EBITDA forecast and full year guidance. As we move through the year, we expect this momentum to continue, driving increased revenues, margin expansion and improved profitability. Now let's move on to key highlights across the 3 major elements of our business. Moving on to Slide 4 and our space-based intelligence and AI services. Gen-3 continues to exceed expectations, delivering exceptional 35-centimeter imaging performance at a time when real-time space-based intelligence has never been more important. With 4 Gen-3 satellites in operation, we are now unlocking significant revenue growth from new and existing customers. We won over $60 million in new contract awards from major international and U.S. government customers that will contribute to in-year revenue performance, improve margins and drive out-year backlog growth. At the same time, we continue to onboard new customers and expand existing accounts as interest for Gen-3 on-demand and assured subscription services grows. During the quarter, we secured the next wave of new Gen-3 customers and expect these accounts to grow over time as part of our land and expand strategy. It is important to note that subscription-based contracts drive predictable revenue and strong visibility into future growth as these are highly sticky accounts with almost no churn. The major wins so far this year have us on track to grow this element of our business in 2026 by over 50%, achieving a projected annual run rate of over $100 million. This highly profitable subscription revenue is on track to deliver gross margins of around 80%, which is accelerating improving adjusted EBITDA margins. The operating leverage, capital efficiency, unit economics of our constellation and the scale of our business model is translating directly to bottom line performance. Looking forward, we expect to continue strong growth internationally and are starting to see momentum from the U.S. government as funding from the fiscal year '26 budget is moving through the system, which is further improving our visibility this year. Turning to Slide 5. Customers around the world are rapidly integrating our advanced 35-centimeter imaging and real-time AI analytics into their operations at a time when conflict and geopolitical tensions around the world are driving an increasing need for assured, responsive and low-latency space-based intelligence, which is essential for critical national security missions. To give you a sense of how we are supporting typical customer operations today, users are casting hundreds of images over the course of a few days within a specific area of operations. Our dynamic tasking services and Spectra support a rapid and responsive cadence as operators are reacting to changing conditions on the ground. Once collections are casted by the user, we are achieving imagery delivery time lines consistently less than 40 minutes, including processing for AI-enabled analytics. Over the course of several days of an operation, our AI analytics detected and classified over 5 million objects as part of customer workflows, providing vital real-time intelligence. Our automated Spectra platform is compressing time lines dramatically, enabling end users to make informed decisions while providing maximum tasking and operational flexibility to respond to developing situations. This combination of high-resolution imagery, AI-powered automated analytics and rapid delivery time lines is driving customer adoption and service expansion. Moving on to Slide 6. Our AI capabilities are operational today and are delivering critical intelligence. Our proprietary AI capabilities are purpose-built for real-time geospatial intelligence and have been validated by major defense and intelligence organizations as a trusted solution. What differentiates BlackSky is that we have moved AI into real-world deployment where our capabilities are embedded directly into customer workflows and are driving daily decision-making. Our Spectra platform is continuously processing high revisit Gen-2 and very high-resolution Gen-3 imagery, applying automated detection and classification and delivering actionable insights in minutes. This allows customers to move from data collection to decision advantage faster than ever before, which is vital in today's dynamic geopolitical environments. At scale, we are processing millions of AI-enabled detections, monitoring large areas of interest simultaneously and enabling persistent automated surveillance across critical global assets. This is not just improving efficiency but fundamentally changing how intelligence is generated, reducing reliance on manual analysis while increasing speed, accuracy and mission impact. Turning to Slide 7 and an update on our Gen-3 constellation. In March, we successfully launched our fourth Gen-3 satellite, which delivered first light imagery within hours of launch and was commissioned into operations in less than a week. By reducing the commissioning time line to just days, we're providing customers with rapid access to new capacity while maximizing the operational lifespan and return on investment of our constellation. This ability to quickly and reliably move from launch to mission operations is a distinct advantage for our customers. With 4 Gen-3 satellites in operation, we achieved a major operational milestone with daily revisit rates for very high-resolution 35-centimeter imaging services across key regions of interest worldwide. When combined with our Gen-2 constellation, we have added very high-resolution imaging to our dynamic hourly monitoring services. This is providing customers with assured and flexible collection operations. We are continuing to expand the Gen-3 constellation with our next Gen-3 satellite ready to be shipped and remain on track to meet our objectives of at least 8 Gen-3s on orbit this year. Now let's move on to Mission Solutions on Slide 8. Our sales pipeline continues to grow due to the on-orbit success of Gen-3 and our ability to deliver industry-leading 35-centimeter imaging performance at compelling economics and attractive delivery schedules. Having proven on-orbit performance is an important criteria for customers that are making important acquisition decisions now that will impact their road maps and long-term investment strategies for their sovereign programs. We're seeing increasing interest from international customers and acquiring more expansive end-to-end solutions that not only include satellites and ground infrastructure, but now include enhanced secure operations and AI-enabled analytic capabilities. The combination of best-in-class Gen-3 satellites and industry-leading software and AI capabilities operating in a proven real-time architecture has us well positioned to address this growing market opportunity. Turning to Slide 9 and our advanced technology programs. While we are making great progress scaling our core space-based intelligence and Mission Solutions business, we are also advancing our lead in space through the rapid evolution of the Gen-3 platform, the development of AROS, our new wide area collection system and the advancement of new leap-ahead payload technologies that can change the future of earth and space domain observation. We were pleased to announce this quarter a major new contract worth up to $99 million with the U.S. Air Force Research Lab for the development of an advanced large aperture optical payload. This is an advanced technology that we have been developing for the past several years and is now at a point where the approach has been assessed and validated by industry-leading government experts. As a result, we were awarded a multiyear sole-source contract to move ahead with the development and demonstration of the critical payload technologies. This program represents significant customer-funded investment that not only reinforces our technology strategy, but offsets internal R&D and is in strong alignment with U.S. government priorities to advance innovative commercial space-based capabilities. Moving to Slide 10. As we advance our technologies through customer-funded R&D, we are transitioning these innovations into our space portfolio. At the core of this portfolio is our Gen-3 platform. As we iterate and enhance this architecture, we are incorporating next-generation capabilities such as on-orbit processing and optical intersatellite links or OISL, which will enable low-latency space-based communications that is critical to reducing delivery time lines and increasing resiliency. Looking ahead, we are advancing AROS, our next-generation wide area search and mapping system. This new constellation, when combined with real-time AI processing, will overcome the limitation of traditional mapping systems through transformative always-on intelligence and information services. This is an expanded market opportunity that will address a wide range of applications, including broad area monitoring and change detection, maritime surveillance and the delivery of 3D digital twins in support of rapidly growing opportunity for AI-enabled autonomous systems. As we move forward into the details of the AROS design, we see strong interest from a number of key customers and partners for this capability. We will have additional details to share on our progress as we move forward throughout the year. In summary, we are excited with the strong start to the year and the progress we are seeing across all aspects of our business as the need for space-based intelligence has never been more important. The progress we've made so far this year reflects a major inflection point for the business and is a clear indication of the traction we are gaining in the market. With that, I'll now turn it over to Henry to go through the financial results. Henry? Henry Dubois: Thank you, Brian, and good morning, everyone. I'm pleased with the strong start to the year. With the recent wins and our market momentum, we're excited for 2026. Now let's begin with Slide 12. Our first quarter revenue was $20.8 million. With Gen-3 coming into commercial operations, we started to see a return to growth in our space-based intelligence and AI services revenue, which was up 14% over the prior quarter. When comparing this quarter's total revenue to Q1 of 2025, keep in mind, Q1 of 2025 benefited from a $9 million revenue milestone for our Mission Solutions program. With strong year-to-date sales, we are expecting to further increase space-based intelligence and AI services revenue by over 50% this year, achieving a $100 million annual run rate. With the momentum we are seeing for Gen-3 services, we are increasing our revenue guidance for the year from our previous range of $120 million to $145 million to an updated range of $130 million to $150 million, representing an overall growth rate of over 30% at the midpoint as compared to 2025. Turning to Slide 13. You can see that our cash operating expenses, which excludes stock-based compensation, depreciation and amortization expenses remained flat as compared to our prior first year quarter operating expenses. On Slide 14, our first quarter adjusted EBITDA was a loss of $5.1 million, in line with our internal expectations. Given our growing revenue streams, which we believe will translate into strong adjusted EBITDA performance, we are increasing our guidance for adjusted EBITDA for the year from a previous range of $6 million to $18 million to an updated range of $12 million to $24 million, yielding a 13% adjusted EBITDA margin at the midpoint. Let's move on to our cash and liquidity position, as shown on Slide 15. With cash CapEx for the quarter of $15.8 million, we ended the quarter with $117.5 million in cash, restricted cash and short-term investments and total liquidity of over $195 million. This liquidity gives us substantial flexibility to fund strategic growth initiatives, continued Gen-3 investments and provide for the operational infrastructure investments needed to support our rapidly growing customer base. Even though we are increasing our revenue and adjusted EBITDA guidance, we are not increasing our capital expenditure targets, demonstrating the leverage we are achieving in our capital deployed to develop our Gen-3 constellation. In summary, I'm pleased with the strong year-to-date sales momentum, which is continuing to grow our backlog, strengthen our financial position and further validate the operating leverage in our business model. I mentioned earlier and as shown on Slide 16, we are raising revenue guidance to be between $130 million and $150 million, adjusted EBITDA guidance to be between $12 million and $24 million and reaffirming our capital expenditure guidance of $50 million and $60 million. With that, back to you, Brian. Brian O’Toole: Thanks, Henry. In closing, we have clearly reached an inflection point in our business with the success of Gen-3, which is now delivering mission-critical intelligence to major customers around the world. We are proud to be a trusted mission partner and support the day-to-day operations of important national security missions, both now and in the future. The proven operational performance of our real-time space-based intelligence services is leading to strong sales performance and rapid customer adoption, which in turn is accelerating revenue and margin growth. We are pleased with the momentum in the business and that our year-to-date sales are ahead of plan, which is driving the raise of our full year guidance. This concludes our remarks for the call and we'll now take your questions. Operator: [Operator Instructions] Your first question comes from the line of Jeff Van Rhee with Craig-Hallum. Jeff Van Rhee: Congrats, numbers look good. So just a couple of questions. Brian, as it relates to the pipeline, can you talk to -- you've talked about these pilots coming in and then obviously, customers are getting a sense of Gen-3 and converting. Can you put a little finer point on the quantity of pilots coming in the top of the funnel? Give us a sense of the magnitude of the pipeline, how many have converted, how many are there? How many you've added in this last quarter? Any quantification about funnel and particularly pilots? Brian O’Toole: Yes. You may have seen this week, we had a release on securing our next wave of customers. This was in the scale of a couple of dozen. And we're seeing that momentum really pick up. So they all start with 6-figure type pilots and you're seeing, as a result, that moving into 7 and 8-figure subscription contracts. They're all in different points in the pipeline. So it's difficult to kind of quantify timing and all of that. But we're just seeing strong momentum and the pipeline is looking good. Jeff Van Rhee: Is there -- if I could follow up on that, is there anything you could share with respect to what I'd call the mega deals? Obviously, you've got a lot of sovereign momentum out there. A number of players in the space are talking about 9-figure deals working through their pipe. Can you give us any sense of the frequency in which you're seeing those and seeing those work through your pipeline? Brian O’Toole: Yes. I think we announced the $30 million 1-year subscription contract. That started with a 6-figure pilot about 6 months ago. And we are seeing a lot of that type of activity, particularly as customers now have had an opportunity to evaluate Gen-3 performance tied to the operational flexibility, the timeliness and the quality of the imagery and how that can integrate into their operations. And so these are major customers and we're seeing a pretty strong pipeline of those worldwide. It's hard to, again, quantify the timing of some of these deals. But you can see we also announced another large deal as well. So a lot of momentum with these larger contracts. Jeff Van Rhee: Yes. Real nice traction on the signings. Just 2 other quick ones, if I could. Spectra and analytics, what are you seeing in terms of new customer attach rates on the analytics side? What do you anticipate based on pipeline? Brian O’Toole: Well, Jeff, that's why our pipeline and the conversion rate is going so well. It's not just the attachment rate. It's the fact that all of these things are integrated into the service. So it's highly flexible access to dynamic monitoring and tasking with the AI integrated as part of the service and then the short delivery time lines, which are really critical to what -- as you can imagine, the things are happening around the world today. So it's the combination of those 3 things that has us differentiated in the market and what customers are responding to. And as I mentioned in our remarks, our AI is operational and it is embedded in our customer workflows. And so it's not just a tech demo or some offline processing capability. It's happening in real time and it's delivering real information intelligence. Jeff Van Rhee: Yes. Got it. That's helpful. And then just lastly on Gen-3. I know maybe sometime last year, you were thinking 8 Gen-3s early-ish in the year. It looks like you're now thinking that later this year, if I caught your comment in the script. Just curious to what extent that influences your ability to book customers, influences your ability to sign incremental revenue if you're capacity constrained in any way, assuming it doesn't present any gating factors. I was just kind of trying to figure out how I should think about that capacity and its potential influence on your ability to sign new business. Brian O’Toole: Yes. Jeff, as I said, we're on track to get 8 up this year. The real inflection point, as I'll say, in customer adoption was the performance of Gen-3. I've always said, once we have a few up there and get to a daily service, it provides customers a very good experience. So that's now happened. And the growth and what you're seeing in that line of business is not limited by our capacity and we're in good shape this year with what we have and we'll just continue to grow the constellation. Operator: Your next question comes from the line of Timothy Horan with Oppenheimer. Timothy Horan: [Technical Difficulty] compared to what you've done historically and how do you think that's going to ramp? And are there any kind of new areas or new customers that are surprising you or new use cases? Any color would be helpful. Brian O’Toole: Yes. I mean, the customer sales and adoption cycle is not surprising. We've had very good visibility in our pipeline and there has been lot of interest by a lot of major customers in our Gen-3 capabilities. So now that we're getting over the hump on that and they're getting firsthand experience with it, we're just seeing a natural growth in that business. As we mentioned in our remarks, we announced several large contracts, but we now are expecting the space-based intelligence and AI services, which is our primary subscription business to grow over 50% this year. This is our high-margin business. So you're also seeing how that is translating directly into improving EBITDA margins and performance, particularly because that part of our business has -- is delivering about 80%-type gross margin. So no surprises in the sales pipeline. If anything, current events are accelerating opportunities as the demand for this type of capability has never been stronger. And we're in a good position where we're now just converting the pipeline into new contracts. Timothy Horan: And can you talk about the sovereign satellite capability? Are you seeing more interest there? Brian O’Toole: Yes. As I mentioned, we are seeing demand increase. There is major investments happening worldwide in space programs by governments around the world. We're seeing both opportunities for large constellations and opportunities related to countries that are just getting started. We have seen a pick-up in interest around Gen-3 because it's proven on-orbit performance at this 35-centimeter capability is a really important factor as they're looking at other options in the market and our ability to manufacture Gen-3 at scale and also deliver that under a very competitive time lines is an attractive offering. So we have a lot in the pipeline. We're pursuing a number of opportunities and moving them through and we expect this to be picking up as we go out through the year and into next year. Timothy Horan: Lastly, Henry, can you give us a sense of the revenue -- quarterly revenue or maybe exit run rate at the end of the year? How should things pace? Is it linear? Is it hockey stick? Any color there would be helpful. Henry Dubois: Sure, Tim. We'll be filing the Q this afternoon in there. You'll see how we've got our backlog -- our backlog -- full backlog is about $351 million as of March 31st, but that does not include the -- some of the large contracts that we signed in early April. So that would be total backlog, including those about $380 million. Of that $380 million, we would expect about $90 million to be already booked for 2026. There will be some step functions in there and we've got a lot more pipelines coming in as well. So we do expect the second half of the year to be a much stronger than the first half. And as we go, we'll hit that -- we do expect to get to that $100 million run rate by the end of the year. Operator: Your next question comes from the line of Edison Yu with Deutsche Bank. Unknown Analyst: This is [ Laura ] on for Edison. So firstly, I want to ask about how the Middle East conflicts impacting your growth? Has that led to like large increase in usage year-to-date? And how you see that trend continue? Brian O’Toole: I would say, if anything, we've already -- we already had a very strong sales pipeline for Gen-3 capability and you're seeing that we're converting that into long-term subscription contracts. I think if anything, the conflict in the Middle East is amplifying for other customers the need to lock in long-term contracts for capacity in the event these types of crisis events occur. And that's been traditionally how the market operates is because we serve the national community -- national security community. The business is not driven by singular events. It's driven by day-to-day needs for a range of national security missions. So we don't see ebbs and flows around these events. But if anything, they amplify the importance of entering into these long-term contracts. But also, I will say the capabilities that we have are -- do shine in these type of events when you're really trying to -- you can see the importance of really rapid and flexible intelligence that these operations need to monitor what's going on. Unknown Analyst: Okay. Got it. Appreciate it. Also want to follow up on this -- your AI efforts. So how should we think about the AI road map over the next 12 to 24 months? And what are the priorities there? And would you try to bring in some AI partners on either the model side or some cloud platform, et cetera? Brian O’Toole: Yes. I think the first major point is our AI is a proprietary capability. It was purpose-built for real-time space-based intelligence. So it's -- it was really designed to operate in customer workflows at scale and at speed. So we will continue to expand over time the -- our ability to not only detect and classify important objects and things of that nature, but then how we start to see patterns and changes that are important to customers. That's really the bottom line. AI is really just an enabler, but it's really all about providing that actionable intelligence to decision-makers at rapid time line. So we do incorporate a lot of third-party technology. But at the core, it's our proprietary capabilities around this mission set that has us leading in the market. Operator: Your next question comes from the line of Austin Moeller with Canaccord Genuity. Austin Moeller: So just my first question here, is there a critical mass of Gen-3s that need to be launched in order to get access to more contract dollars from either EOCL or Luno? Or is it just a matter of the '26 budget being in place and task orders going out now from the program executive offices? Brian O’Toole: Yes. I would say our growth in that line of business is not dependent on a rate of launching satellites. We've got a core amount of capacity on orbit. And you have to remember, when combined with Gen-2, we have over 15 satellites up there that are providing dynamic hourly monitoring capability. So now that Gen-3 is proven, we're just seeing a ramp in those contracts. More satellites means more capacity. And improve frequency and the very high-resolution capability. But we don't have anything right now that will be triggered by more satellites. We'll just continue to grow. Austin Moeller: Okay. And can you comment on how Spectra's AI object classification capabilities compare with some of your peers that have expertise in mapping and geo data analytics? Brian O’Toole: I would just say that, as I said in my remarks, we are delivering this operationally today. They've been validated by major defense and intelligence customers. So they trust the results that we're delivering and we're constantly improving and refining the training of those algorithms. The models are operational real-time. So that's a major differentiator. It's not an offline process. But all I can say is you've seen our performance on Luno in the past in winning contracts because of the performance of our AI. And now you're seeing it working operationally. And I think that should give you a sense of why that capability is winning in the market right now. Operator: Your next question comes from the line of Greg Burns with Sidoti. Gregory Burns: Just a follow-up on the last question around EOCL. Does the updated guidance still contemplate revenue levels at the current level where they exited last year? Or are you expecting that to build back up to where they were prior to when they were haircut last year? Brian O’Toole: Yes. I think the assumption we have now is they remain at the current levels, the levels we exited last year. There are multiple funding lines that were in the fiscal year '26 budget for commercial imagery that are in the process of being allocated to specific programs and contracts and we're actively following the process. We'll see better visibility throughout the quarter. But for now, we've been conservative, assuming the levels we exited the year at. It's also important to note that, as we talked about, we're seeing the increase now on that business line. And these large contracts we're winning have significantly diversified our customer base. And international is now a much larger percentage of our revenues. So we've minimized the impacts of some of the annual budget effects of the U.S. government. Operator: Your next question comes from the line of Sheila Kahyaoglu with Jefferies. William Healey: This is Billy on for Sheila. Just continuing on the international side, there's a lot of momentum there. And how do you think about the pipeline and untapped opportunity going forward? And how do we think about progression of current customers expanding versus new customers? Brian O’Toole: Yes. I think we're seeing growth from a couple of dimensions. We are expanding the revenues with customers we've had for a long time as they start transitioning in scaling the use of Gen-3. So we're seeing that. And then in parallel, we're adding new customers and I talked about that earlier. And then we're continuing to grow the pipeline to continue bringing a wave of those new customers into service. So the other thing I'll mention is the quality of Gen-3 is demanding a higher premium than Gen-2 because of the 35-centimeter capability. So the dollars per sold capacity are increasing. You're seeing an expansion of existing contracts. We're seeing new customers coming online and then the translation of those new customers in small initial pilots transitioning to 7 and 8-figure type subscription. So there's multiple growth vectors as we bring new and existing customers into higher levels of service. William Healey: Great. And then just like following up on that. In terms of international mix, like it's higher now. How do we think about that going forward? And how do we think about domestic versus international contributing to the 50% plus growth for the rest of the year? Brian O’Toole: Yes. As I mentioned earlier, we're -- we've assumed the U.S. government EOCL kind of maintains its current level. The majority of the growth is coming internationally. Although we did announce a new subscription contract this quarter from another U.S. government agency that's leveraging the capacity of our Gen-2 constellation, so we are seeing new opportunities emerging with the U.S. government as well. So -- but the revenue mix will be growing significantly internationally as compared to the U.S. government. Operator: Your next question comes from the line of Chris Quilty with Quilty Space. Christopher Quilty: I wanted to follow up on something that was already discussed. Just regarding the typical customer journey, is that accelerating, slowing down, staying the same? Are there any reasons that you're seeing a change in how quickly they're converting? Brian O’Toole: Yes. We're seeing an acceleration. As I mentioned, I think getting Gen-3 operational at a daily service level and putting that in the hands of customers to experience that firsthand is driving an increase in the pipeline and it's increasing the rate at which things are moving through the pipeline. So -- and it's all -- it's really -- it's fundamentally based on the level of service that's available to these customers when combining 35-centimeter imaging with low-latency, flexible tasking operations with integrated analytics. That's a first-of-its-kind capability in the market that's giving customers operational intelligence faster than ever and a lot of flexibility in how to leverage that capability across a lot of different mission sets. So it's not just about the pixels. It's about the level of service and how that's being integrated and used in a dynamic environment. Christopher Quilty: Got you. So for Henry, I mean, you did $16.5 million in the space-based intel and AI in the first quarter, which is the average of what you did all last year. So obviously, to ramp to $100 million, you're going to see a significant quarterly step-up. Is that due simply to the contracts you have in backlog and those just falling in? Or is there a higher level of book and ship type business that you expect this year? Henry Dubois: We've got a couple of things that are going to help that step up. You recall, we just announced that roughly $30 million 1-year subscription contract. If you take that and divide that by 4, you've got a pretty big step-up on that one contract alone. That contract we signed in early April. So that should be kicking in here in the second quarter. So then when you take a look at our total backlog, we will -- we've got a lot of that already booked and we've got some additional renewals coming on board as well in the near term. So we feel pretty comfortable on it. We're going to get a step-up here in the second quarter, but bigger step-ups as we go into the third and fourth. Christopher Quilty: Got you. And remind me, the backlog in terms of the breakdown, I think you said $90 million to ship this year and which business segment that falls across? Henry Dubois: We don't break it down between the different business segments and business elements. But for the most part, a lot of that is Gen-3 subscription, most of it is Gen-3 subscription. Christopher Quilty: Got you. Brian, also a follow-up on the EOCL. Back when that was awarded like 3 years ago, I was always under the impression that the uptake in the revenue because it didn't have a material impact at the time, but that the upside to the contract was based on Gen-3 capability being added into the contract. Is that not correct? Are they simply paying on the number of satellites and volume and not on resolution improvement? Brian O’Toole: Chris, if you remember, when it was originally awarded 10-year contract heavily back-end-loaded around Gen-3 services that grew over time. So the initial service levels were primarily around Gen-2 capacity. And that was really the subscription that we've been operating under the last couple of years. Gen-3 is -- they are looking at integrating Gen-3 into that subscription this year. There's a lot of interest in that. And as I said, we're watching how this -- the funding from the fiscal year '26 budget is going to flow through. But we are at a point with Gen-3 that's an attractive offering to the U.S. government and we'll have better visibility in that, I think, by the time we get through the second quarter. But there's a lot of interest in Gen-3 and the contract is primarily back-end-loaded for that capability. Christopher Quilty: Okay. Great. And Brian, you mentioned earlier the latency of the content delivery and goals to improve it. Can you talk about like what would be your sort of mid to long-term goals for where you think latency should get? And does that drive higher revenue as you drive the latency down? Or is that just becoming the table stakes of being in this business? Brian O’Toole: I think there's 2 ways to think about it. I think low latency is a requirement these days. You -- we're responding to dynamic events on the ground. And Chris, as you know, we've built a -- this is a purpose-built capability around responsive tactical operations. So to us, it is a required part of the service and it's what customers are asking for. We -- in addition to the basic commercial service, we've also -- have the ability to directly downlink into customers' environments and that brings that down into minutes as well. And so what you'll see from us continuing is just a constant improvement in that latency, not only in the imagery tasking and delivery time lines, but as we're processing more and more AI, we're doing that in real-time. So imagine we're interrogating this imagery and looking for objects and activities across a lot of things in parallel. So -- but we see it as really a core part of our offering and it's what customers are really looking for. Christopher Quilty: Got it. And maybe if I can, a final question. I know you don't do backlog breakdown, but I'm going to ask you a question on pipeline breakdown. Can you just give us a general sense when you talk about your business pipeline, either where you're currently seeing the largest area of pipeline or alternatively, where you're seeing the greatest growth in pipeline opportunity? Brian O’Toole: I think proportionately, we're seeing growth in all 3 aspects of our business. We're seeing growth in the pipeline around our space-based intelligence and AI services as you're seeing that translate into new contract wins. I already talked about the Mission Solutions pipeline as the demand for sovereign is increasing and we're seeing an acceleration of those types of programs. And we're also seeing a lot of interest in the advanced technology programs. As you know, Chris, as you know as well as anybody, space is a long game. And so customers are understanding that it's not only about what you have now, but where this is going to be in the future in the next 3 to 5 years. So we're seeing a step-up in that part of it as well. And we see that as a key part of our strategy is leveraging those investments and then translating that into the innovation and a leadership position in our space portfolio. So we're seeing growth across all 3 aspects of the sales pipeline. Operator: Your next question comes from the line of Scott Buck with Titan Partners. Scott Buck: I think most of my questions have been answered, but just one. Brian, as demand for sovereign increases, are you seeing more [Technical Difficulty]. Henry Dubois: I'm sorry, Scott, can you repeat that? Scott Buck: Yes, yes, sure. As demand for sovereign increases, are you seeing more competition for these opportunities? Brian O’Toole: I think, yes, there are a lot of -- there are -- there is increasing competition, but they're from a number of companies that have really not demonstrated proven operational performance. And as I mentioned in my remarks, having a capability like Gen-3 that is delivering the quality of 35-centimeter imaging at the level of performance that we're seeing -- and then having that on orbit and proven and operational at the economics of that spacecraft is a really compelling proposition for customers. As you know, these types of customers aren't going to risk their long-term road maps on unproven space capability. And so we feel like we have a very good advantage there. Gen-3 worked right out of the box and it has been exceeding expectations and that is giving customers a lot of confidence in our ability to support their long-term programs. So we feel we're really well positioned. There are not -- Gen-3 is a best-in-class capability and we're seeing that in the opportunities that are coming at us. Operator: Your final question comes from the line of Preston Graham with Stonegate. Preston Graham: Preston sitting in for Dave. You touched in the prepared remarks on land and expand. And so I guess for customers and pilot programs for Gen-3, are most using the broader full analytics suite from the beginning? Or do they typically start with imagery and then expand into analytics over time? Brian O’Toole: Yes, I think the way you have to think about it is they have access to a platform and that platform has a lot of different capability that they can tap into. And so they can task imagery from Gen-2 and Gen-3 satellites. They can also, as part of that tasking operation, request different types of AI-enabled analytics as part of the natural workflows. So what we typically see is customers start with the basic operations, which is a dynamic tasking. And then as they integrate that, then they start adding the AI analytics as part of the service. So I think it's an important comment in that it's a full service offering that we have through the platform. And again, that's not typical in the market. So that's another factor of what's driving the increase in our demand and the customer traction. Preston Graham: Got it. So you wouldn't even say it's not like 35-centimeter, the quality of the imagery is the main driver. It's the platform, it's the whole suite. It's all of it. Brian O’Toole: It's all of it. 35-centimeter is an important aspect because very high resolution matters. The more resolution you have, the better insights you get from the imagery, but also the level of analytics you can extract with AI goes up as well. So -- but I'll also say timeliness matters and time diverse collection throughout the day matters as well. So it's a combination of all those things. And keep in mind, just a few years ago, this went from really commercial being mapping capabilities. So now we're in dynamic monitoring with real-time intelligence from space. So it's a major paradigm shift around our purpose-built capability. Preston Graham: Understood. And then maybe just one final one. You've talked about in the past kind of vertical integration gives you better visibility into production and deployment. Are there any kind of current supply chain constraints that could impact Gen-3 production or launch timing or still feeling good about the road map? Brian O’Toole: As I said, we're on track. We did bring LeoStella into the company over a year ago now to improve our visibility in the supply chain and streamline production operations. That's going very well. We have ordered long lead supply components so that we can maintain a regular cadence of production of Gen-3. And through that cadence of production, we can use those satellites to expand our commercial constellation or accelerate deliveries on Mission Solutions contracts, which is a competitive advantage in the market. So the vertical integration we've achieved is paying off and you're going to see that scale as we move throughout the year and into next year. Operator: There are no further questions at this time. This concludes today's call. Thank you all for attending. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Xometry's Quarter 1 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Shawn Milne, Vice President of Investor Relations. Shawn, go ahead. Shawn Milne: Good morning, and thank you for joining us on Xometry's Q1 2026 Earnings Call. Joining me are Randy Altschuler, our Chief Executive Officer; Sanjeev Singh Sahni, our President; and James Miln, our Chief Financial Officer. During today's call, we will review our financial results for the first quarter of 2026 and discuss our guidance for the second quarter and full year 2026. During today's call, we will make forward-looking statements, including statements related to the expected performance of our business, future financial results, strategy, long-term growth and overall future prospects. Such statements may be identified by terms such as believe, expect, intend and may. These statements are subject to risks and uncertainties, which could cause them to differ materially from actual results. Information concerning those risks is available in our earnings press release distributed before the market opened today and in our filings with the U.S. Securities and Exchange Commission, including our Form 10-Q for the quarter ended March 31, 2026. We caution you not to place undue reliance on forward statements or undertake no duty or obligation to update any forward-looking statements as a result of new information, future events or changes in our expectations. We'd also like to point out that on today's call, we will report GAAP and non-GAAP results. We use these non-GAAP financial measures internally for financial and operating decision-making purposes and as a means to evaluate period-to-period comparisons. Non-GAAP financial measures are presented in addition to and not as a substitute or superior to measures of financial performance prepared in accordance with U.S. GAAP. To see the reconciliation of the non-GAAP measures, please refer to our earnings press release distributed today and our investor presentation, both of which are available on the Investors section of our website at investors.xometry.com. A replay of today's call will also be posted on our website. With that, I'd like to turn the call over to Randy. Randolph Altschuler: Thanks, Shawn. Good morning, and thank you for joining our Q1 2026 earnings call. Our accelerating growth and record Q1 results demonstrate the success of our AI-native marketplace in the massive, complex and highly fragmented custom manufacturing market. The record performance we are reporting today reflects the investments and changes we've been making in our product, technology and go-to-market strategies. Q1 was a record quarter for Xometry across many fronts, including revenue, gross profit and adjusted EBITDA. Q1 revenue growth accelerated, increasing 36% year-over-year, a 600 basis point acceleration from Q4, driven by 40% Marketplace growth through our expanding networks of buyers and suppliers and increasing wallet share. Alongside strong enterprise growth, we are seeing improving broad-based strength across the marketplace driven by our product initiatives. Q1 net adds were strong and we grew active buyers 20% year-over-year. We expect continued strong growth ahead as we further tap into this largely off-line market. Q1 adjusted EBITDA increased to $10.5 million, an improvement of $10.4 million year-over-year as we deliver expanding margins on top of accelerated growth. In addition to our record financial results, today, we announced a strategic partnership with Siemens, the world's leading industrial software company, who is embedding Xometry's AI capabilities natively into Siemens Xcelerator and investing $50 million in Xometry Class A common stock to back that conviction. By natively integrating Xometry's marketplace capabilities directly into Siemens integrated design to manufacturing software ecosystem, including the Siemens Design Center, this partnership puts Xometry's manufacturability, pricing and sourcing intelligence in front of Siemens' global customer base at the moment design decisions are made. Through this embedded experience, engineers will receive real-time feedback on design feasibility, manufacturing options, pricing and lead times directly within their existing design workflow. They can also seamlessly place and track orders through to delivery. The result is a continuous digital thread from design decision to delivered part. Xometry is uniquely equipped to power this partnership with over a decade of proprietary transactional data, real-world manufacturer feedback and closed-loop production outcomes across our global supplier network. These serve as the foundation of our manufacturability, pricing and sourcing intelligence, and they are what makes this experience possible at scale. In addition to the Siemens Design Center integration, the partnership will include the integration of Thomas, Xometry's North American industrial sourcing network with Siemens Supplyframe to bring deep design to sourcing intelligence for both electronic and mechanical components to completely source the bill of materials for Siemens customers. As Xometry's enterprise installed base deepens with more accounts embedding us into their core engineering and procurement workflows, the Siemens partnership extends that intelligence upstream into the design environment itself, helping teams move from digital intent to physical production with fewer handoffs and greater transparency. And this also accelerates the expansion of Xometry's installed base in the process. Together, this strategic partnership will accelerate our collective penetration of the massive, highly fragmented custom manufacturing market with Siemens global platform extending Xometry's reach across all commercial markets. Our teams are actively working on the integration road map, and we look forward to sharing milestones as the partnership develops. We're thrilled to be working with Siemens to further strengthen the design digital thread. For those new to our story, Xometry has operated as an AI-native marketplace since its inception with data science, machine learning and core AI models integrated into operations. Xometry's core AI models, which manage the custom orders to part manufacturing journey are trained on proprietary transactional data. Xometry's proprietary pricing and sourcing models are embedded directly within live marketplace transactions, integrating digital quoting, supplier selection, production performance and delivery outcomes into a closed-loop learning system. Each completed order strengthens future predictions, increasing accuracy, speed and reliability across the network. By embedding design to fulfillment intelligence directly into engineers' workflows, Xometry reduces information asymmetry in manufacturing procurement and is transforming what has historically been a fragmented manual coordination problem into a scalable competitive advantage ground in both digital intelligence and physical world execution. Our strong Q1 financial results marked 3 consecutive quarters of accelerating revenue growth and 4 quarters of increasing EBITDA margins. At the same time, we've invested in and strengthened our platforms to deliver robust secular growth and expanding profitability in the coming years. We're off to a strong start in Q2, and we expect robust growth to continue in 2026, which James will discuss later in the call. I will now turn it over to our President and incoming CEO, Sanjeev Singh Sahni, to discuss some of the initiatives that are driving our strong growth and increasing profitability. Sanjeev Sahni: Thanks, Randy, and good morning. The strong Q1 results we are reporting today are direct evidence that the product-led strategy formulated last year is working. This quarter validates our strategic thesis and marks the clear acceleration of our path to a new trajectory. We are defining the e-commerce playbook in custom manufacturing and raising the experience bar for buyers and suppliers everywhere. Our teams are beginning to inflect the growth curve and build a path to this new trajectory. Today, I will focus on sharing some developments from our strategic elements focused on our proprietary and core AI models, e-commerce marketplace experience and expansive supplier network. Our new strategic partnership with Siemens is very exciting as it will help us serve ever more engineers and transform their buying journeys. The Siemens partnership is a strong external proof point that our core AI models are becoming the infrastructure for how the industrial world designs and sources parts. In Q1, we made significant progress on proprietary core AI models. Our proprietary intelligence is crucial for creating value across the entire marketplace. Our strategy over the past year has been to establish our core AI models as the differentiators. They are the reason why Xometry continues to take significant market share. Our models are laser-focused on improving pricing, speed and selection for both buyers and suppliers. The ability to translate a decade plus of proprietary data into immediate operating leverage and long-term Marketplace growth is what underpins our confidence in accelerating the move to the next S-curve of growth. First, we launched a new enterprise machine lead time model that represents a significant expansion of Xometry's predictive intelligence capabilities. The new lead time model represents a significant expansion of Xometry's predictive intelligence capabilities, leading to a superior prediction accuracy for custom model parts. Enabled by the scale of performance data from the global supplier network, the model enhances operational throughput by driving a reduction in standard lead time offerings and expanding rapid delivery to facilitate 1-day lead times across a growing catalog of materials and geometries. Our updated model leverages a training data set 4x larger than its predecessor and now integrates critical factors like specialized certifications, new materials and advanced finishing options. Enterprise customers are not experimenting with us anymore. They are expanding. Second, we shaped several new journeys on our e-commerce marketplace experience. Our customer and supplier online journeys are rapidly defining the e-commerce playbook in custom manufacturing. One of our core beliefs and something I feel strongly about is that the B2B buying experience in manufacturing should be every bit as good as what people experience in their personal lives on Amazon, Wayfair, or Alibaba. The days of clunky B2B procurement software, multistep checkout processes and waiting for days for an e-mail code are simply over. What we are seeing is a generational shift in who is making manufacturing purchasing decisions. The engineers, procurement buyers and supply chain lead roles are now full of dynamic digitally native individuals. They expect the same frictionless journey at work that they have in their personal lives. And when they find that Xometry can deliver to that, they become Xometry champions inside their organizations. That's true whether they are at a Fortune 500 company or a high-growth start-up. With our focus on improving the customer journeys on the platform, we introduced 2 features. First, we launched the Name Your Part feature, which enables customers to match their internal name conventions to what they have on Xometry, creating a unified part and SKU-like structure on our platform. This is an important feature that is already reducing buyer friction and substantially simplifying the reordering process. We can see in recent activity in Teamspace, the name your Part feature is gaining traction as Xometry becomes increasingly part of customers' bill of materials. Second, we enriched our pricing models to include greater personalization of customer pricing. We enhanced the dynamic pricing logic that powers the pricing intelligence layer of our Instant Quoting Engine. We see this drive higher conversions, balance margin outcomes and drive higher overall growth while enabling better outcome for our customers. In Q1, we continued to improve our injection molding offering in the U.S., adding 6 new materials and 3 additional finishes to give buyers greater choice and selection, increasing instant coding of injection molding parts by over 15%. Xometry's proprietary AI-powered platform manages the full cycle of injection molding needs from instant quoting to delivery and reordering in one of the largest custom manufacturing markets in the U.S. The platform enables a spectrum of injection molding options from prototype and low-volume bridge tooling to high-volume multi-cavity production tooling in approximately 50 different materials, colors and finishes. Finally, we are ever more focused on expanding our global supplier network and improving supplier experience. Our global supply network of approximately 5,000 suppliers is a significant strategic advantage, giving buyers unmatched speed, capacity and resilience, allowing for immediate scaling and offering sourcing flexibility across 50 countries on 4 continents. We continue to add more suppliers with higher levels of specialized certifications to support the growing needs of customers in specific industries. In 2025, demand for certified manufacturing surged with jobs requiring certifications increasing 35% on our platform. For our suppliers, we continue on improving their experience through new technology and tools in Workcenter, including the recent release of on-platform communications. By centralizing job-related communications directly within Workcenter, we are shifting more engagement online, improving visibility and further reducing friction for our suppliers. Insights we draw from suppliers' interactions on our platform give us significant sourcing insights to drive margin outcomes. This quarter confirms our strategic path and the power of our AI-driven flywheel. As I prepare to take on the CEO role in July, I'm very excited about the trajectory ahead. And I look forward to leading Xometry through its next product-led growth curve that we have already embarked on. I will now turn the call over to James, for a more detailed review of Q1 and our business outlook. James Miln: Thanks, Sanjeev, and good morning, everyone. Our results for Q1 underscore the continued scaling and increasing efficiency of our marketplace, driving both accelerated growth and expanding profitability. Revenue growth increased for the third quarter in a row, and Marketplace gross profit dollars saw even faster growth, exceeding 50% year-over-year. This accelerating top line was paired with yet another quarter of improved adjusted EBITDA profit margins. These achievements demonstrate that our Marketplace is becoming the essential infrastructure for a predominantly offline and fragmented industry. Q1 revenue grew 36% year-over-year to $205 million, a 600 basis point sequential acceleration from Q4. Q1 Marketplace revenue was $191 million and services revenue was $13.8 million. Q1 Marketplace revenue increased 40% year-over-year, a 700 basis point acceleration from Q4, driven by strong execution, expansion of buyer and supplier networks as we continue to capture significant market share. Q1 active buyers increased 20% year-over-year to 85,581 with a net addition of 3,760 active buyers, the highest number of net adds in 9 quarters. Strong Q1 net additions were driven by our product-led growth strategy and efficient corporate marketing initiatives. Q1 Marketplace revenue per active buyer increased a robust 17% year-over-year, primarily due to increasing wallet share. We view accounts with at least $50,000 spend at the top of the enterprise funnel. In Q1, the number of accounts with last 12-month spend of at least $50,000 on our platform increased 21% year-over-year to 1,864 with a strong net adds of 104. Enterprise investments continue to show strong returns. Our enterprise strategy focuses on our largest accounts, which we believe each have $10 million plus in potential annual account revenue. Services revenue was roughly flat quarter-over-quarter as we stabilize the core advertising business. We are focused on improving engagement and monetization on the platform, which remains a leader in industrial sourcing, supplier selection and digital marketing solutions. Q1 gross profit was $78.5 million, an increase of 39% year-over-year. Q1 gross margin for Marketplace was 34.7%, an increase of 290 basis points year-over-year. Q1 Marketplace gross profit dollars increased a robust 53% year-over-year. We are focused on driving Marketplace gross profit dollar growth through the combination of top line growth and gross margin expansion. Our commitment to strong discipline and rigor in capital and resource allocation across all teams while continuing to invest in growth initiatives is reflected in our Q1 operating costs. Total non-GAAP operating expenses for Q1 were $68.2 million, a 21% increase year-over-year, a rate significantly lower than our revenue growth. In Q1, sales and marketing decreased 110 basis points year-over-year to 14.2% of revenue. This reflects improving enterprise sales execution and disciplined advertising spend. Marketplace advertising spend was a record low 3.9% of Marketplace revenue, down 60 basis points year-over-year as we delivered accelerating growth and expanding profitability. In Q1, operations and support decreased 70 basis points year-over-year to 8.2% of revenue. We are focused on driving increasing automation with AI across operations and support. Q1 adjusted EBITDA was $10.5 million compared with $0.1 million in Q1 2025. Q1 adjusted EBITDA improved $10.4 million year-over-year, driven by strong growth in revenue, gross profit and operating efficiencies. Alongside accelerating revenue growth, we delivered expanded adjusted EBITDA margin of 5.1% compared with 4.4% in Q4 2025. Q1 U.S. segment adjusted EBITDA was $13.3 million, a $10.3 million improvement year-over-year. Q1 U.S. segment adjusted EBITDA margin was 7.7% compared to 2.4% a year ago, driven by expanding gross profit and strong operating expense leverage. Our International segment adjusted EBITDA loss was $2.8 million in Q1 2026 or 8% of revenue, a 400 basis point improvement from a loss of 12% in Q1 2025. We expect continued improvement in International segment operating leverage in 2026. At the end of the first quarter, cash and cash equivalents and marketable securities were $224 million. We generated $14.6 million in operating cash flow and $4.8 million in free cash flow in Q1 2026, driven by strong operating leverage and working capital efficiency. In the first quarter, we invested $10.6 million in cash CapEx, almost entirely software-related, reflecting our technology investments in the platform and accelerating product rollouts. We are focused on improving cash flow conversion given our asset-light model and limited capital spending. Our disciplined execution has led to strong revenue and gross profit growth in our AI-native marketplace, coupled with significant operating leverage and increased operating cash flow generation. We are focused on strategically balancing future investment with a relentless pursuit of operating leverage, given the vast market opportunity and our low penetration rates. As we rapidly approach a $1 billion run rate, we have a clear trajectory for improving adjusted EBITDA margins while sustaining our investment in growth. Now moving on to guidance. We are raising our outlook for the year. For the second quarter, we expect revenue in the range of $214 million to $216 million or 32% to 33% growth year-over-year. We expect Q2 Marketplace growth to be approximately 35% to 36% year-over-year, driven by ongoing momentum from our growth initiatives. We expect Q2 services revenue to be largely flat quarter-over-quarter as we continue to work through the transition of the recently launched Thomas ad serving platform and search upgrades. In Q2, we expect adjusted EBITDA of $11 million to $12 million compared to $3.9 million in Q2 2025. For the full year 2026, we are raising our revenue growth outlook to at least 27% to 28% from 21%, driven by approximately 30% Marketplace growth. We expect 2026 Marketplace gross margins to be higher than 2025 as each quarter of growth and technological advancement incrementally fuels margin performance. For 2026, we expect services approximately flat year-over-year with modest growth in the second half of the year as we expect that revenue in the second half begins to increase quarter-over-quarter. For the full year 2026, we expect incremental adjusted EBITDA margins of at least 20%. Before we open it up for questions, I want to recognize our team. The results we've discussed today reflect their execution, and I'm equally excited for what those results make possible going forward. We have real momentum, a large market in front of us and a team that has demonstrated it can deliver. That combination gives us genuine confidence in what's ahead. With that, operator, can you please open up the call for questions? Operator: Our first question comes from Cory Carpenter of JPMorgan. Cory Carpenter: I wanted to ask about the Siemens partnership, in particular, maybe for some of us more on the Internet side, less familiar. Could you just help us frame how meaningful is this for you? Kind of what exposure does this get you that you did not have before? And then how should we expect it to layer in some of the KPIs like active buyers in the coming quarters? Randolph Altschuler: This is Randy, and thanks for joining. And I'll jump in and maybe our President and incoming CEO, Sanjeev, will join as well. So we think, this is a big deal. I mean, Siemens is the leading industrial software company globally. It has millions of users. As you know, we have 85,000 active buyers. So their user base dwarfs ours, and we are embedding directly into their PLM and CAD software. So right where we want to capture the engineers and the procurement people, that is Siemens business. This will extend our reach into -- globally, it will extend our reach into all different sectors across different industries. So it could be a very big deal for us. I think from a KPI perspective, just as I alluded to, with millions of users, it could really boost up significantly our active buyer count. So lots of good things. And it also can improve our profitability as you can think we're capturing these -- these are Siemens customers. Logically, our sales and marketing spend will be dramatically less here as we're getting them here natively into their software. Sanjeev Sahni: Just to add on to that, I think, Cory, the way to think about this opportunity is that we are truly integrating directly into the Siemens software as a native embedded solution deployed within their SaaS and on-prem premises environments, which means real-time data connectivity to the engineer who is designing their product and being able to price it right there in their flow. So without having to break their flow, they would be able to get pricing on parts from Xometry, which would be a very, very big improvement to the user experience and their ability to move from price to placing the order very seamlessly, something that does not exist today at all. Operator: Our next question comes from Brian Drab of William Blair. Brian Drab: Randy, congratulations and congrats to the whole team, but well, what an accomplishment. I wanted to just follow up on the Siemens question. So first of all, can you talk about how that business is going to be structured in terms of margins for you? I know you just said it's going to require less selling and marketing. But Siemens is obviously kind of acting sort of like a distributor, you're using their platform, and they're going to take some value. But the sales through that platform, you're saying should be accretive to overall EBITDA margin. Is that right? Randolph Altschuler: So Brian, we're going to monetize. We're going to -- the gross margins that those should be very similar, Brian, to what we see today. We'll also be recognizing revenue similar to what we're seeing today. And as we said, we'll have less OpEx associated with it. So we think from an incremental margins from this revenue should be more profitable. Brian Drab: In terms of recent performance in the first quarter, have you seen or can you talk about in any more detail, strength relatively across different end markets like aerospace, space defense, I imagine, continues to be very strong, or is it just broad-based? And then are you seeing any benefit to your business from the disruption to the global supply chains related to the war et cetera. Randolph Altschuler: Yes, absolutely. So I think, first of all, like we really saw growth across all of our industries, Brian. It was very broad-based, which is very exciting for us across many different customer segments. And I think we -- certainly, the macro has been improving. The ISM data, manufacturing data has been improving. But in general, we just continue to gain more and more market share, and that's been a big driver of our growth. I think when you think about all the disruptions that have happened now for years since COVID, I think it just underscores to buyers the need for resilient supply chains, the need for digital supply chain flexibility, and that's what Xometry is. It enables people instantly to source from different regions, make changes. We strongly believe this is the future of manufacturing supply chains and we're the leader in it. And so I think that's just helping us gain more and more adoption by users and more and more market share. James Miln: I was just going to build on that. I mean, what Randy was saying, you saw accelerated net adds on the buyers, accelerated net adds on our accounts over 50,000, continued success on the enterprise front as well as continued success on the product-led strategy. So creating a broad-based offering and building out broad-based momentum. Brian Drab: Can I ask just one more quick one? So there was, I think, some anxiety on the call last time with the report because of the succession of Sanjeev coming in. Randy, you said very clearly, I'm not really going anywhere. I'm going to be working on some significant partnerships. Now that's materialized. We know exactly what you're talking about in terms of a partnership. My question is, are there -- you used the term partnerships, plural. Is this a sign of potential further -- is this indication of like other partnerships that we could see down the road? Randolph Altschuler: Yes. I mean, absolutely. Look, first, we're building a very special partnership with Siemens, a very unique one. So we're excited and grateful for that. But we're certainly hopeful that there'll be other partnerships, Brian, to say, down the road. And I'm excited to focus my time on those and assist Sanjeev here, who's been crucial to building this partnership as well as our execution. As James said, this is really about our product. I mean, Siemens is excited about our product, integrating our product. This just validates our product-led growth strategy that Sanjeev, since he joined us last year has been leading and where we go in the future. But certainly, more good stuff to come and hopefully more partnerships, but love the unique one that we built, special one that we built with Siemens. James Miln: Yes. And I think it really validates the custom manufacturing TAM that we see, $275 billion. These are the sorts of relationships that we want as the infrastructure, as the platform for custom manufacturing to be able to accelerate our growth and continue to execute really well on the product, improve that and get in front of more buyers and more suppliers. Operator: Our next question comes from Andrew Boone of Citizens Bank. Andrew Boone: Can we double-click on active buyer? It was the strongest net adds in 2 years. Can you help us understand that outperformance? And then how should we think about that going forward? And then as we think about AI just in terms of a bigger picture view as a tool that you guys are now inserting across the business. Can you talk about this very specifically within the Instant Quote engine? What is that unlocked in terms of accuracy or any other benefits you guys want to highlight as we think about the evolution of what Instant Quote can be? Randolph Altschuler: Yes. I'll start with the active buyers and then hand over to Sanjeev to talk about the AI integration and what that means. So look, I think -- and I appreciate, Andrew, pointing out, this is the biggest add that we've had for 2 years. I think you can expect to see more exciting numbers from the add perspective as we continue to further develop our technology platform to be more personalization as we extend the reach through our product and through our marketing, we're getting broader adoption. Partnerships certainly like the one, the unique one we're building with Siemens here will accelerate that. And I think the other great thing is not only did we have record net adds the last 2 years, but we grew the spend per buyer as well. I think that grew 17% year-over-year. So that's also an indication not only we're getting more buyers, but our share of wallet is increasing. And that's -- we think there's opportunity to continue to grow that share even as we grow that number of active buyers. Sanjeev Sahni: Yes. I would also say, Andrew, Shawn -- you can see in the slide in the deck that we grew the active buyer number was strong. At the same time, the ad spend as a percent of Marketplace revenue declined 50 basis points year-over-year. Shawn Milne: Andrew, to your question on AI and what we're continuing to do there and how we're embedding the Instant Quoting Engine. As you can see, I think part of our focus with the product-led growth has been to double down on the predictive intelligence capabilities that our proprietary AI model brings to us. I mentioned on the call that over the last several cycles, we've been focused on improving and expanding the model itself. Our updated model leverages the training data set, which is now 4x larger than its predecessor and even integrates new factors that actually help us price better, be more specific to new materials, even have advanced finishing options, which we continue to see more and more of as a need from our customers. Truly, I think this is most exciting for our enterprise customers whose needs are super expansive, but also to make sure that they now can come to us with a trust that we'll be able to deliver irrespective of the need. Operator: Our next question comes from Greg Palm of Craig-Hallum. Greg Palm: Yes, I'd like to offer my congratulations on basically all the above as well. I wanted to maybe go back to the Siemens announcement. I don't know if you can give us just a little bit of background on sort of kind of how that came about mostly from their end. I'm also a little bit confused and it looks like a great deal for you, but what's kind of in it for them? And I mean, as I think about them and their global sort of installed base and exposure, I mean, do you think this could be a good really helpful catalyst to accelerate growth internationally? Randolph Altschuler: Yes. So look, I think we're building something very special with Siemens, and I think that's going to give their users a very unique opportunity to access our data to improve their intelligence in terms of pricing and sourcing. It's being built natively within the Siemens system. So it is very special and unique. And I think that will be a huge value add for the Siemens users. I think as you said, it obviously, Greg, is great for us and they do have a massive user installed base, obviously much, much larger than ours, and it is truly global. And as we've talked about and as you can see in the press release, this is a global rollout that we expect. So this should help us not only here in the United States, but across all of our regions. So very exciting. Sanjeev Sahni: Greg, to your question specifically on how it helps them. This is Sanjeev. Very specifically, if you think about it, this actually embeds the entire Xometry experience within the Siemens platform, which means that the Siemens user actually never has to leave the Siemens platform to actually price the part and then track the journey of the part being manufactured and delivered to them, which is going to be very unique and puts them also in a very different category compared to any of the other competitors that they face off on a daily basis in the spaces of CAD and PLM. Now being able to make sure that their engineers and the users have a very unique journey, we think is a true differentiator for them as well. Greg Palm: I guess I'm looking or thinking about the full year guide, in light of what's going on in the macro, given the Siemens partnership. I mean, the full year guide based on what you've done in Q1 and the guide Q2, I mean, implies not just a pretty big deceleration in Marketplace growth in the second half but implies a major deceleration in net adds. It implies no growth in revenue per buyer. So I guess I'm just asking in light of all of that, maybe it's just conservatism. There's still a lot of year left, but just wanted to get your quick thoughts on that as well. Randolph Altschuler: Yes. Let me just -- first of all, our guide doesn't include anything about Siemens at all. So let's just -- that is not baked into our numbers. And as that partnership develops, we'll certainly update and if that impacts or when it impacts our numbers, we'll certainly share that. I think just to level set here, we did raise our guidance in Q2 or implied guidance pretty significantly here the 32% to 33% growth. And our guidance also -- and that includes -- that 35% to 36% Marketplace growth in Q2. Our guidance also implies higher growth in the second half of the year, higher than the guidance that we just gave about 1.5 months ago. And I just want to say that the trends remain strong. We have started Q2 very strong. And so as things continue, we will continue to update as we've done all along. But so far, the trends remain strong. And again, we've raised our guidance not only for Q2, but for the second half of the year as well. James Miln: Just build, Greg, I think we're really excited. I mean, I think now at 27% to 28% for the full year, that's an acceleration from 2025 growth of 26%. So another year of Marketplace growth of 30%, which is what we did last year. We're excited about the trends we see, very excited about this relationship with Siemens. I'll just note as well that there's a couple of slides in the earnings presentation on Siemens. So you can reference those as well as you're digging in here. And I think the strength in the product road map, the strength in enterprise, what that does is says in terms of the opportunity ahead of us, the TAM that we have to penetrate, we still feel very early. There's a lot of opportunity ahead. But when it comes to guidance, it's still early in the year, and we'll update you as we go through. Randolph Altschuler: Yes. I mean, just to be clear, we're not seeing anything that would imply deceleration, but we're being smart here. Greg Palm: Yes, makes sense. We'll be looking forward to those updated guidance metrics throughout the year. Operator: Our next question comes from Troy Jensen of Cantor Fitzgerald. Troy Jensen: First off, congrats on the great results. I guess I also want to dive in a little bit on Siemens. I think you hit on it a little bit, but just to confirm, there's no exclusivity associated with this and you guys would be able to do similar stuff with like an Autodesk and SolidWorks? Randolph Altschuler: Yes. We're building something -- thanks for joining us. So we're building something special and unique and proprietary with Siemens. So that relationship is. But we will continue to work with other companies, other beyond companies and others. But I just want to say what we've done with Siemens is very unique and special to them. Troy Jensen: The $50 million investment, was that something that happened after the quarter closed? Or can you just touch on it a little bit more? James Miln: Yes, that's after the quarter closed. So it will be -- you'll see it in the Q as a subsequent event. Troy Jensen: James, just maybe one for you, if I could throw it in quick. What revenue level do you think you need to reach like an EBITDA breakeven for your international business? James Miln: Yes. I mean, I think we're there overall globally. I don't think -- we're not going to guide to that on a segment basis. We're really pleased with the progress we're making. As you know as well, we were free cash flow positive in the quarter and we're getting close to the level which we mentioned last quarter in terms of where we think that that's sustainable at $225 million a quarter in revenue. I think we're really excited about the growth opportunity in international and seeing the margin continue to improve. So we think those losses will continue to improve as the year goes on. Operator: I am showing no further questions at this time. I would now -- I would like to thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. Good morning, ladies and gentlemen, and welcome to the First Quarter 2026 Arbor Realty Trust, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. If you want to remove yourself from the queue, please press 2. Please be advised that today's conference is being recorded. I would now like to turn the call over to your speaker today, Paula Eliano, Chief Financial Officer. Please go ahead. Ivan Paul Kaufman: Thank you, Stephanie, and good morning, everyone, and welcome to the quarterly earnings call for Arbor Realty Trust, Inc. This morning, we will discuss the results for the quarter ended [inaudible]. Some of those short reports appear to have provoked investigative interest from regulators, as well as class actions and derivative claims from plaintiffs' law firms. We have steadfastly maintained that these attacks and claims made against us were baseless and misleading. We are pleased to report in that regard that we believe any pending investigations that were initiated in the wake of the short reports have now been closed without any action against us. Additionally, and very recently, our motion to dismiss the class action lawsuit against us was granted and the claims dismissed without prejudice. We have been very pleased with these developments. Although our management team never lost sight of our shareholders and their interests during this challenging period, we are happy to put this chapter behind us and focus on creating shareholder value free of these costly and unwarranted distractions. On our last earnings call, we discussed at length how we feel we are at the bottom of the cycle, have ring-fenced the majority of our nonperforming and subperforming loans, and are working exceedingly hard at accelerating the resolution of these loans into performing assets, which will allow us to start to build back our run rate of interest income for the future. This is our top priority, as these loans are having a tremendous drag on our earnings. We also mentioned that if rates went down, the process would accelerate, and if rates increased, it would lead to a longer period of time needed to resolve these loans. Unfortunately, given the geopolitical landscape, the 5-year and 10-year have actually increased roughly 50 basis points in the first quarter, which is certainly pushing our timetable out a little bit. Despite these challenges, we continue to make progress in working through our assets, and again, we believe we have a clear line of sight on resolving a bulk of these assets over the next several quarters. We ended the first quarter with approximately $500 million in delinquent loans and around $500 million of REO assets for total nonperforming assets of roughly $1 billion. These numbers are down approximately $100 million from the last quarter, or a 9% reduction in risk. Again, our goal is to continue to accelerate the resolution of our non-interest-earning assets and redeploy the capital into performing loans and grow our run rate of income. We had $200 million of resolutions, which is consistent with our goal of continuing to shrink our total delinquencies each quarter. Additionally, we have line of sight on roughly another $200 million to $300 million of delinquencies we expect to resolve in the second and third quarters, in addition to another $100 million we believe we have the potential to resolve by the end of the year. We also remain optimistic that we can reduce our REO assets to around $200 million to $300 million by the end of 2026, even adding an additional $100 million of REO assets over the next few quarters, which were already reflected in our delinquency numbers as of March 31, 2026. We have been actively marketing several of these assets for sale, which will go a long way toward helping reduce the drag on earnings and increase our run rate of income for the future. As we discussed in detail last quarter, we continue to focus heavily on our legacy portfolio, which currently sits at approximately $5 billion. Approximately $500 million of these loans are delinquent, which we are working through very aggressively, and approximately $1.5 billion continue to perform in accordance with their original terms. The other $3 billion have modified to pay-and-accrue features, of which only half of these loans we are accruing the full rate of interest on. We continue to make progress in reducing the amount of accrued interest outstanding on certain loans by resetting the rates to today's market spreads and requiring that the borrowers pay down a large portion of the outstanding accrued interest as part of the modified terms. In fact, we are currently working on several loans totaling approximately $400 million that we think we can modify in the second and third quarters, which will result in receiving approximately $19 million in back accrued interest, reducing the loans' outstanding accrued interest down to around $1.1 billion. This is a very effective strategy that will also put these loans in a much better position to cover our debt service from property operations and is resulting in improved terms from our line lenders. This, combined with having the proper guarantees and requiring the borrower to commit significant additional capital to support the deals, gives us comfort about how these loans will perform going forward and will greatly limit the potential risk of future losses. As Paul will discuss in more detail, we produced distributable earnings of $0.18 per share in the first quarter. Clearly, our earnings are being greatly affected by the significant drag of our non-interest-earning assets as well as from resetting legacy loans to today's market rates. This is something we believe will improve in the next several quarters. We continue to make progress in resolving our legacy issues and growing our business volumes. Our first-quarter numbers were also affected, as we expected, by a normally slow start in the agency business from the seasonal nature of that platform, which was also impacted by the increase in rates. On our last call, we mentioned we would continue to evaluate our dividend policy based on how quickly we think we could resolve our delinquent loans and subperforming loans and reduce that drag on earnings. With the recent increase in rates as well as the expectation that rates can continue to remain volatile, we are now predicting a slightly longer timeline in resolving these loans. As a result, the Board has decided to reset our quarterly dividend to $0.17 per share. We believe this is the dividend we will be able to cover from earnings for the rest of the year, with the potential for growth in the later part of the year and in 2027, as we work aggressively to reduce the earnings drag from our legacy assets and improve our run rate of interest income. We also believe it is very prudent in the current environment to retain our capital to fund the growth of the platform and to buy back stock where appropriate, which generates strong risk-adjusted returns on our investment. Turning now to the production numbers for the first quarter in our different business lines. In our agency platform, we originated approximately $[inaudible] million in volume, in addition to our first CMBS brokerage transaction of $88 million, for total first-quarter volume of $795 million. These numbers were in line with our previous guidance, as we normally experience a lighter first quarter due to the seasonal nature of the business. Despite the challenging rate environment, we are seeing an influx of new opportunities that are increasing our current pipeline significantly. We are off to a good start for the second quarter with approximately $350 million of volume closed through May 2026, and we still feel we could produce similar volumes as last year with a strong second half of the year, which is obviously great for our platform. In our balance sheet lending business, we originated $400 million of volume in the first quarter. This business continues to be incredibly competitive, and as a result, we are being highly selective and are focusing our attention on launching deals with high-quality sponsors. The bridge lending business is a very important part of our overall strategy as it generates strong levered returns on our capital in the short term while continuing to build up a pipeline of future agency deals. With the significant efficiencies we continue to see in the securitization market and with our line lenders, we are able to produce strong returns on our capital despite the competitive landscape. In fact, in the first quarter, we issued another CLO with very attractive pricing and terms. We priced the deal at 1.73% over the index and 88% leverage with a 2.5-year replenishment feature. This was an incredible accomplishment, especially in light of the fact that we priced the deal during the height of the Iranian conflict. We continue to have access to this market and are a leader in this space, which allows us to finance our new originations with nonrecourse, non-mark-to-market debt to drive higher returns on our capital. In our single-family rental business, we experienced an unusually slow start to the year, which was primarily driven by the noise surrounding the housing bill being considered. This bill, in its current form, surprisingly does not have a full carve-out for the build-to-rent business as initially expected and definitely kept folks on the sidelines due to this uncertainty. There has been a tremendous amount of talk lately that this bill will not get passed in its current form and that there will be serious considerations to building in the appropriate carve-outs for the build-to-rent business, including removing the for-sale provisions in year seven that currently exist in the proposed legislation. As a result, things are starting to loosen up as people believe this will occur, and we expect to see a real uptick in our new originations in this platform going forward. We originated approximately $125 million in the first quarter and expect we will see a significant increase in new volume numbers over the next few quarters. This is a great business as it offers us returns on our capital through construction, bridge, and permanent lending opportunities and generates strong levered returns in the short term, providing significant long-term benefits by further diversifying our income stream. In our construction lending business, we continue to see our share of high-quality deals with very experienced developers. We closed one deal for $113 million in the first quarter and are expected to close another $250 million in the second quarter. Our pipeline continues to grow each day, giving us comfort in our ability to hit our target of between $750 million and $1 billion of production in 2026. In summary, we are laser-focused on resolving our legacy book as quickly as possible, which will reduce the significant drag that these assets are having on our earnings. We believe we have a clear path to resolving the majority of these over the next several quarters, which will set us up nicely to build our earnings base heading into 2027. We also continue to focus on growing the many different verticals we have and generating strong returns on our capital that are being enhanced by the significant improvements in efficiencies we continue to create on the right side of our balance sheet. We will continue to work exceedingly hard through the bottom of this cycle, and as always, we remain focused on maximizing shareholder value. I will now turn the call over to Paul to take you through the financial results. Paul Anthony Elenio: Thank you, Ivan. In the first quarter, we produced distributable earnings of $37.4 million, or $0.18 per share, excluding one-time realized losses of $23 million in the resolution of certain delinquent and REO assets. On our last quarter earnings call, we guided to around $10 million of realized losses in Q1, all of which we had previously reserved for. We had some success resolving some loans ahead of schedule, resulting in an additional $13 million in losses in Q1. We will continue to do our best to give guidance on expected resolutions, although it is a very fluid process and often hard to predict the exact timing of these resolutions. Having said that, our best estimate is a range of approximately $15 million to $25 million of realized losses a quarter for the balance of the year that we will continue to reserve for as we receive more price discovery on these assets. As Ivan mentioned, our first-quarter numbers were in line with our expectations, especially given the light first quarter we usually experience in our agency business. We also expect it will take a little longer to work through our legacy book given the current rate environment, which will likely keep our earnings in a similar range for the next few quarters before we start to see an increase in our run rate towards the end of the year as we reduce the drag on our earnings from our underperforming assets. This should put us in a position to start to show growth in our earnings in 2027 as we realize the full benefit of converting our delinquent assets into performing loans. With that said, the second and third quarters of this year are likely to be our low watermark and hover around $0.17 per share as we continue to reset certain subperforming loans to lower rates that will affect our earnings run rate for the next few quarters. We do expect this number to grow in the fourth quarter with further upside potential in 2027 as we are working diligently to resolve nearly all of our nonperforming assets over the next several quarters. We are estimating the second quarter will actually come in around $0.15 per share, as there is roughly $0.02 per share of unusual drag from some inefficiencies related to our financing costs that are resulting in a temporary overlap of interest for a few months. This includes the $100 million ramp feature in our new CLO that we expect to be able to fully utilize by May 2026, and the timing of redrawing on our repo lines to pay off our 4.5% unsecured notes last week, as we used some of the proceeds from the December bond issuance to temporarily pay down higher-cost repo debt until the April notes came due. Given the nonrecurring nature of this expense, combined with the expectation that we will resolve the bulk of our delinquent loans by the end of the year, we believe we will be able to start to grow our earnings in the fourth quarter, with additional upside expected in 2027 as well. In the first quarter, we recorded an additional $12 million of OREO impairments to properly mark these assets to where we think we can effectuate a sale. We have engaged brokers to sell the bulk of these OREO assets quickly and create interest-earning loans for the future. As Ivan mentioned, we are expecting to take back roughly another $100 million of assets as we work to the bottom of the cycle, $50 million to $75 million of which will likely happen by the end of the second quarter of 2026. Most of these assets are already reflected in our delinquent numbers. Again, we are working very diligently to dispose of these assets quickly, with an estimated $100 million to $150 million of sales scheduled in the second quarter and another $200 million to $250 million expected in the third and fourth quarters. This should put our OREO assets between $250 million and $300 million by the end of 2026 and greatly improve our run rate of income for the future. We also booked another $9 million of specific reserves on our balance sheet loan book, for total OREO impairments and specific reserves of approximately $21.5 million in the first quarter. We expect to book similar levels of reserves and impairments over the next few quarters, which is consistent with our strategy of accelerating the resolution of problem loans as we look to mark certain loans that we are marketing for disposition to where we think we can execute a sale. In our GSE agency business, we originated approximately $[inaudible] million in volume and had $671 million in loan sales in the first quarter. The margins on these loans were very healthy at 1.86% this quarter compared to 1.36% last quarter, which was mostly due to a shift in product mix and loan size, with some larger deals in Q4 that contained lower margins. We also recorded $10 million of mortgage servicing rights income related to $734 million of committed loans in the first quarter, representing an average MSR rate of 1.32%. Our fee-based servicing portfolio was approximately $36.3 billion at March 31, 2026, with a weighted average servicing fee of 35.5 basis points and an estimated remaining life of six years, continuing to generate a predictable annuity of income going forward of around $129 million gross annually. In our balance sheet lending operation, our investment portfolio was approximately $12 billion at March 31, 2026, with an all-in yield on that portfolio of 7.03%, compared to 7.08% at December 31, 2025. This was mainly due to resetting rates on certain legacy loans and from the slight decline in SOFR. The average balance in our core investments was approximately $12.04 billion this quarter compared to $11.84 billion last quarter, reflecting the full effect of our fourth-quarter growth. The average yield on these assets increased to 7.5% from 7.38% last quarter, mainly due to significantly more back interest and default interest collected in Q1 on loan resolutions, which was partially offset by a decline in SOFR in the first quarter. Total debt on our core assets was approximately $10.7 billion at March 31, 2026. The all-in cost of debt was approximately 6.4% at March 31, 2026, versus 6.45% at December 31, 2025, mainly due to a reduction in SOFR along with a lower rate on our new CLO issuance in March 2026. The average balance on our debt facilities was approximately $10.4 billion for the first quarter compared to $10.1 billion in the fourth quarter, mainly due to funding our fourth-quarter growth and from a full quarter of the new unsecured debt issued in December 2025. The average cost of funds in our debt facilities was 6.52% in the first quarter, down from 6.66% for the fourth quarter, excluding interest expense from leveraging our OREO assets, the debt balance of which is separately stated in our balance sheet and therefore not included in our total debt on core assets. This decrease is mostly due to a reduction in SOFR, which was partially offset by the unsecured debt we issued in December 2025. Our overall spot net interest spreads were flat at 0.63% at both March 31, 2026, and December 31, 2025. In summary, we continue to make steady progress in resolving our delinquencies and are extremely focused on completing the process as quickly as possible, which will significantly reduce the drag on our earnings. This, combined with growing our origination platforms, will go a long way toward allowing us to increase our run rate of income in 2027. That completes our prepared remarks for this morning. I will now turn it back to the operator. Operator: We will now open the call for questions. We will take our first question from Jade Rahmani with KBW. Please go ahead. Your line is open. Jade Joseph Rahmani: Thank you very much. Could you comment on the outlook for SFR originations picking up and also if you can give any color on the types of borrowers that you are dealing with, the number of properties they hold, what their intended hold period is, and how the financing terms from counterparties are changing the cap rates and return profile of that business? Ivan Paul Kaufman: Can you repeat the first part of that question? It did not come clearly. Jade Joseph Rahmani: Yes, sorry about that. Could you comment on the outlook for the single-family-for-rent originations business? If you could provide some color on the types of borrowers you are dealing with, whether they are institutional or whether they are smaller, the number of properties they hold and their hold period, and about your comments regarding the housing legislation and how that is changing that business? Ivan Paul Kaufman: Sure. Let me respond to that thought first. Let us talk about the legislation because I think the business got frozen a little bit initially with the concern and the fear. But the consensus now, a very strong consensus, is those prohibitions that were put into that bill restricting closing the sale are not going to be put in the bill. As a result, we have seen real momentum over the last couple of weeks in that business. We already have approximately $200 million and we expect to exceed approximately $300 million for the quarter. So we are back in line and back in pace. Enthusiasm is back in the business. Most of the people we are dealing with—many of their investors are institution-based. A lot of them have anywhere between five and thirty assets. That seems to be the typical profile of what we are dealing with. Some have high-net-worth families, but a lot of them are institution-based. As for cap rates, returns, and how we are seeing the financing side of that business, the credit markets are extremely aggressive right now, and the cap rates are very aggressive. It is a very well-liked business. We think there is a lot of momentum in the business. So it is still viewed very favorably. Anything that is completed and goes to a bridge loan is priced extraordinarily competitively, and the agencies—Fannie and Freddie—as well as the CMBS market love this product. Jade Joseph Rahmani: Great, and that is really good to hear in terms of the resiliency of that asset class. Just turning to the outlook on credit, I think you touched on it that the 5-year and 10-year move this year is kind of slowing the pace of resolution. My main question would be if there are any new delinquencies or new defaults you would expect as a result of where the 5-year and 10-year are. I imagine that there is at least some cohort of borrowers that have been kind of on the fence as to what they are going to do, and the outlook for rates makes a huge difference in their consideration. So if you could just comment on how the 5-year/10-year move this year has affected the credit outlook? Ivan Paul Kaufman: I think it is very clear from management’s standpoint that we have taken a look at the change in the rate environment. In the fourth quarter, we clearly had a drop in rates and there was a lot of liquidity flowing into the sector and a lot of enthusiasm. Now, with the Iran situation and rising rates, and with the view that rates will remain a little bit higher, we have adjusted our philosophy. We are getting ahead of where we think the market is, and that is why we adjusted our dividend to reflect a more difficult environment. We do not want to be sitting here in the second and third quarters making the adjustments. We think that this rate environment is going to slow the resolution, it is going to slow liquidity into the sector, and it is going to slow where these resolutions go. In fact, as Paul has guided in his comments, we are expecting to continue to have reserves going in the second, third, and fourth quarters, and it is reflective of where this new environment is. So we have made the adjustments. I am not sure everybody else has, but we do think that this new rate environment is going to affect the balance of the year, and that is what we are reflecting in our comments. Jade Joseph Rahmani: Thanks for taking the questions. Operator: Thank you. We will take our next question from Citizens Capital Markets. Please go ahead. Your line is open. Analyst: Hey, guys. Thanks for taking the questions. I was having some connection issues, so apologies if you already hit on some of this. Looking at originations in the bridge portfolio, average loan size looks to be about $128 million versus $38 million in the fourth quarter. I think Ivan touched on this a little bit, but was this more opportunistic, or are you intentionally moving up the loan-size spectrum and should we expect to see more of this going forward? Ivan Paul Kaufman: I think it is a great question. We are definitely going into a larger loan size, but the market is extremely competitive. It is to the point where, on each individual loan, you have to make certain credit decisions in order to bring those loans on. So we have chosen to go to larger sponsors and larger deals and be more selective in that sense, to put more management attention on each and every loan that we do, and the larger loans give us the ability to do that. Analyst: Got it. That makes a lot of sense. And then, I guess, gain-on-sale margin stepped up quite a bit in the quarter to 1.86% from 1.36%. Can you just remind me if there was a large deal in 4Q numbers, or is something else driving that dynamic? Ivan Paul Kaufman: That is exactly right. A couple of things happened. If you go back and look at our margins—look at 3Q, 4Q, and even 2Q of last year—if you look at 1Q and 2Q of last year, the margins were actually very strong. A 1.86% margin is very healthy. We did approximately 1.75% in the first quarter of last year and approximately 1.70% in the second quarter of last year. In the third and fourth quarter, you saw that dip to approximately 1.15% and 1.36%. In the third and fourth quarter, we had some really large off-market deals that we were able to get over the line, and we also had a lot more Freddie Mac business in the fourth quarter, which is a different type of business. In the first quarter, we had a lot more Fannie Mae business and a lot more smaller deal size, so we were able to extract the higher margin. It all depends on what is in our pipeline. We do have a lot of large deals in our pipeline that we are working through. Our pipeline is growing each and every day, so you could see that number dip a little bit in the second quarter and the third quarter depending on deal size. It is deal size and mix, and to your point, the fourth quarter did have some really large deals in it. Analyst: Got it. That makes a lot of sense. Appreciate you guys taking the questions this morning. Operator: Thank you. We will take our next question from Richard Barry Shane with JPMorgan. Please go ahead. Your line is open. Richard Barry Shane: Hey, guys. Thanks for taking my questions this morning. A couple of different things. In prior calls, you had talked about some fairly substantial capital investments in REO properties. I am curious how much you have spent life-to-date in terms of that CapEx and what you expect going forward, given your sort of expectations for additional REO? Ivan Paul Kaufman: Sure, Rick. I think we look at it a couple of different ways. We break down the REO book. As I said in my commentary, we have been in the process recently of engaging brokers and really trying to find people that are interested in these assets, that are experts in that particular market with that particular asset. We are doing a really nice job, I think, of getting a significant amount of bids. There is certainly more capital out there now chasing deals, so we have seen a real influx of opportunities to dispose of the assets quicker, which is why we are guiding to getting our REO book down to roughly $250 million to $300 million. I would say that from a CapEx perspective, there are certain assets that we expect to hold on to. There is a subset of assets within that $250 million to $300 million that we expect to hold on to a little longer and stabilize, and we are feeding those assets with CapEx. In the quarter, I think we put about $8 million to $10 million of CapEx into certain assets. As for life-to-date, we can follow up with precise numbers, but that gives you a sense of the recent pace. Richard Barry Shane: I appreciate you referencing the comment about working with the brokers. That is actually what precipitated my question. I am curious if there is a little bit of a change in strategy here, which, instead of investing and trying to potentially optimize outcome on a longer timeline, you are taking a first-loss, best-loss approach here and accelerating the disposals. Ivan Paul Kaufman: A lot of it is loan-specific. If we feel we can get to market with an asset fairly quickly without putting CapEx in, we will do it. Early on, there were certain assets that really required CapEx to put them in a better position, so it is really an asset-specific situation. That said, we are leaning toward, as you referenced, resolving assets on an accelerated basis at our mark if we can. We have had a few of those this quarter as part of that $23 million of realized losses, and we continue to push that way. It is asset-specific, but we are definitely leaning toward quicker resolutions where appropriate. Richard Barry Shane: Got it. Okay. That actually relates to something that someone pinged me about, which is during the quarter, you sold a property for $25 million and provided a $24.5 million bridge loan, which seems like a fairly aggressive financing structure. As you are resolving the REO, is part of the intention to provide financing for those transactions? Is that type of advance rate going to be typical of how you are approaching things, and how should we think about that from a credit perspective? Ivan Paul Kaufman: Once again, it is asset-specific, but a lot has to do with loss structures as well. While it may be a high advance rate, there are capital commitments and guarantees that are required on those loans from the people who are stepping into those transactions. We will look at our recoveries and our returns fitted on each particular case. Many times these are sponsors we have done a lot of business with, with strong balance sheets, and while we may give them a high level of leverage going in to create a very seamless process, their commitment to maintain that asset with the right guarantees—CapEx, interest guarantees—helps to offset that high leverage. Richard Barry Shane: Got it. Okay. Last question. If we think about dividend policy going forward—again, you have clearly trued the dividend up to distributable earnings. I know different commercial mortgage REITs talk about distributable earnings ex realized losses. I am curious, as we are looking at our models, what do you think we should use as the guidepost for the dividend? Is it distributable earnings, or is there something else? I want to make sure we are looking at the right metrics so that we catch any inflections either up or down going forward. Ivan Paul Kaufman: Good question. We clearly look at it as distributable earnings excluding the one-time realized losses that we have already provided for and that have already reduced book value. That is how we look at it—what are we earning from a cash perspective. In this quarter, we put up $0.18 excluding the losses. What we have guided to is a bit of a low watermark in the second and third quarters. Richard Barry Shane: Absent the $0.02 one-time drag, that probably puts me at $0.15 for the second quarter. Ivan Paul Kaufman: We are really at $0.17 if you add that back in Q2 and $0.17 in Q3. Then what we have guided to is, if we can execute our business strategy very effectively—which we are laser-focused on—and really start to turn a lot of these nonperforming assets into performing assets, we will start to see growth in the fourth quarter in that distributable earnings number. So we have set the dividend where we think we can earn it for the rest of the year, and we have set it to where we think distributable earnings will be, excluding those one-time losses. Richard Barry Shane: Got it. Okay. Thank you, guys. Operator: Thank you. We will take our next question from Raymond James. Please go ahead. Your line is open. Analyst: Roughly 40% of your loan portfolio is in Texas and Florida, where there is quite a bit of housing supply across multifamily, SFR, and single-family housing. Can you please provide some updated commentary on what you are seeing on the ground in those geographies? Ivan Paul Kaufman: What we are really seeing is being at the bottom of the market. Over the last 24 months, there has been an extreme amount of softness that we are seeing firming month by month. I think some of the issues that we faced in the Texas market and in the Florida market in particular, and also in the Atlanta market—issues with immigration and the issue with the eviction/ICE rates—have really had a negative impact on the portfolio and accelerated some of the delinquencies. We have had assets that were 90% occupied see periods where occupancy dropped to 75% overnight. Over the last 12 months, I think the eviction dynamics had a negative impact in those markets. That is getting behind us at this point, and we are seeing a reset of rental rates and occupancy rates. We also saw, for a period of time, real slowness and issues with respect to the credit of our tenants and the inability to remove nonpaying tenants from occupancy. That has changed; the court system has sped up, and the software and discipline that have been put in place to catch fraud and put the right tenant base in place have improved dramatically as well. The other thing we are seeing is that we are accelerating our efforts in terms of assets that are not performing properly. We are requiring management changes and/or taking control of these assets. It is generally the case when assets are cash-starved that they get poorly managed. We have taken very aggressive steps to make those corrections. That is reflected a little bit in our forecast because we are taking control of those assets either directly or indirectly. During that period of time, we are going to have a little bit of a drag on our earnings while we are doing it, but we are seeing the benefit of our efforts by seeing a real stabilization in these assets and a growth back in occupancy and operating income. Analyst: Great. Thank you. Operator: Thank you. We will take our next question from Jade Rahmani with KBW. Go ahead. Your line is open. Jade Joseph Rahmani: Thank you. I wanted to ask you about the CECL reserve or the credit loss reserve. It currently stands at $131 million, which is 1.1% of the portfolio. You said you expect realized losses of about $15 million to $25 million a quarter for the next three quarters, so that is up to about $70 million. Assuming that comes out of CECL, there would be a remaining $60 million of CECL, which is 0.6% of the portfolio. So, I think the question is if you are going to be taking additional CECL reserves in future quarters, and if there is a normalized CECL reserve ratio that should be on this portfolio. You mentioned that there is about $1 billion of nonperforming assets including REO and nonaccruals. Ivan Paul Kaufman: Sure. Jade, I think you cannot look at it just on the nonperforming assets and the delinquencies. You have to look at it with the REO assets as well. Yes, we have approximately $130 million of CECL on the balance sheet loan book and approximately $481 million of delinquency on the balance sheet loan book. We also have approximately $520 million of REO assets, on which we took another $12.5 million of impairment this quarter, up from $20.5 million the prior quarter. Before those loans were transferred to REO, we had booked CECL reserves on those, so there is about $85 million of reserves effectively sitting in the REO book. That REO book has been written down by about $85 million. You have to take that $85 million and the $130 million and divide it over the REO plus delinquency book, which puts your ratio more around 1.7% to 1.8%. That is probably the right ratio. To your second question: yes, we have guided to $15 million to $25 million in realized losses going forward, but not all of those will be delinquencies; some of those will be REO. You have to look at those buckets together—that is how we look at it. We are also guiding that in this market—given the interest rate environment and given the fact that we have engaged brokers and are getting more price discovery on assets—it is hard to sit here and tell you exactly what the numbers will be, but based on recent experience, we think that range is appropriate. As for the portfolio yield you referenced—6.49% weighted average cash pay rate or current pay rate—yes, 6.49% is the pay rate, but another roughly 25 basis points of that is origination and exit fees that we accrete over time, so that is cash, and then approximately $25 million is PIK. On PIK, during the quarter we booked just about $5 million of PIK interest on our bridge loans. We have about $2 million of PIK interest on our mezzanine and preferred equity—standard for those products. On the bridge business, the PIK for the quarter was down to $5 million; a year ago it was about $18 million. SOFR has dropped, we worked out a lot of loans and reset them at current rates, and the PIK has been paid or recovered and does not continue going forward. As we work these loans out, they will not be PIK. I think that $5 million a quarter on balance sheet loans goes down to probably around $4 million a quarter. Jade Joseph Rahmani: Okay, great. Thanks for the color. Operator: I am showing no additional questions at this time. I would like to now turn the conference back to you, Ivan Kaufman, for any additional or closing remarks. Ivan Paul Kaufman: Thank you, everybody, for your participation today, and have a great weekend. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the N-able First Quarter 2026 Earnings Call. [Operator Instructions]. I will now hand the conference over to Griffin Gyr, Investor Relations. Please go ahead. Griffin Gyr: Thanks, operator, and welcome, everyone, to N-able's First Quarter 2026 Earnings Call. With me today are John Pagliuca, N-able's President and CEO; and Tim O'Brien, EVP and CFO. Following our prepared remarks, we will open the line for a question-and-answer session. This call is being simultaneously webcast on our Investor Relations website at investors.nable.com. There, you can also find our earnings press release, which is intended to supplement our prepared remarks during today's call. Certain statements made during this call are forward-looking statements, including those concerning our financial outlook, our market opportunities and the impact of the global economic environment on our business. These statements are based on currently available information and assumptions, and we undertake no duty to update this information, except as required by law. These statements are also subject to a number of risks and uncertainties, including those highlighted in today's earnings release and our filings with the SEC. Additional information concerning these statements and the risks and uncertainties associated with them is highlighted in today's earnings release and in our filings with the SEC. Copies are available from the SEC or on our Investor Relations website. Furthermore, we will discuss various non-GAAP financial measures on today's call. Unless otherwise specified, when we refer to financial measures, we will be referring to non-GAAP financial measures. A reconciliation of certain GAAP to non-GAAP financial measures discussed on today's call is available in our earnings press release on our Investor Relations website. Now I will turn the call over to John. John Pagliuca: Thank you, Griffin, and welcome, everyone, to our call this morning. Today, we'll review our first quarter results, discuss key trends we're seeing through recent industry engagements and highlight how AI innovation is tangibly expanding our software opportunity. We will focus particularly on our AI innovation, where we are automating work historically delivered through labor-intensive services, helping organizations operate more efficiently and securely while also growing our TAM. This progress matters now as advancements in frontier models are fundamentally rewriting the threat landscape, compressing response times for defenders and empowering attackers to exploit vulnerabilities at unprecedented speed and scale. We believe our end-to-end cyber resilience platform is purpose-built for this moment, positioning N-able to lead as cybersecurity reaches an inflection point. Let's jump right in. Starting with the quarter, our results were strong. First quarter ARR was $548 million, growing 8% year-over-year in constant currency, and adjusted EBITDA margin was 27%. Quarterly gross and net revenue dollar retention both improved quarter-over-quarter and year-over-year, with trailing 12-month net retention now at 106%. Let's walk through the drivers of that performance. First, we continue to see momentum upmarket. The number of customers with over $50,000 of ARR grew by 13% year-over-year, and this cohort now represents 62% of N-able's total ARR. In addition, customers with over $100,000 of ARR represent 41% of our annual recurring revenue. This upmarket progress is further exemplified by our selection as Manchester City Football Club's official cybersecurity partner. As the club operates at global scale on the field, N-able protects its critical data and systems, securing its digital environment off the field. The partnership underscores our ability to serve complex, high-profile organizations. More broadly, given the strong retention in our upmarket cohorts, we believe our success in this segment provides a solid foundation for future growth. Second, our channel expansion strategy is working. 4 of our top 5 new customer wins in the quarter, including the Manchester City deal, were through value-added resellers, or VAR channel. With an established MSP motion that counts 25% of CRN's top 150 MSPs as customers and our scaling VAR presence, our broad channel footprint enables us to capture demand across the market. Third, the depth and breadth of our platform is resonating. Strength in cross-sell and upsell underpinned improvement in both gross and net retention as customers realize value in expanding and consolidating with N-able. From a category perspective, security operations and data protection continue to outpace total company growth as customers prioritize advanced remediation and recovery capabilities in the face of rising cyber risk. Reflecting on the quarter, the business executed well and our strategy delivered strong results. Let's now switch gears and discuss key observations from recent industry engagements. During the quarter, we engaged across the ecosystem through our annual customer conference in power, a major industry event such as RSA and ongoing dialogue with third-party research firms. One major takeaway is that we believe cybersecurity continues to experience strong secular tailwinds. We are consistently hearing from customers that the worsening threat environment and rising IT complexity are driving increased need for stronger cybersecurity solutions. This sentiment is reinforced by our internal data and third-party research. Our 2026 state of the SOC report, which is informed by telemetry and frontline response data from N-able SOC, we observed an alert every 30 seconds. We also saw a dramatic rise in perimeter-based attacks with 50% of attacks bypassing endpoint controls entirely. Manual triage approaches are not able to keep pace with the scope and velocity, emphasizing the need for modern, machine-driven defense. Industry research firm, Futurum, reported a similarly challenging attack environment. In their 2025 Cybersecurity Global Enterprise decision-making survey report, Futurum highlighted that 46% of organizations surveyed experienced more than 3 significant security incidents over the past year. We do not see these dynamics abating, particularly as advances in AI continue to lower the barrier to entry for increasingly sophisticated cyberattacks. Together, these factors give us confidence that our mission to protect businesses from evolving cyber threats is underpinned by strong market demand. Another takeaway is that customers are struggling to balance the need for powerful layered defense with practical constraints such as managing vendor sprawl, staffing challenges and budget limitations. This pain point validates our platform strategy. Spanning unified endpoint management, security operations and data protection, our platform enables customers to efficiently manage complex IT environments, detect and stop threats in real time and safeguard and recover critical data. We deliver coverage across the entire life cycle before, during and after an incident, helping customers stay secure while operating efficiently. We are also hearing strong conviction that AI is a meaningful growth driver for MSPs. Our conversations at our customer conference in power reflected a broadly bullish sentiment, improve efficiency and create new revenue streams for MSPs. While adoption is still early, customers are clear that they want a trusted partner to help them navigate the technological wave so they can focus on operating their businesses. In summary, our industry engagements reinforce our view that industry demand is strong and increasingly favors AI-powered integrated platform-based approach. This brings us to our innovation and how our software is expanding our opportunity by automating work historically delivered through services. Our platform is rapidly evolving from a system of record to a system of action, increasingly completing tasks previously handled by technicians. This evolution unlocks significant economic opportunity. Industry analysts such as Omdia estimate annual security services spend at about $200 billion, roughly twice the size of security software spend. We see a similar labor-heavy cost structure within our MSP customer base. Our field work indicates MSPs operate at approximately 10% EBITDA margins with a sizable portion of their cost structure composed of labor. As our intelligent software completes workflows historically owned by labor, we help our customers operate more efficiently and improve margins while expanding our monetization surface from software budgets into a much larger labor-driven services opportunity. A concrete example helps illustrate the opportunity we are driving. Technicians are the revenue engine for MSPs. The more IT assets, including AI that each MSP technician can manage, the more revenue an MSP can generate. The challenge is that technicians have practical limits. A common industry benchmark is roughly 1 technician for every 200 devices. This creates a growth ceiling in the structurally tight IT labor market and pressures MSPs profitability as they must continually hire additional technicians to support more customers. Our aim is for our software to improve that ratio, empowering a single technician to manage 500, 1,000 or even more IT assets. Delivering this creates a win-win for our customers and N-able. Our customers can scale their businesses without linear increase in labor costs, and we can gain market share as MSPs consolidate around platforms that can help them grow their businesses more efficiently. Importantly, this is not a future state. We are delivering progress today. In UEM, we recently introduced N-zo, our AI workflow assistant and our custom model context protocol, or MCP server. These advancements mark an important step forward in AI-driven IT operations. For certain tasks, N-zo delivers up to 70% faster IT operations by enabling teams to interact with their environments using natural language and agentic workflows. Our MCP server goes a step further. Securely connecting external AI tools like Claud, ChatGPT and Microsoft Copilot directly to live operational data inside N-able UEM. This means AI no longer just tells customers what's wrong. It helps fix it real time with the control and governance our partners require. Together, these capabilities are empowering IT teams to move faster, reduce manual effort and act directly within the environments where they already work. This progress directly improves the technician to managed device ratio we discussed earlier. UEM's value proposition is showing clearly in execution. 6 of our top 10 new customer lands flowed through our UEM solution. A standout example is one of the fastest-growing quick service U.K. restaurant brands that was looking for a trusted partner to ensure the digital operations work seamlessly. They deployed our UEM in late 2025 across 100 locations, gaining real-time visibility into the devices, automating routine fixes and significantly reducing downtime. We recently built on that success, signing the U.S. group and expanding the relationship significantly. We are also automating historically manual-intensive work in data protection, where we recently introduced Disaster Recovery as a Service, or DRaaS. We are eliminating the need for customers to manage backup infrastructure themselves, reducing cost, time, risk and operational headache. This shifts backup management from a labor-intensive activity to a software-led capability. Beyond efficiency, DRaaS meaningfully strengthens customer security posture. In the event of data loss, businesses can there instantly recover critical systems, minimizing their downtime and maintaining their operations. We also expanded our anomaly detection capabilities, which help identify changes to backup environments. With threat actors increasingly using identity-based attacks to steal credentials and target backups from inside the organization, including altering retention policies or deleting servers, this advancement has real impact. Building on that momentum, we are excited about the planned addition of Google Workspace backup coverage later this year. From a broader perspective, we continue to see durable demand drivers for data protection. With time to exploit turning negative and adversaries exploiting vulnerabilities before patches exist, the criticality of our ability to protect and restore data is heightened. As we look ahead to a world with agents owning more workloads for businesses, the possibility of agents making costly mistakes also rises. We see the need to effectively undo agent mistakes and restore operations through a clean prior state as a potential demand catalyst for our data protection solution. Our execution and value are showing up in the numbers. Data protection has now surpassed 3.5 million Microsoft 365 users and led our net new ARR growth in the quarter. Finally, in security operations, we are extending the same system of action approach into one of the most labor-intensive areas of cybersecurity. Businesses are facing more complex attacks and N-able is helping them operate, contain and scale security without standing up their own SOC. Our security operations solution is a system of action at its core as AI handles the bulk of our threats automatically. This is a critical differentiator. With breakout time shortening to minutes, the ability to neutralize threats in real time could be the difference between a contained event and a successful breach. Customer count has nearly doubled since the second quarter of 2025, reflecting our traction here. A recent customer win demonstrates the solution in action. A compliance-focused MSP serving regulated industries was facing challenges managing a fragmented security stack spanning multiple EDR, MDR and semi tools. We standardized the security operation, replacing multiple legacy providers with a unified scalable model, driving ARR of nearly $500,000. Importantly, AI reinforces the role our platform plays in the Agentic world. From an operating standpoint, AI is embedded into our platform, and we are deeply embedded in our customer environments and workflows. This positions us to serve as a control plane to govern and secure agents as they become more prevalent across their IT and security environments. Customers can access AI where they already operate. We pair that accessibility with a technical experience built on proven infrastructure, extensive data, deterministic workflows, domain context and rigorous compliance standards. From a demand perspective, we see AI increasing both the volume and severity of threats while also expanding the amount and criticality of data that must be protected. These forces directly drive the need for our solutions. Our trusted brand and established go-to-market further positions us to translate innovation and demand into real-world adoption. To close, we're executing with discipline as we pursue the large and compelling cybersecurity opportunity. We believe AI is expanding our software opportunity by enabling us to automate more workflows and reinforcing the critical role we play in helping customers navigate a more complex and hostile digital environment. With that, I'll turn it over to Tim and then circle back for closing remarks. Tim? Tim O?Brien: Thank you, John, and thank you all for joining us today. Our first quarter performance reflected the execution drivers John discussed, including continued upmarket momentum, strong contribution from both our MSP and VAR channels and expanding platform adoption. Our innovation is also broadening the scope of what our software can deliver, unlocking significant opportunity as we automate work historically delivered through services. From a strategic and capital allocation perspective, our focus remains investing behind durable demand for cybersecurity solutions while delivering a robust financial profile. Before diving into the results and outlook, I also want to share perspective on how we believe our business is positioned for growth in an increasingly agentic era. Our revenue model is diversified. We have meaningful monetization across data growth, servers and cloud assets alongside more traditional drivers such as users and devices. We believe this diversified exposure powers multiple paths to growth. Looking ahead, we see a significant new monetization opportunity as customers increasingly adopt agents and other non-human identities across their environments. As these new IT assets introduce requirements around security, governance and resilience, we believe we are well positioned to help customers secure, govern and back up these new IT assets. At the same time, we intend to continue innovating by delivering our own agents, building on our existing platform capabilities and system of action. Taken together, we believe these dynamics reinforce the durability of our model and create additional long-term growth opportunities as the market evolves. I'll now walk through our first quarter results, provide additional detail on the drivers of our performance and discuss our outlook for 2026. First, let's discuss our results for the first quarter. For our first quarter results, total ARR was $548 million, growing at 11% year-over-year on a reported basis and 8% on a constant currency basis. Total revenue was $134 million, $2 million above the high end of our guidance, representing approximately 13% year-over-year growth on a reported basis and 8% on a constant currency basis. Subscription revenue was $132 million, representing approximately 13% year-over-year growth on a reported basis and 9% on a constant currency basis. We ended the quarter with 2,710 customers that contributed $50,000 or more of ARR, which is up approximately 13% year-over-year. Customers with over $50,000 of ARR now represent approximately 62% of our total ARR, up from approximately 58% a year ago. Dollar-based net revenue retention, which is calculated on a trailing 12-month basis, was approximately 106% on a reported basis and 103% on a constant currency basis. Approximately 46% of our revenue was outside of North America in the quarter. Turning to profit and margins. Note that unless otherwise stated, all references to profit measures and expenses are calculated on a non-GAAP basis and exclude the items outlined in the GAAP to non-GAAP reconciliations provided in today's press release. First quarter gross margin was 80% compared to 81% in the same period in 2025. First quarter adjusted EBITDA was $37 million, representing approximately 27% adjusted EBITDA margin. Unlevered free cash flow was $22 million in the first quarter. CapEx, inclusive of $3 million of capitalized software development costs, was $4 million or 3% of revenue in the first quarter. We ended the quarter with approximately $118 million of cash and an outstanding loan principal balance of approximately $399 million, representing net leverage of approximately 1.8x. Non-GAAP earnings per share was $0.09 in the first quarter based on 189 million weighted average diluted shares. Turning to our financial outlook, which assumes FX rates of $1.17 for the euro and $1.34 for the pound. For the second quarter of 2026, we expect total revenue in the range of $137.5 million to $138.5 million, representing approximately 5% to 6% year-over-year growth on a reported basis and 4% on a constant currency basis. We expect second quarter adjusted EBITDA in the range of $39.5 million to $40.5 million, representing an adjusted EBITDA margin of approximately 29%. As a reminder, revenue growth is impacted by the timing and magnitude of on-premise deals and related revenue recognition dynamics, and we continue to view ARR as the best velocity metric for our business. For the full year 2026, our total revenue outlook is approximately $554 million to $559 million, representing approximately 8% to 9% year-over-year growth on a reported basis and 7% to 8% on a constant currency basis. Our full year ARR outlook is $581 million to $586 million, representing 8% to 9% year-over-year growth on a reported and constant currency basis. We expect full year adjusted EBITDA of $167 million to $171 million, representing an adjusted EBITDA margin of 30% to 31%. We are raising our unlevered free cash flow outlook and expect our unlevered free cash flow to be approximately $116 million to $120 million. We expect CapEx, which includes capitalized software development costs to be approximately 5% of total revenue for 2026. We expect cash interest payments of approximately $27 million, assuming interest rates remain in line with current levels. We expect total weighted average diluted shares outstanding of approximately 189 million to 192 million for the second quarter and $188 million to $192 million for the full year. Finally, we expect our non-GAAP tax rate to be approximately 24% to 27% for both the second quarter and the full year. Now I will turn it over to John for closing remarks. John Pagliuca: Thanks, Jim. We delivered another quarter of consistent execution with solid ARR growth, strong margins and practical AI innovation. As cyber threats continue to evolve and agent adoption grows, we remain focused on helping our customers prevent incidents, recover quickly and operate with confidence while delivering durable value for our shareholders. With that, operator, we'll open the line for questions. Operator: [Operator Instructions]. Your first question comes from the line of Mike Cikos with Needham & Company. Michael Cikos: This is Matt Cory on for Mike Cikos over at Needham. Great to see the uptick in growth and retention. I wanted to dig in on the revenue beat was a bit more modest than we've seen over the last couple of quarters, and it didn't flow through to EBITDA margin or the full year guide. Can you give us some color on what you're seeing in the market in terms of sales cycles and linearity as well as how that influenced guidance construction? John Pagliuca: Sure. Thanks for the question. This is John. I'll talk a little bit about sales cycle, and I'll pass it over to Tim on some of the compare. Look, as we continue to go upmarket, we are seeing a little bit of a lengthening of the sales cycle and a little bit more of a scrutiny around the ROI. I think some of this is a natural expectation. We're now landing deals. We referenced 1 or 2 during the call, a $500,000 ACV deal. We're seeing more and more 6-figure deals. We're seeing multiyear 7-figure deals. As you go upmarket, you'll start to get requiring CEO sign off and actually, in some cases, we're starting to see Board level sign off. As you're going upmarket, we're starting to see a little bit of a lengthening of the sales cycle. Overall, I'd say a little bit more of a scrutiny on the ROI. Frankly, we feel we're in a good position with that. We pride ourselves on delivering really strong TCO across the portfolio. In Cove and our data protection, it's the software, but it's the labor, and so as there's more scrutiny on ROI across the landscape, we believe we're well positioned to win in that category because it is one of our strengths. How do we allow MSPs to do more with their dollar, both from the software point of view and from the labor point of view. I think that's the one trend that we're keeping an eye on. I think it's somewhat expected as we continue to go up market. Michael Cikos: Then you mentioned agent mistakes as a demand driver, which is extremely topical finding following reports of the Rogue PocketOS agent that its production database and backup. Have you seen a noticeable uptick in demand or initial conversations following, like incidents like this sounds like it's becoming more prevalent sort of as you alluded to? Or is there any other color you can provide on the data protection growth during the quarter? John Pagliuca: It's much more top of mind. I think there's a realization across the landscape that the need to recover and the need for business resilience and continuity in the world of this agentic era is going to become more and more top of mind. If you think about backup in general, the last couple of years, it's been dominated by this cybersecurity bit, right, ransomware or attacks from threat actors and the ability to back it up. Right along for a long time, there's also friendly fire. In other words, if an employee unintentionally or intentionally deletes a bunch of data. Well, now we have all these agents in some state in an autonomous state that if not governed the right way, have the same ability to go delete data. I think there's a realization that this will happen. This could happen across small organizations or large organizations and the ability to get back up and running is top of mind. Frankly, that's why we pitch business resilience, not cyber resilience. That's what -- we know when we're talking to our MSPs and we're talking to mid-market companies and small, medium enterprises, what they're really worried about is avoiding disruption. If there is disruption, how quick can we get back up and running. That's why we're really excited about DRaaS. DRaaS provides an immediate failover or near immediate failover. If something happens via a threat actor or friendly player or because an agent goes rogue on you, you have the ability to fill over and keep your business going. All of these things are creating a bunch more demand. There is, I'd say, a realization across the industry that this is more and more of a real thing as agents continue to proliferate across the IT environment. Operator: Your next question comes from the line of Jason Ader with William Blair. Jason Ader: A couple of things. First on the macro environment, John, can you talk about any impact? Has it changed given the situation in the Middle East, the supply chain tightness going on out there? In Q1, did you see any variance from what you've seen throughout 2025 on the macro front? John Pagliuca: Jason, thanks for the question. As it relates to some of the geopolitical issues, no, we're not seeing any slowdown from any geopolitical issues. We are very international. A good amount of our business is in the U.K., a good amount of our business is in Western Europe. No, we're not really seeing any impact from what's going on related to what's going on in Iran. Jason Ader: Then, Tim, for you, just can you talk about the -- I guess you've had a 2-point NDR improvement over the last several quarters. Can you just talk through what is driving that improvement? Tim O?Brien: Yes. On the NRR, Jason? Jason Ader: Yes. Tim O?Brien: Yes. On the operational front, a lot of it is on the heels of the execution we've had with cross-selling MDR into the customer base. That's continued to be very successful and demand remains very healthy from that perspective. We also have some benefit from FX on the NRR rate as well. The combination of those 2 things are the key drivers of the NRR improvement. Jason Ader: Then I guess, last thing for you, John. What's the #1 thing you want people to take away from the print? John Pagliuca: Yes. Look, I think the #1 thing is that we're really well positioned in this agentic era, and that's not a future state. That's a now state. we've introduced N-zo, which is an AI assistant in our UEM offering, which is really going to take a lot of the high-volume operational work off the load of our technicians. This is our first really or our continuation of turning labor into software. We're excited about that. We plan to do it, and we are doing it across all 3 fronts. We pride ourselves on being the platform of choice for MSPs before the attack, during the attack and after the attack. We're layering in an agentic technology to take the labor off of our MSPs, making them more efficient, making them more profitable. In turn, we expect better GRR, better NRR and being more of a critical piece of the MSP and the internal IT departments go forward. The best way of doing that, frankly, is to make sure that AI is helping them run their business and driving the efficiency. And we believe we're well positioned there. Operator: Your next question comes from the line of Joe Vandrick with Scotiabank. William Vandrick: John, can you talk about if you're seeing frontier -- Cyber developments like Mythos and GPT 5.5 cyber changing customer urgency around N-able's core products. I'm thinking especially around the automated patching and maybe endpoint, but backup and recovery as well. Are you seeing that show up in pipeline or maybe even just in customer conversations? John Pagliuca: Joe, definitely in customer conversations. I wouldn't say it's necessarily showing up in pipeline. Look, patching and vulnerability management is a fundamental layer in cyber resilience and an overall business resilience. We've been preaching that for a while. I think it just makes it more top of mind and folks need to make sure that they have a level of autonomous patching and vulnerability management regardless of the environment. As it relates to backup, I think I brought this up earlier with the previous call from Mike and his team, it just provides another tailwind as to the use case, why you need to be able to back things up and more importantly, recover and recover in a near-time way. I think it's really just driving a lot more conversation and awareness across the industry. By and large, my MSPs that are in the upper quartile, they've been practicing this layered security approach. We've been helping them with that layered security approach. Again, this is why we think our best-of-breed platform approach is the right one for our customers and because it helps tie in together and drive a lot more efficiency before the attack, during the attack and after the attack, whether it's agentic or not. It's definitely making some of these conversations that might have been out of vogue, more in vogue, but -- and that's overall good for the community, good for the industry and good for N-able. William Vandrick: Maybe one tactical one for Tim. How should we think about net new ARR for the remainder of the year? Is there any commentary that you can provide that could help us understand the trajectory throughout 2026? Tim O?Brien: Yes. We talked on slightly last quarter that it was going to be more back half led than front half led, more so due to some of the new offerings that we're bringing to market throughout the course of 2026. That's specifically more so on the data protection side with DRaaS and Google Backup that John touched on. Operator: Your next question comes from the line of Eric Suppiger with B. Riley Securities. Erik Suppiger: I apologize if this was asked on balancing a couple of calls. Just curious, has the developments with Anthropic and Mythos highlighting new or highlighting zero-day attacks, has that changed your customer behavior in terms of the way they're using N-able to do patch management and trying to move forward on more of an accelerated path to implementing patches in response to kind of a threat landscape that's getting more difficult? John Pagliuca: Erik , yea, we talked about this a little bit before. What it's really done is just, I think, making patching and vulnerability management, which is a fundamental layer and cyber resilience more top of mind for the -- overall for the industry. Look, an internal IT department and/or an MSP who is established, that is growing their business that practices the right proper layered security that is driving more of a compliance forward type of business is executing on these areas already. It really just puts the -- our solution more to the center of what it needs. That's why, again, we believe the way that we're positioned before the attack, and we talk about before the attack, that is patching, that is vulnerability management that is monitoring and managing and during the attack with our threat hunting and our XDR, which is AI infused and then, of course, recovery if you need to get things back up and going, we believe that's the right formula for internal IT departments and MSPs. Tying these all together and adding an agentic layer that takes away from some of the high-volume operational work from a technician, that's the right formula because at the end of the day, what AI will also do for the bad guys is accelerate their speed and their volume for the threats. We need to be able to give our customers the ability to fight fire with fire and provide them AI-infused or AI-led technology so they can keep up with the speed. Often, a human is the bottleneck, and it's our job here at N-able to give them the software. It's not a labor burden, but it's on technology to, one, keep their customers safe and also drive their efficiency. We mentioned in the prepared remarks, an average MSP has an EBITDA of 10%. A lot of that's because of the labor and on the high-volume mundane tasks. As we usher in the AI technology, our hope is to really break that linearity in the model, number one, to help them improve their EBITDA, but also be able to make sure that they're thing off any threats as a result of some of the AI in the wrong hand type of thing. All of this, frankly, is pointing, I think, to an area where cybersecurity will see a tailwind and it's making it more top of mind. Operator: [Operator Instructions]. Our next question comes from the line of Keith Bachman with BMO. Adam Holets: This is Adam on for Keith. I wanted to circle back to the new products and ask that now that disaster recovery and N-zo are formally launched, what are adoption trends and uptake there relative to your prior expectations? Then inclusive of those as well as the Google Workspace launch expected later this year, are you guys embedding any expectations into the guide for revenue or ARR? John Pagliuca: Adam, thanks for the question. It's good. I want to clarify. DRaaS is in limited preview right now. It's in customers' hands. We'll do the full launch a little bit later on in the back half of the year. To Tim's point, that's why we have the ARR building more to the back half of the year. It's early days. I'm happy to report that so far, so good. We're building the pipeline. We have customers in preview. The experience so far, again, it's early days, has been really positive, and so we're excited there. On N-zo, it's also promising. Now in N-zo, we're not going to directly monetize this in this first phase, but what we're seeing is MSPs coming back saying, "Hey, that saves me hours. You're improving certain tasks that I'm doing by 70% and the feedback has been good. That being said, the use cases are limited right now. Our plan is to continue to expand those use cases as we continue to get some of those reviews and savings from the labor. DRaaS, just to be clear, that one will be directly monetizable. N-zo in its initial phase is really going to be about helping the customer experience, driving our GRR and helping them improve their profits as well. Then we'll layer in coworkers and other monetization paths as we continue on the Agentic lane. As it relates to Google, that's more to the back half of the year. We actually have customers in the queue and doing some limited preview there, but because of where that sits in the year, we're not necessarily baking that into our financial plan just yet. just because that's a little bit closer to the back half of the year. Good question. Look, this is also DRaaS and backup for Google are the top 2 areas that people were requesting for backup and data protection for the last couple of years. Just as a reminder, as it relates to data protection, this will help us improve our win rate now that we have these offerings. It will help us with the expansion, of course, because we'll be able to cross-sell, and it should help us with the GRR as well because now we have that one complete offering that an MSP is looking for. We're cautiously optimistic. Cove continues to be a fantastic offering and our data protection area is our largest ARR area. We expect this to just accelerate the data protection story. Adam Holets: Just a follow-up, if I may. I just wanted to ask about packaging and pricing changes. I believe you previously mentioned there's going to be a 1- to 2-point net benefit for FY '26. Is that still the expectation? John Pagliuca: Yes. I would say it's probably closer to the 1, but yes, we're still expecting to get a slight benefit from pricing and packaging overall on the year. Operator: There are no further questions at this time. I will now turn the call back to CEO, John Pagliuca, for closing remarks. John Pagliuca: Thank you, everyone, for joining N-able's quarterly results. We'll see you next time. Thank you. Operator: This concludes today's call. Thank you for attending. You may now disconnect.