加载中...
共找到 16,488 条相关资讯
Operator: Hello, everyone. Thank you for joining us, and welcome to Blend Labs, Inc.'s first quarter 2026 earnings call. After today's prepared remarks, we will hold a question and answer session. To withdraw your question, press 1 again. I would now like to hand the conference over to management for prepared remarks. Please go ahead. Meg Nunnally: Good afternoon, and welcome to Blend Labs, Inc.'s financial results conference call for 2026 Q1. I am Meg Nunnally, Blend Labs, Inc.'s head of investor relations. Joining me today is Nima Ghamsari, our cofounder and head of Blend Labs, Inc., and Jason Ream, our head of finance and administration. Before we start today's call, I would like to note that we refer to certain non-GAAP measures which are reconciled to GAAP measures in today's earnings release and in the appendix of our supplemental slides. Non-GAAP measures are not intended to be a substitute for GAAP results. Unless otherwise stated, all financial measures we will discuss today, including our profitability, refer to non-GAAP. Also, certain statements made during today's conference call regarding Blend Labs, Inc. and its operations, in particular, our guidance for 2026, other commentary regarding 2026, and our expectations about markets, our strategic investments, product development plans, and operational targets may be considered forward-looking statements under federal securities laws. We caution you that forward-looking statements involve substantial risks and uncertainties, and a number of factors, many of which are beyond the company's control, could cause actual results, events, or circumstances to differ materially from those described in these statements. Please see the risk factors we have identified in our most recent 10-K for fiscal year 2025 and our other SEC filings. We are not undertaking any commitment to update these statements if conditions change except as required by law. The financial information presented on this call is based on continuing operations, and prior periods have been recast to operations that are now discontinued. Lastly, we will be providing a copy of our prepared remarks on our website by the conclusion of today's call, and an audio replay will also be available soon after the call. I will now turn the call over to Nima. Nima Ghamsari: Thanks, Meg, and welcome, everyone. It has been a whirlwind two months since our last call. We reported our Q1 numbers today, which Jason will spend time on, but they came in higher on revenue and non-GAAP operating income than expected. We also signed 15 new deals and expansions in the quarter, including an eClose deal with a top 20 bank along with a new mortgage deal with another top 100 bank. Our pipeline as of March 31, 2026 is up more than 40% year over year, and that does not include Autopilot pipeline, which I will cover in a minute. But the world has shifted underneath us in those two months. Increased global conflict, inflation, and rising mortgage rates, and that leads me to be a little conservative in the short-term numbers. But I am incredibly optimistic about the future. My optimism comes from two things, and they are both tied to artificial intelligence. The first is Autopilot, which is our AI agent and orchestration layer that we put right alongside our customers' work as they work with consumers. The second is the agents we are building inside Blend Labs, Inc., which are starting to do our own work. Together, I believe these two pillars give us a path to see 10% to 15% incremental growth already for us in 2027, on the top line, and more efficiency and speed as a company internally. Let us start with Autopilot. For those new to the story, Autopilot is our flagship AI agent. We unveiled it and rolled it out in beta almost exactly two months ago, telling our customers they could use it for free and try it out for all of Q2 to see it in action and help their business. As of Monday, May 4, 2026, 65 lenders have activated Autopilot, 22 are running it live in production, and over 7 thousand applications have already been touched by Autopilot since we moved it to live production. And we are seeing that early results are improving, both in cycle time and in conversion rate. Two of our largest lenders are actively implementing Autopilot right now with go-lives planned for Q2, and we have three more top 20 logos in our net new pipeline that we expect Autopilot to be a meaningful catalyst for closing. In total, Autopilot is already sitting on $10 million in pipeline because it solves a real problem for our customers and the consumers they serve. But the more important story for me and for our company, for our customers and our shareholders, is how quickly that product is evolving. We have been publishing details on our blog every week, and there are two that I want to call out. The first is Autopilot Chat that was rolled out about a month ago, a conversational interface where the borrower can ask Autopilot questions about their loan in plain language as they are going through the process. What documents are still needed? Why did you ask me for this specific thing? Why does it matter to my situation? What happens next? Instead of a static task list or making a phone call, the borrower can have a real contextual understanding of what is going on to help them through the process. This is the kind of interaction that consumers are starting to expect, and we are right on top of it. The second is something I am even more excited about, which is Autopilot MCP. That opens up the Blend Labs, Inc. platform so that our customers can build their own agents on top of Blend Labs, Inc. or use Blend Labs, Inc. in a headless way in their existing workflows and still get the benefit of all the compliance, all the data model, the workflows, all the native integrations we built, and the intelligence layer of Autopilot. One of our large mortgage company customers has already built a voice agent using it, and I am seeing this as really important and really promising for our customers who want to own more and more things they can do but move really fast. And that pattern, customers innovating with us and around us rather than instead of us, is exactly what we want and exactly what we expect to see more of going forward. What this all adds up to is something I think is really powerful. Our customers can now see a path from initial borrower touch all the way to clear to close without a team member ever having to touch a file. Now they still can work on the file, but they will not have to. That is fundamentally different value than we could ever offer before or the industry could ever offer, and something that I dreamed of being able to offer when I started the company in 2012, and now agentic AI has made that dream possible. And on top of that, eight weeks in, we are shipping at a cadence that Blend Labs, Inc. of years ago and most enterprise software companies would measure in quarters. And every one of those updates is grounded on what our customers need, what they are telling us they want, and how we can help impact and improve their business. With adoption well underway, let me give you an update on how we are going to monetize this. Autopilot has been in preview to date, and our priority has been getting real customers live and proving the value. Starting in June, we are going to move to paid tiers. Now just like any modern software company, there is going to be some base capabilities built into our workflow that are going to provide intelligence, like, did you upload the right document? And that is useful. That is going to lower some friction for consumers to get started and understand AI. But the paid tiers are where the full product lives, what we call underwriting intelligence, where Autopilot is reading the documents, taking real actions on the loan file, running calculations, reconciling against guidelines, and driving the work forward. Over time, our intent is to move the paid tiers of Autopilot to a per funded loan model, just like the rest of our mortgage suite. It is the right long-term structure, and our customers like that because it allows them to see and track the value on a per-loan basis, and we get paid when they make a successful loan. That is a great product for us, it is great alignment with our customers, and it incentivizes us to make sure this is providing real loan-level funded value improvements. When Autopilot helps a lender fund more loans with the same number of people, our revenue scales with their success, not with their headcount. And that is how we have always built Blend Labs, Inc., and that is even more important today in an agent-first world. We are going to continue to provide updates on Autopilot as more customers sign on, but I want investors to understand this is not a small incremental line item for us. Autopilot is a whole new leg of growth for the company on top of the great mortgage and consumer banking suites that are already growing, and we plan to keep growing it. Before we move off Autopilot, I want to spend a minute on something that I think is really important and I keep getting asked about from investors. The billion-dollar question is, where does the durable value in enterprise AI actually accrue? This is an ongoing debate, and it is important to understand where Blend Labs, Inc. fits and how I see this. For the last couple of years, the focus of the industry and the world broadly has been on the foundation models: which model is the fastest, the smartest, the best in benchmarks, the cheapest, and that focus is understandable. But as models converge in capability and keep innovating, the durable value is shifting up the stack to the orchestration layer between the model and the workflow, to the area that people call the harness, and the thing that is driving actual end-business outcomes. The harness, to put it clearly, is a system that channels the engine and all the tools around it into a reliable, controlled outcome, which is so important for an industry like ours, like financial services. And the data and the documents and the specific context of any moment is the fuel that makes any of that work actually useful. And Autopilot is exactly that. It is not a model. In Autopilot, we use the best available models underneath; instead, it is the orchestration layer that decides what to do given that exact moment in a loan. It retrieves the specific guidelines, gets the full context of the loan, runs the right calculations, validates the outputs against investor and regulatory requirements, updates the loan file, and triggers the native Blend Labs, Inc. workflows that move the file forward. That logic is specific to that exact loan, the exact consumer in front of it, and it is the kind of work that generic AI is not built to do. It needs a system around it. And that is where Autopilot fits in. And Autopilot MCP just takes that to the next level. It allows the Blend Labs, Inc. platform users to build their own agents or even work with Blend Labs, Inc. in a completely headless way, which means the harness becomes a platform for them to move really fast because they get all the regulation, the compliance, the integrations, and the Autopilot intelligence out of the box, and they can build their own experiences and their own agents around that. That is a meaningfully different level of importance because now you become more of the engine, the “powered by,” instead of the interface. And that is where agents can be really powerful. And that compounds more as we open up more capabilities for our customers to build faster and on top of us. And that is why I get more confident every quarter about where Blend Labs, Inc. sits in the AI landscape. We are the vertical industry harness for origination. We have the proprietary data to make that harness work. We have the business model already to help capture the benefit of automation and still give most of the benefit to the customer and, hopefully, the consumer. That is the durable place to be. That is why I am excited; that is where Autopilot is. We are bullish on our first pillar, which is agents for our customers. But I am even more bullish on how we are using agents internally. Over the last few months, we have been building something we are boringly calling Blend Labs, Inc. background agents. It is not a new idea, but it is a simple idea. Anytime we get an input from the outside world — it could be a ticket, a customer issue, a feature request — before that reaches a team member, we want an agent to take the first pass of that work and take action on it, and then the team member reviews and approves it. In practice, that could be something like: a ticket comes in outlining a bug in our system. An agent immediately picks it up from our support queue, looks at it, identifies the bug, writes the code to fix the bug, tests the code to make sure the bug is now fixed, and then sends it to a human and says, “I have to change these 10 lines or 50 lines of code. Can you approve this?” That moves our team from manually driving the car and making the turns and figuring out how to get from A to B to playing air traffic control with, hopefully, dozens of cars. To support that, we have given our agents access to our internal tools, our entire code base, the ability to stand up environments, and they will now take a first pass before our engineers or our support team ever see that issue. When I look at the numbers, the new process of how we are adopting AI at Blend Labs, Inc. has already resulted in more than 1.5x productivity in 2026 versus 2025, based on the number of pull requests our engineering team is doing, and we are just getting started. Prospects and customers are already taking notice of how fast we are moving. I get notes from customers all the time. I have been on-site with our biggest customers in the last month, and I can tell you that momentum is palpable. Our customers have noticed a change in our quality and speed. I want to be clear. This is not a one-team experiment. This exact same pattern of agents doing the first pass of work should apply to every role in every company, and specifically in Blend Labs, Inc., it will apply to roles here. That could be something like onboarding a new customer, preparing a cut for a customer business review when we are going on-site with them, or even something as esoteric as getting a manual Excel worksheet that outlines what loans have been funded and doing that work before our accounting team even has to pick it up. I said on the last call that we aim to be in the top 1% of all companies in terms of agentic AI adoption, and I really meant it. We are going to do it. It is something I am very passionate about, and we are going to keep driving for that. When done, I believe this effort, combined with Autopilot, has created the path to 10% to 15% more top-line growth and a lot more efficiency and speed for us. And that speed is probably the most important thing for any business, and especially for a company like Blend Labs, Inc. It means more customer issues fixed, more great features developed, more things like we have done with Autopilot, continuing to grow Autopilot, faster time closing a quarter, better preparedness for customer business reviews; these will be the new Blend Labs, Inc. To wrap up, transforming a company of our size into an agent-first company is definitely more work and more complicated than the world understands. But it is worth it. We have a really important mission. Our customers serve millions of consumers across the country every single year, so this change cannot come fast enough. We are taking it as fast as we can, and we feel like, to be quite candid from my perspective, we are the best-positioned company in the space. It is something that I spend a lot of my time on, and the team is even more passionate about. So, while the war and tariffs and oil and all those things might create some conservatism around short-term mortgage market numbers, because the macro and the rollout time for what we are building also take some time, I have never been more energized about the medium term and, hopefully, even the long term for our customers, our team, and our investors. And with that, I will turn it over to Jason to walk through the financials. Jason Ream: Thanks, Nima, and thank you to everyone else joining us on the call. We delivered a strong start to 2026, with both revenue and non-GAAP operating income above the high end of our guidance ranges. Revenue grew 15% year over year, and our non-GAAP operating margin expanded to 13%, reflecting growth across the business and reflecting the operating leverage we have continued to build into the model. Total revenue in 2026 Q1 was $30.8 million, above the high end of our guidance range, driven by growth in mortgage and consumer banking alike. Mortgage Suite revenue was $17.2 million, up 18% year over year. Funded loans on our platform were approximately 187 thousand in Q1, up 29% year over year and slightly better than we had assumed coming into the quarter. That strong volume growth was partially offset by a lower year-over-year economic value per funded loan, which came in at $84 in Q1, within the $84 to $85 range we discussed on our last call. We were at the lower end of our range primarily because of higher mortgage volumes, which lowers the per-loan economics calculation given some of the fixed-fee arrangements that we have within our customer base. Consumer Banking Suite revenue for the first quarter was $10.8 million, up 12% year over year and consistent with the color we shared on our last call. Professional services revenue for the first quarter was $2.9 million, up sequentially from $2.1 million in Q4. Of the $2.9 million in professional services revenue, approximately $600 thousand related to work completed in prior periods that was recognized this quarter under our revenue recognition policies. We would not expect a similar catch-up amount in future quarters. Turning to profitability. Non-GAAP gross profit was $24.8 million, and our non-GAAP gross margin was 80.3%, up from 72.9% in 2025. I would note that gross profit in the quarter benefited from the PS catch-up that I just mentioned, as well as some one-time cost of revenue benefit that together brought gross margin for the quarter up by about two to three points. Please keep that in mind as you think about modeling gross margin going forward. Non-GAAP operating expenses were $20.7 million in Q1, up 10% year over year. As a reminder, the year-over-year comparison reflects the change in our internally developed software capitalization methodology that we discussed last quarter, where we are capitalizing less of our R&D personnel cost than we did in 2025. This is an accounting treatment change rather than a change in the nature of our R&D investment. As a result, reported R&D looks elevated on a year-over-year basis, an effect that will persist to some extent in 2026 until we lap prior-year periods. Non-GAAP operating income was $4.1 million, above the high end of our $2 million to $3 million guidance range, and representing a non-GAAP operating margin of nearly 13%, an improvement of approximately 10 points compared with 2025. Free cash flow for the quarter was $7 million compared to $15.5 million in the prior year. We are pleased with the strong cash flow generation and want to remind you of our seasonal patterns, where Q1 is typically a strong collections quarter in our business. And our balance sheet remains strong. We ended the quarter with $59 million in cash, cash equivalents, and marketable securities and zero debt. Putting our cash to work, we repurchased 11.2 million shares during the quarter at an average price of $1.66 per share under our share repurchase program, deploying $18.6 million of the $50 million authorization we announced on our last call. As we said last quarter, this program reflects our conviction in the long-term value of the business and our commitment to disciplined capital allocation. With zero debt and a solid liquidity position, we have the balance sheet to invest in both the business and in our shareholders simultaneously. Before I turn to outlook, I want to spend a moment on market share and on the macro environment. On market share, the initial release of 2025 HMDA data in early April showed approximately 4.4 million originations for the year, which puts our 2025 mortgage market share at approximately 17%, squarely in the middle of the 16% to 18% range we guided to back in November. The HMDA data will continue to settle as late filings come in, but we do not expect that figure to move meaningfully. As we look into 2026, we expect a market share headwind of 100 basis points, primarily reflecting the volume roll-off of one large customer that we have discussed previously. At this time, we do not see any other significant headwinds to our market share. On the macro side, the spring housing market started on stronger footing than many had expected, supported by improving affordability and slowly rebuilding inventory. That said, the recent rise in mortgage interest rates adds uncertainty to the outlook. Fannie Mae's most recent forecast calls for total mortgage market growth of approximately 19% year over year in 2026. But Fannie reduced both its second quarter and full-year 2026 outlooks earlier this month as rates have moved higher. Our own 2026 view is anchored to that updated Fannie outlook. We will remain cautious in our outlook until rates come down meaningfully and refi activity picks up. We have the platform and the customer base in place to capture the upside when conditions improve. Now let us turn to guidance. For 2026 Q2, we expect total revenue to be between $32 million and $34 million, representing approximately 1% to 7% year-over-year growth. Underneath those headline numbers, we expect Mortgage Suite revenue to grow 4% to 10% year over year, driven by mortgage market volume growth and partially offset by a year-over-year decline in value per funded loan, which we expect to be in the $79 to $80 range in Q2. The decline in EVPFL from Q1 to Q2 is primarily driven by increased volume, which, as I mentioned earlier, mechanically lowers EVPFL. We expect year-over-year Consumer Banking Suite revenue growth to be between negative 2% to positive 4% in Q2. We expect Q2 non-GAAP operating income to be between $5 million and $6.5 million, implying a non-GAAP operating margin at the midpoint of approximately 18%. A few additional notes on what is embedded in our expectations. Our Mortgage Suite business continues to be subject to macro volume fluctuations, and depending on the trajectory of mortgage rates and the broader housing market from here, Mortgage Suite revenue could moderate or even flatten out in 2026, particularly if refi activity remains soft. On per-loan economics, Q1 is typically the high-water mark due to seasonality, which is why we are guiding to a Q1 to Q2 step down from $84 in Q1 to $79 to $80 in Q2. In the absence of an uplift from Autopilot, which is too early to quantify and is not baked into any of our expectations, we would expect EVPFL in the second half of 2026 to fluctuate with seasonality but still stay below Q1 levels. On consumer banking, growth is moderating based on the headwinds we discussed on our last earnings call. In addition, we have also seen softer macro-driven volumes on home equity as rates have moved higher. Combining these two factors, we expect single-digit year-over-year growth in consumer banking in the back half of 2026, with Q3 growth likely lower than Q4 given the year-over-year compares. And there is macro sensitivity in the home equity portion of our consumer banking business. If rates rise from here, our expectation would be to see additional pressure on those growth rates. Finally, I would like to touch specifically on Autopilot. While we are incredibly excited about the potential for Autopilot to generate revenue upside, we would encourage investors to be cautious about incorporating this into models at this juncture. We hope and plan to provide additional information on potential impact to the outlook as we get past the free trial period and have a little bit more time under our belt. In summary, we feel very good about the shape of the business heading into the rest of 2026. Q1 marked our second consecutive quarter of year-over-year growth in mortgage. With churn now stabilized and the partnership model transition behind us, we expect most of the variability in mortgage revenue from here to be macro driven. Cost discipline remains intact. We expect to continue to drive additional productivity and efficiency over the year as AI-enabled workflows compound across our internal processes, an effort that, as Nima discussed, is now well underway across the company. This is indeed an exciting time for Blend Labs, Inc. We hope that you are excited to be part of it too. And with that, let us open up the call to your questions. Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by now while we compile the Q&A roster. Your first question comes from the line of Ryan Tomasello with KBW. Your line is open. Please go ahead. Ryan Tomasello: Thanks, everyone. Nima, in your prepared remarks, you mentioned that Autopilot and your AI initiatives present a path, I think, to what you said was 10% to 15% more top-line growth. Can you just put a finer point on what you mean by that, and what underpins your confidence in quantifying the benefits at this stage? And then maybe just turning to consumer banking: given the noise in that segment from the large customer churn, can you help us understand where the underlying revenue growth is running in that business for Q1? And then at a higher level, based on the data points you have given previously about, I think, a $2.5 million impact from that large client in consumer banking, it just seems like the growth profile there is coming in a bit weaker than what was initially hoped for. So, Nima, your broader commentary around how you feel about the strength of that business going forward. Thanks. Nima Ghamsari: Yeah, great to hear from you, Ryan. I would start with our current pipeline. Our current Autopilot pipeline is about $10 million. We have only been in the market for just over a month now with pricing, and we have a lot of customers who have turned it on with really positive feedback. I mentioned two very large go-lives with customers. If we can keep up that momentum, think of it as 10% to 15% incremental on top of whatever other growth you may be forecasting, coming from Autopilot, which is what we see a path to right now. We obviously have to keep executing and have a lot of work in front of us, but the product is awesome and our customers love it. On consumer banking, the biggest headwind is from that large customer you called out, and they had a pretty big consumer banking line item. On the positive side, we have some good-sized financial institutions going live with our wall-to-wall suite this year. Those rollouts are in progress, and we are excited about that. Once that hits, I think that will be a positive benefit. We also have great customers rolling out our Rapid home equity product as we speak, which will be another positive catalyst. The home equity market has macro factors as well, but there are enough new things happening on the consumer banking side broadly that make me feel really good about the consumer banking business. Operator: Your next question comes from the line of Dylan Becker with William Blair. Your line is open. Please go ahead. Dylan Becker: Hey, appreciate it. Nima, I appreciate all the color on Autopilot and Autopilot MCP. It sounds like a lot of customers are interested in piloting. I think you called out some of the early proof points around improved cycle times and conversion rates. Could you provide a little bit more color on what that looks like relative to a non-automated process to try to tangibly put some value on what customers are seeing and learning? And then how you are thinking about the deployment or utilization of the first-party agents versus some of the MCP-enabled agents, and maybe the economic variability between those? And then, as a follow-up for Jason, you called out the per-funded-loan dynamics and market share dynamics. It sounds like you are increasing market share with the customers that are coming online or being onboarded, but that is kind of working inversely upfront against per-funded-loan economics. Can you remind us of the mechanics there, as well as when we would expect that to flip so those tailwinds work in tandem — market share growth inflecting alongside per-funded-loan expansion over time? Nima Ghamsari: Yeah. On the impact, there are two anecdotes I will share for two of the customers who have been some of the biggest users. We help them track the cycle time and the conversion. The conversion drivers are less obvious, so I actually talked to one of our customers about this; I will get to that in a second. On cycle time, for one customer, for example, from application complete in Blend Labs, Inc. to closing disclosures being sent to the customer, it went from 29 to 21 days. That is a pretty meaningful improvement. It makes sense because customers have a lot of back and forth with consumers, and what Autopilot does in real time as the consumer is in the flow is find those things that will be the gotchas down the line. It shows the consumer, “We noticed that this account is in the name of a trust. We need to get your trust documentation right now,” versus asking for it a few days later once an underwriter reviews it and sends it to a processor, which sends it back to the loan officer. It short-circuits the process in a positive way. Our hope with Autopilot plus some of the Rapid products — put those two things together, call it Rapid Pilot — is you can get an application started and approved, because Rapid gives you an approval and an offer up front, and then once that customer is ready to go, get them clear to close in a matter of minutes, or conditionally clear to close on an appraisal if one is necessary. Where I have been more surprised is why the conversion is so much better, but it makes sense: when you give people more certainty faster, we are seeing good conversion uplift too. It is early, but that is even more valuable to our customers, because those are consumers who would be walking out the door that they had spent time and money on as a lender — not just credit pulls and other data pulls, but also their teams' time and energy. As we can shorten these cycles and make the process of lending more real time, it fundamentally transforms the industry. On consumer banking, we are building out the integrations to all the consumer banking products for Autopilot. There is opportunity there now. There are fewer manual tasks in consumer banking, but there is a lot more volume of those tasks. While it may not be worth thousands of dollars per loan in consumer banking, the scale matters, and they have very big operations teams managing these processes. Autopilot enables those teams to do a lot more volume. One other thing: rates really drive refi activity. If you are a mortgage servicer with a lot of refi volume, your only way to handle large volumes historically has been to scale up and scale down teams, and you cannot really predict when rates go down. The ability to create elasticity of workforce — with agents that a lender can spin up and spin down alongside their team, with agents taking a first pass — changes the economic profile of servicing and recapture. For our large servicing customers, I think it will change the way they do business because it will allow them to handle market fluctuations even better than on the purchase side. Jason Ream: Yeah, good question, Dylan. We are seeing volume growth. As I mentioned, we had better volume in Q1 than we had expected coming into the quarter. Part of that is our customers doing better; part of that was the market being a little better than we expected in the quarter. Of course, we are always trying to add share and bring new customers onto the platform. As far as per-funded-loan economics — putting aside the seasonal variability that comes from the mechanics I talked about — we are doing a much more concerted effort now to drive growth year over year with existing customers. Things like Autopilot give us better pricing leverage coming into new customer situations. Obviously, Autopilot drives its own revenue stream, but it also gives us leverage in the core platform as well. Rapid remains a driver as well on the refi side in particular. As Nima mentioned, refi is even more sensitive to rates than purchase, and we do not have a Rapid purchase product; we have a Rapid refi product. As rates come down, we should see a benefit in volume and revenue in that sense, but also, as we get more customers up on Rapid refi, we should see a benefit in PFL as well. Operator: Your next question comes from the line of Joseph Vafi with Canaccord Genuity. Your line is open. Please go ahead. Joseph Vafi: Hey, guys. Good afternoon. Thanks for taking my questions. Nima, just the most recent update on the Rapid product uptake — how you are seeing market reaction to them? Obviously, the market backdrop is not as strong as we would like, but any feedback you are getting? Nima Ghamsari: I would reiterate what I said about this Rapid Pilot. Rapid plus Autopilot together is getting momentum and focus from our customers. It is a lot of what I spend my time on. I have had two on-sites with two very large banks and lenders in the last two weeks about this specific thing that they want to get live in Q2. In practice, our customers — especially for refis and home equity — want to be able to make an offer in real time and then fulfill the work they need to get done on that offer in real time. The combination of those two things has been incredibly powerful. On top of that, we have some very, very large customers going live with Rapid home equity — some of the top home equity originators in the country. It is definitely a good time in the industry. If I had one criticism of myself here, it would be: how do I make this so easy to adopt that they flip a switch and turn it on, and now they have Rapid refi enabled in their environment? That is a challenge for us that we are thinking about going into the next couple of months, and we intend to make that happen. As we make that happen, our customers will be able to adopt it much more easily. That is a key learning for us from the Autopilot rollout: we made it truly self-serve for a customer to turn on, and we are seeing the adoption. The numbers we shared in terms of the number of lenders that have turned this on — think about large financial institutions turning on a new AI agent for their organization with the flip of a switch, even without calling us. The most surprising part was we had fairly large banks turning this on in beta and production without us even knowing about it. Then we saw it start to stream through our logs and reached out to them. We are a product-led growth company. We like to talk to our customers to help them get the most out of our product, but making things easy to adopt is going to be very good for Blend Labs, Inc. Everything comes back to speed — speed of adoption, speed of iteration for our team. We showed that with Autopilot, and I am very confident we can take that micro-culture and those concepts to the rest of what we do at Blend Labs, Inc. I will end with one last anecdote. Autopilot MCP has unlocked a lot of doors for us. I was on-site with one fairly large customer last week, and their head of engineering was in the room. The first thing he asked was, “We want to build this into our mobile app.” I said, great — you now have a way to do that. It is called Autopilot MCP. You can get all the capabilities of Blend Labs, Inc., and the intelligence layer of Autopilot, entirely in your own environment. He said, wow, okay. His first question to me after that was compelling: “Can I use this in other parts of my business? We do not use Blend Labs, Inc. for these other kinds of loans,” and he named a couple. I said, yes. Autopilot works. You can put custom guidelines in there yourself; you do not even need to talk to us. His eyes lit up, and he asked for a copy of the Autopilot MCP documentation, which we sent to him. Historically, those stakeholders struggled with how to fit their tech stack into the Blend Labs, Inc. world, and now we have opened that up. We had another really interesting sales call with a fairly large bank. The digital leader came on the call — historically someone who felt a little bit displaced by us sometimes — and his first question was, “Can I use this with my current digital stack?” As soon as the answer was yes, with Autopilot MCP, he went from potentially being a detractor to saying, “Oh, wow. This is actually really interesting. Now I can give new digital capabilities, improve my customer experience, in a powered-by way that would take months, if not years, to do internally,” especially building agents that are this powerful and complex. Operator: A reminder, if you would like to ask a question, please press star 1 now to raise your hand. Your next question comes from the line of Aaron Kimson with Citizens. Your line is open. Please go ahead. Aaron Kimson: Great, thanks for the questions. Nima, in your conversations, how do customers perceive the value that Autopilot is providing today? Do you feel like it is still primarily being thought of as a component of tech budgets, or are financial institutions increasingly open to viewing agentic products like Autopilot as a component of their labor budgets? And then one more: You have been working with financial institutions for a long time now. Can you talk about the appetite for adopting new products faster today than in the past, and how they are thinking about build versus buy — the balance between adopting AI products from AI-native startups versus established software vendors like Blend Labs, Inc. — and then where the frontier labs fit in? I think we are all trying to figure this out for application software in general. Thank you. Nima Ghamsari: It is interesting. Right now, companies are figuring this out as we speak, so they do not know the answer to that exact question yet. That goes to how we price this in the short term — to allow our customers to use it free for a few months, and even after that we will have flat pricing that is good for us economically and good for our customers, to give them time in the short term to make the right changes in their processes and organizations. Long term, they are aligned to the fact that labor does not need to be scaled up and down with volume anymore. I was having a conversation with the CEO of one of our large customers, and the idea of being able to scale their organization without having to add thousands or more heads is so compelling. It naturally ends up being a labor question. But the more important value proposition, as numbers around conversion rates get set in stone and we have a better understanding, will be even more valuable to our customers. There are so many consumers in this country who can benefit from lower interest rates, or equity from their homes, or consolidating debt — things that have been historically hard for our customers to capture, and hard for consumers because they have to go through a lengthy process. If we can make it really transparent with something like Rapid and then really automated with something like Autopilot, it is going to reduce friction, and therefore consumers will do it, and they will do it with our customers. On adoption appetite and build versus buy, we are in an interesting place where a switch flipped sometime in the first quarter of this year — I think February 2026 — where our customers started to realize how important a transformation this is going to be. Maybe it was because of the Anthropic Claude code explosion in the market. They started to realize the magnitude, and they have put budgets behind AI and AI initiatives. It is important for their customers, for their users, and for their long-term economics as a business. It can do really powerful things, and people are starting to believe that. It is no longer something they felt was a 2027 or 2028 thing; it is, “I can do this now.” The sheer number of our large financial institution customers that have turned these capabilities on on their own, and are in active discussions or in process with us of rolling them out broadly, speaks for itself. They do think through how this fits into their stack. Is it a company like Blend Labs, Inc. that is already driving a lot of their work, internally and for their customers? Are they working with Anthropic or OpenAI or some other company in a big project in a consulting-like fashion? Or are they working with a small startup? In the Autopilot versus small startup frame, because we already have so much of the workflow happening in our system — natural entry points to invoke and spin up AI agents, and then spin them back down — we have a good advantage to help move very quickly for our customers. Our job is to make sure Autopilot is the best product on the market for the exact types of work our customers need to do; in this case, underwriting intelligence like I referenced in the prepared remarks. As long as we do those things, I do not think they will go to a small startup. We have to move fast, and we are moving fast; we have to build a great product, and Autopilot is a great product, doing things that a year ago would have seemed like science fiction to our customers. On the labs versus a company like Blend Labs, Inc., some of that remains to be seen. I have heard of really great things the labs are doing with many of our customers. The size of the pie is probably a lot bigger than anybody understands. The labs are not going to go in and try to build into our workflow to drive value for our customers — I do not think they would — but even if they would, we are already there. We already have it. Speed is very important in adoption. If you have to do a nine- or twelve-month project to get something, versus being able to flip a switch, our job is to make that possible. Operator: We have now reached the end of the Q&A session. This concludes today's call. Thank you all for attending. You may now disconnect.
Operator: Good morning, and welcome to the Park-Ohio First Quarter 2026 Results Conference Call. [Operator Instructions] Today's conference is also being recorded. If you have any objections, you may disconnect at this time. Before we get started, I want to remind everyone that certain statements made on today's call may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. A list of the relevant risks and uncertainties may be found in the earnings press release as well as the company's 2025 10-K, which was filed on March 5, 2026, with the SEC. Additionally, the company may discuss adjusted EPS, adjusted operating income and EBITDA as defined. These metrics are not measures of performance under generally accepted accounting principles. For a reconciliation of EPS, adjusted EPS, operating income to adjusted operating income and net income attributable to Park-Ohio common shareholders to EBITDA as defined, please refer to the company's recent earnings release. I will now turn the conference over to Mr. Matthew Crawford, Chairman, President and CEO. Please proceed, Mr. Crawford. Matthew V. Crawford: Thank you, and thank you all for joining our first quarter earnings conference call. I'm pleased with the momentum which is building across our business. Not only are we observing growth in many of our end markets, both traditional and new, this strength comes in products and services, which are our most durable and innovative offerings. We've worked hard to transform all aspects of our business over the last several years by carefully allocating capital towards our goals of faster growth, higher sustainable margins and more consistent cash flow. Our progress is beginning to connect to the results. We will continue to invest in people, products and processes where we can accelerate these changes. We are just at the beginning of seeing these improvements. Regarding our strategic review of Southwest Steel Processing, we will respect the long-term contributions of our partners and associates who have created incredible value over the last 25 years. This fully automated forging site is one of the finest of its type anywhere, and we will find a way to optimize the hard work and investment of the SSP Park-Ohio team while improving the overall results of Park-Ohio. Thank you to all of our associates for their contributions to the start of 2026, and I look forward to answering questions after Pat reviews the quarter. Thanks, Pat. Patrick Fogarty: Thank you, Matt, and good morning. Overall, our first quarter results exceeded our expectations and are highlighted by sales growth across all 3 of our business segments on a year-over-year basis and sequentially. Sales in the quarter totaled $421 million compared to $405 million a year ago, an increase of 4%. Sales growth in Supply Technologies was driven by increased customer demand in several key end markets. In our Assembly Components segment, sales growth of 3% was driven by new program launches throughout last year and increased year-over-year demand from various automotive platforms in each of our product lines. In Engineered Products, sales growth was 4% year-over-year, driven by strong capital equipment demand from several end markets in North America and Europe and continued strong aftermarket demand. Our consolidated gross margin was 17.3% in the quarter, up 50 basis points compared to a year ago, driven by flow-through from the higher sales levels and profit enhancement initiatives implemented in several business units. Excluding restructuring and other special charges of approximately $1 million in both periods, consolidated operating income was $21 million, up 6% versus last year. Sequentially, adjusted operating income increased 4% compared to the fourth quarter. SG&A expenses were approximately $52 million or 12.3% of sales compared to 11.9% of sales a year ago. The percent to sales increase was driven primarily by general inflation and increases in personnel costs. First quarter interest costs were $1.3 million higher than a year ago due primarily to the higher interest rate on our senior notes that we refinanced in the third quarter of last year. The increase was partially offset by lower interest rates on our revolving credit facility compared to a year ago. Our effective income tax rate improved to 17% in the quarter compared to 20% a year ago, driven by higher estimated federal research and development tax credits. We expect our full year effective income tax to range between 17% and 20%. GAAP earnings per share from continued operations for the quarter was $0.58 per diluted share and on an adjusted basis was $0.65 per share, both exceeding our internal expectations due to higher levels of segment operating income. During the quarter, cash flow from operations was a use of $8 million to fund working capital, primarily to support sales growth during the current year. Capital spending totaled $12.5 million, which included investments in information systems, automation equipment to help drive higher levels of profitability and improve plant floor efficiencies and growth capital. We expect our full year CapEx to be approximately $35 million. Our liquidity continues to be strong and totaled approximately $200 million at the end of the quarter, which consisted of approximately $47 million of cash on hand and $153 million of unused borrowing capacity under our various banking arrangements. Turning now to our segment results. In Supply Technologies, net sales totaled $195 million during the quarter compared to $188 million in the first quarter of last year, an increase of 4%. Higher sales were driven by strong customer demand in powersports, semiconductor, aerospace and defense, electrical and agricultural end markets. Our supply chain business continues to benefit from the increased demand from the semiconductor, technology and data center sectors, which in total increased 13% year-over-year. In addition, aerospace and defense demand in the first quarter continued to be strong and increased 15% year-over-year. We expect continued growth in these end markets throughout the year in addition to improved demand from certain industrial end markets, such as heavy-duty truck and consumer end markets as they recover from historically low levels in the prior year. During the quarter, the construction of our new state-of-the-art North American distribution center remained on track and is expected to be operational in the third quarter of this year. We believe this state-of-the-art distribution center once fully operational, will result in a highly efficient service center with automated sorting, kitting and packaging and provide additional value-added services to our customers. Our fastener manufacturing business performed well in the quarter. Net sales grew 18% sequentially and were slightly down compared to sales in the prior year quarter. Global customer demand for our proprietary products is expected to grow, resulting from the expanded use of lightweight materials and global production of EV and hybrid vehicles. Adjusted operating margins continued to be at historically strong levels and were 9% during the quarter, slightly down compared to last year, primarily due to product sales mix and higher personnel costs. In our Assembly Components segment, sales for the quarter totaled $100 million compared to $97 million a year ago, an increase of 3%, driven by new product sales launched last year in each product line and higher customer demand from various automotive platforms. Adjusted operating income in the quarter totaled $5.3 million compared to $5.5 million a year ago. And compared to the fourth quarter of last year, sales increased approximately 10% and adjusted operating income increased 23%. We continue to focus on improving operating margins in this segment. Several initiatives such as increasing our rubber mixing production to support sales growth of our molded and extruded products and plant floor automation investments are expected to improve segment operating margins. In our Engineered Products segment, sales of $126 million reached their highest quarterly level in recent years and were up 4% compared to last year and up 8% sequentially compared to last quarter. The increase in sales was driven by our industrial equipment group, which continues to maintain strong backlogs. Higher sales of new equipment in North America and Europe and strong customer demand for aftermarket parts and services resulted in a very strong quarter for our industrial equipment business. The increased capital equipment sales in the quarter were driven by strong customer demand in defense, steel production, data center, oil and gas and industrial cooling end markets. New equipment bookings were strong in the quarter and totaled approximately $62 million in the quarter compared to a quarterly average bookings of $54 million last year, an increase of 15%. Backlogs as of March 31 totaled $196 million compared to $180 million last quarter, an increase of 9%. During the quarter, our adjusted operating income in this segment improved 35% compared to a year ago to $6.2 million and $3.6 million from the fourth quarter of last year. This segment is experiencing strong demand from the aerospace and defense, power generation, steel production and data center sectors. Key products supporting these high-growth end markets include transformers, power generators, induction heating and forging-related equipment and pipe bending equipment. For example, our industrial equipment, which includes induction hardening and melting and forging-related equipment is used to support a broad range of defense-related activities, including the production of munition shells, armored plate and the hardening of high-strength defense materials. And finally, within this business segment, we commenced a formal review of strategic alternatives for our Southwest Steel Processing business, which is included in our forged and machine products group. We have engaged an investment banking firm to assist us with our review, which may result in an ultimate sale of this business. With respect to our first quarter results, adjusted earnings from continuing operations, excluding Southwest Steel, would have increased from $0.65 per diluted share to $0.77 per diluted share. Turning now to our full year guidance. We are reaffirming our outlook provided last quarter, including net sales of $1.675 billion to $1.710 billion, an increase of 5% to 7% over last year. Adjusted EPS of $2.90 to $3.20 per diluted share, an increase of 7% to 19% over last year. EBITDA as defined of 8% to 9% of net sales and free cash flow of $20 million to $30 million. This outlook includes the impact of Southwest Steel, which is expected to generate $17 million in revenue and a net loss of $0.53 per diluted share. The outcome of the strategic review process with respect to this business represents potential upside to our current guidance. Now I'll turn the call back over to Matt. Matthew V. Crawford: Great. Thank you very much, Pat. And now we'll open up the line for questions. Operator: [Operator Instructions] And our first question comes from Steve Barger with KeyBanc Capital Markets. Jacob Moore: This is Jacob Moore on for Steve today. First one from us is on backlog. It's really nice to see that up strongly again. And I think you gave some pretty good color on the end markets that's coming from, which seems pretty broad. Do any one of those end markets stand out to you right now? For example, are defense orders coming in stronger than usual or electrical infrastructure? Any color you could give there? Patrick Fogarty: Yes, Jacob, this is Pat. I would comment on all of the above. I think when you look at our business, historically, our capital equipment business was very strong in the automotive, in the steel production space. But what we're seeing is continued interest in using our equipment for aerospace and defense applications, for data center-related activities. And in the first quarter, we saw an uptick in bookings relative to the oil and gas sector, which historically has been at pretty low levels. So we're excited about the diversity of the orders that we're getting and the quoting activity from many different end markets compared to historical end markets. Matthew V. Crawford: Jacob, I would only add, as you know, some of these jobs take a while to complete. So the backlog continues to have a significant amount of strength in battery steel and some of the big orders we talked about recently. I do think there's been a nice migration, as Pat mentioned, to other industries, which typically can be smaller dollar amounts, but can be executed a little more easily. So that's a good rotation. We love the big jobs. We love the innovation around battery steel, but a more diverse set of customers and some smaller jobs is great for our product mix. So I would also say that we talk a lot about power management these days. A big part of our business is making power supplies and transformers. So while we cut our teeth, I think, in maybe one of the most difficult places to learn the business, which is heating and melting of steel and other conductive metals. Increasingly, we're seeing demand for people who understand how to manage large amounts of power and need components related to it like transformers. So the backbone of this business without question is the induction business, but power supplies are important, too. Jacob Moore: Yes. Okay. That makes a lot of sense. And Matt, to your point about longer-dated projects, the quick follow-up there would be just could you give us a sense for the expected conversion time line of the backlog? Just thinking about how much is shippable in 2026 versus '27 and beyond? Matthew V. Crawford: Great question. We've actually talked a little bit about the length of some of the conversions coming out of the last few years. So I think our speed of execution is better today than it's been probably for 4, 5, 6 years. So I've talked in the past about good backlog and bad backlog. I think we're in a much better position regarding execution than we've done in the past. We've made some really important investments in people and process at our key locations. Having said that, there's a number of projects, particularly the battery steel project that will take a couple of years to fully complete. But I would say, on average, the completion time is 9 months-ish. Pat, would you agree with that? Patrick Fogarty: Yes. Yes, Jacob, the other comment I would add is that the diversity of our brands allows us to manage production in several manufacturing sites, whether it be here in North America or in Italy or in Spain. And so that allows for a quicker turnover. But to Matt's point, 9 to 12 months is a reasonable production time line for the backlog that we currently have. Jacob Moore: Okay. Great. Yes, that's really helpful. And then last one for me before I jump back in queue. Just you guys said that you're in the early innings of electrical infrastructure spending. Could you maybe help us paint the picture for what you envision the middle and late innings could look like for Park-Ohio? Matthew V. Crawford: I'll let Pat address explicitly that end market since it's grown so explosively, both in the U.S. and globally. One of my comments, I think, about early innings is more broad-based, candidly, than electrical infrastructure. We're seeing stabilization and increasing demand in a number of end markets. So I don't just want to focus too much on that, aerospace in particular, defense in particular. So I'll let Pat talk some numbers, but I just want to be clear, this is more broad-based than just that end market, although there are some new names there that are particularly exciting. Patrick Fogarty: Yes, Jacob, I would comment that going back 3 years, we saw very little activity on the electrical side in both Supply Technologies and in our Engineered Products segment. Today, that revenue base starts at about $150 million and continues to grow north of 10% per year. So it's unclear as to how much we could expect that to grow over the next 5 years. But clearly, the market is telling us there is a huge demand for our products in both Supply Tech as we manage different switchgear manufacturers needed for data center build-outs, but also on the industrial equipment that is providing power management-related equipment as well as different component parts for the cooling systems needed in these data center activities. Operator: And our next question comes from the line of Dave Storms with Stonegate. David Storms: I wanted to maybe start with just the consolidated margin on the adjusted side. I know you've been talking about some of the supply tech automation initiatives. Just maybe any color as to what the time line is to really getting those completed and maybe what that could do to the consolidated margin? Any thoughts there? Matthew V. Crawford: Yes. I mean I would start by saying we are on the front edge of that. We're in a multiyear investment cycle around people, process and the use of information technology. So to be quite candid, I don't think we've seen much, if any, impact to some of those investments at this point. So I would say that's really probably more of a 2027 opportunity where it could start to move the needle. So no, we have not benefited from those, maybe a little bit later this year, but we view those as really being 2027 investments for Supply Technologies. And beyond, I mean, again, these are very durable investments. We're not just making ROI investments, we're fundamentally changing the way in which we manage information and in which we go to market for our customers and manage the sort of value add on the operations side as well. David Storms: Understood. I appreciate that. And then I know, Pat, in the prepared remarks, I think you called out some of the changes in AC between some program launches last year. I think your release mentioned volumes being a driver there. Just curious as to maybe what you're seeing in terms of the business acquisition environment in the remainder of 2026, given some of these new program launches and maybe potential for increased volumes there. Patrick Fogarty: In terms of business acquisitions, Dave, I think our focus, at least within the Assembly Components segment, given the active quoting activity and the launches of new business that we're seeing that business that launched in 2025 and new business that is being launched in the current year, I would not expect any business acquisition activity within that segment, given our investments that we're making in the automotive space. The products that we sell in that space, as you probably remember, is fuel filler-related products, fuel rail products, molded and extruded rubber products, tremendous opportunities for us to grow organically in that segment. And so our current initiatives around margin enhancement are critical in this business, and we continue to be focused on that. Matthew V. Crawford: Yes, let me add a follow-on on that. Again, we are always looking for highly accretive, thoughtful acquisitions. ACG, though, I think, has been extremely focused on their product innovation, their vertical integration and their new business launches. So it has been a challenging environment. There has been huge new launches by every major OE, certainly here in the U.S. and globally. There has been challenges in the supply chain. I mean, the Novelis' fire, which has affected the Ford 150, the F-150 product line as well as others. So as well as I think the conversion and the shifting landscape for EVs, particularly in Europe and China. So we're metabolizing a lot right now. But at the same time, we're getting through these product launches. We are, again, launching and working inside of our best products and services. So the operating leverage in that business is really teed up, and we couldn't be more excited, I think, about the latter half of this year. To the extent SAAR holds up at all, I think our most exciting days are ahead. So again, we're always sort of on the prowl for the right kind of acquisition, but our best opportunities are right in front of us given the investments we've made there. Unlike Supply Technologies, many of those investments have been made over the last few years. So this is when we start to see the real operating leverage in the growth we're going to see in that business relative to the new business launches. And not only are they metabolizing a number of launch costs, they're also having to metabolize some of the challenges I just outlined in the -- navigating sort of the ups and downs of the industry, so to speak. David Storms: Understood. And I do apologize. I said business acquisitions, I should have said customer acquisitions or new business acquisition. So that was poor phrasing on my side. Maybe one more for me. And you mentioned the fire. Obviously, there's a conflict in Iran that we didn't have the last time we talked. Just curious as to what you're seeing on the supply chain side and if you're seeing any ripple effects that may be impacting your ability to procure materials. Matthew V. Crawford: Broadly speaking, the only impact we've seen so far are freight costs. So those are, of course, real and require being addressed. In some cases, the mechanics of addressing it are inside the customer relationships and some may have to be addressed separately. To date, that is all we've really seen in terms of impact. I, like most other people, suspect that if this goes on longer, we could see more material impacts to availability, but we're not hearing that from our supply base at this point. Operator: And our next question comes from the line of Steve Barger with KeyBanc Capital Markets. Jacob Moore: I just had a couple on the Southwest Steel strategic review. I mean, bluntly, the EPS drag that you called out seems pretty stark. I guess, do you think that the business can transact at that $45 million asset value you called out? And maybe relatedly, if it doesn't transact in an acceptable time frame for you, is there a plan B for getting out or downsizing it over time? Matthew V. Crawford: We're at the beginning of that journey, not the end. So Jacob, I'm reluctant to say more. I do want to comment that this business, and I alluded to it in my comments, over 25 years, the first 20 or 21 of them, this business was not only profitable but was meaningfully accretive to overall profits, so -- or overall margins, excuse me. So we have a good business there. The business model is outstanding. The equipment we have, the 2 fully automated forge lines. So this is a good business. And again, we've been penalized a bit with the rail market being down as much as it is for an extended period of time. We have tried to expand the product offering a bit with some limited success, but not fast enough. So this is not -- this is a good business. And I think we need to explore and think through what the right situation is for it because I agree with you. The purpose of the disclosure today was to let you know that we're -- we understand the drag and the size of the drag to point to the overall earning power of the underlying business without this $17 million in sales. But I don't want you to leave this call thinking that this isn't a tremendous business that has been profitable over a very long period of time. So I anticipate. And by the way, I will also say, and this will probably not be received totally well, the business is improving, which I know it is hard to say, but the earnings drag that's in it, but it is getting better every day, and we are executing at a higher level. So I'm -- I don't have an answer to your question other than to say this is a good business, a good business model with good employees and good customers and good partners. So I'm going to stop there and just say this business has inherent value, and we, again, have benefited from this company over a long period of time. Jacob Moore: Okay. Yes, that is helpful. And maybe a follow-up to that is, if it does transact, do those proceeds go to debt pay down? And honestly, maybe that's just a broader question on your thoughts for incremental capital allocation going forward? Matthew V. Crawford: Yes. I think Pat and I have made it -- I hope we've made it abundantly clear over the last 2 to 3 years that reduction in leverage is a key priority of this company. We have set an intermediate goal of 3x net debt to EBITDA. And again, we're not going to forego critical investments in our business. We are spending somewhere between 2 to 3x our maintenance capital in the business right now for some of the investments we're doing. So I'd like to say the first parts of the trough is making us better at what we do every day in our key businesses. But right at the top of that list, our whole management team, not just Pat and I are aware, that it is a priority to allocate capital towards reducing the leverage in this company. So again, it's not our #1 goal because we've got plenty of liquidity, but it's not lost on us that, that is an important goal for our shareholders, of which our entire management team is, so. Operator: And with that, there are no further questions at this time. I would like to turn the floor back over to Matthew Crawford for any closing remarks. Matthew V. Crawford: Great. Thank you very much for the questions today and for your attention and most notably your support of Park-Ohio. We are quite anxious to continue through this year. Thank you. Operator: Thank you. And with that, ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful rest of your day.
Operator: Welcome to Sensus Healthcare, Inc. First Quarter 2026 Financial Results Conference Call. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Leigh Salvo with New Street Investor Relations. Please go ahead. Leigh Salvo: Good afternoon. And thank you all for joining today's call to discuss Sensus Healthcare, Inc.'s First Quarter 2026 Financial Results. Joining me from Sensus Healthcare, Inc. are Joseph C. Sardano, Chairman and Chief Executive Officer, Michael J. Sardano, President, Chief Commercial Officer and General Counsel, and Javier Rampolla, Chief Financial Officer. As a reminder, some of the matters that will be discussed during today's call contain forward-looking statements within the meaning of federal securities laws. All statements other than historical facts that address activities Sensus Healthcare, Inc. assumes, plans, expects, believes, intends, or anticipates, and other similar expressions such as will, should, or may occur in the future, are forward-looking statements. The forward-looking statements are management's belief based upon current available information as of the date of this conference call, 05/07/2026. Sensus Healthcare, Inc. undertakes no obligation to revise or update any forward-looking statements except as required by law. All forward-looking statements are subject to risks and uncertainties as described in the Company's Forms 10-K, 10-Q and other SEC filings. During today's call, references will be made to certain non-GAAP financial measures. Sensus Healthcare, Inc. believes these measures provide useful information for investors, yet they should not be considered as a substitute for GAAP, nor should they be viewed as a substitute for operating results determined in accordance with GAAP. A reconciliation of non-GAAP to GAAP results is included in today's press release. With that, I would like to turn the call over to Joseph C. Sardano. Joe? Joseph C. Sardano: Thank you, Leigh, and good afternoon, everybody. We appreciate you joining us today. 2026 represents an important transition period for Sensus Healthcare, Inc. With the dedicated CPT codes for superficial radiotherapy now in effect as of January 1, we are operating in a fundamentally different environment than ever before. We are tasked with the responsibility of helping our entire industry pivot to the new reality. For quite some time, two factors weighed heavily on our business: customer concentration and the absence of reimbursement clarity. Today, we believe both of those factors are beginning to shift in a meaningful way. I would like to frame our discussion around five priorities that we believe will define our progress in 2026 and provide a clear framework for tracking our execution over the course of the year. Number one, educate the market on the new reimbursement and train them on how to utilize the codes. Two, drive customer adoption following CPT code implementation. Three, grow our recurring and utilization-based revenue streams. Four, diversify and strengthen the commercial model. And last, number five, deliver sustainable profitability. Our entire first quarter was dedicated to helping existing customers and new prospects better understand the new reimbursement coding. Initial results are excellent. The coding is simple and straightforward, and for those who have billed CMS under the new coding, they are already seeing a smooth transition by the payers as our users receive reimbursements. Both physicians and patients will continue to grow in confidence that SRT is receiving full funding. Which brings us to customer adoption and CPT impact. One of our strategic priorities is converting the new reimbursement environment into broader customer adoption and a more diversified installed base. During the first quarter, we began to see the benefits of the new CPT codes move from concept to commercial reality. With reimbursement now clearly defined and physician economics significantly improved, including approximately a 300% increase in the per-fraction delivery code, we are seeing increased inquiry levels, stronger pipeline development, a growing pipeline of qualified opportunities as of quarter end, and greater engagement from dermatology practices and hospital systems. We shipped 14 SRT systems during the quarter, including 10 direct sales and four placements under the Fair Deal Agreement program as well as rental arrangements. Importantly, these shipments reflect continued progress in broadening our customer base and meaningfully reducing historical customer concentration. We were able to match our sales from Q4, which we believe we will improve upon quarter over quarter for the balance of the year and into 2027. We saw strong momentum coming out of several major dermatology conferences during the quarter where physician interest and engagement levels were among the highest we have experienced. These events continue to be a critical driver of our pipeline growth and customer education as awareness of the new reimbursement environment increases, in addition to the benefit of SRT as a non-invasive alternative to Mohs surgery. Patients are deciding more and more their preference to avoid surgery. Recurring revenue growth and the FDA plus software. Another priority is expanding recurring revenue streams tied to utilization of our installed base and new prospects. There are still groups who prefer a shared service program, as indicated by the four of 14 units shipped in Q1. We are confident this will continue to grow. Our Fair Deal Agreement program continues to be a driver of utilization-based revenue. During the quarter, treatment volumes increased 8% over 2025, and we continue to increase the number of patients. We ended the quarter with 18 active FDA sites and nine pending activations. As we have said previously, FDA placements often serve as a bridge to system ownership, and we continue to see that dynamic play out as customers better understand the economics under the new reimbursement environment. Importantly, we are now taking additional steps to expand recurring revenue through software and services. The introduction of SensusLink represents an important evolution of our model, enabling enhanced workflow, treatment documentation, and operating intelligence across our installed base, while creating a scalable recurring revenue opportunity tied to treatment activity. We view this as an important step in evolving our business model toward a more predictable and recurring revenue profile in the future. Over time, we expect recurring revenue including FDA, service, and software to represent an increasing percentage of total revenue, which historically has been about 10%. Commercial expansion and diversification. Our next priority is broadening commercial reach through access to our technology and reducing volatility by creating more ways for customers to acquire and use Sensus Healthcare, Inc. systems. We are seeing increased interest across a wider range of customers including independent dermatology practices, group networks, hospital systems, and private equity-backed platforms. To support this, we recently launched Sensus Healthcare Financial Services, which provides a streamlined pathway for customers to acquire our systems through flexible financing options. Since launch, we have begun actively engaging with prospective customers to utilize this platform and are seeing improved conversion rates on late-stage opportunities. We are also seeing a shift in customer preference towards purchase compared to prior periods where Fair Deal Agreement program participation was the primary entry point. We now have to ask the question: Why do you want to give up 50% of your revenue when one patient procedure per month represents your breakeven? Profitability. Our priority is translating stronger demand, a growing recurring revenue base, and disciplined expense management into profitability. We are entering this new phase with a strong balance sheet, including $18.3 million in cash and no debt. While our first quarter results continue to reflect transition away from historical customer concentration, we believe the combination of improved reimbursement, a more diversified customer base, expanding recurring revenue streams, and disciplined expense management positions us to deliver improved financial performance over the balance of 2026 with the objective of achieving full-year profitability. With that, I will turn the call over to Michael to provide more detail on our commercial execution and growth initiatives. Michael? Michael J. Sardano: Thanks, Joe. I will focus on how our commercial model is evolving and how we are executing against the priorities Joe just outlined. The most important change we are seeing is that reimbursement clarity has fundamentally reshaped how customers evaluate and adopt SRT. Importantly, this is shifting SRT from a considered option to a financially actionable decision for more and more practices. Customers now have multiple pathways to adoption, including outright purchase, leasing structures, and the Fair Deal Agreement program. In the first quarter, approximately 70% of systems shipped were purchased versus FDA. Average breakeven for customers is now two patients per month, and we are seeing a higher percentage of customers electing ownership earlier in the adoption cycle. From a pipeline perspective, we are seeing increased conversion activity across the board as customers move from evaluation to decision making. A key driver of this momentum has been our participation in several major dermatology conferences during the quarter. These conferences generated new leads, physician engagements and demos, and a meaningful increase in follow-up activity and site evaluations. Importantly, our decision to refine our conference and trade show strategy to prioritize high-yield events where purchasing decisions are actively being evaluated is paying off in our pipeline. Physicians are becoming more aware of the new CPT codes and improved economics of SRT. On the recurring revenue side, our focus is on increasing utilization across the installed base and expanding monetization through additional capabilities. SensusLink is an important part of this strategy, as it enables us to bring advanced functionality to both new and existing systems while also creating a pathway for ongoing service and software revenue tied to treatment workflows. On the installed base, total SRT systems now stand at approximately 965 units globally. We expect the rollout of SensusLink, which provides advanced operating capabilities to our SRT-100 installed base, to begin to take shape and increase interest in SRT significantly this year. Over time, we believe this will support increased utilization, improve customer retention, and create a recurring revenue stream tied directly to system usage. International markets continue to represent an important growth opportunity for Sensus Healthcare, Inc. We are seeing continued demand in key markets such as China and expect additional diversification over time as we expand into new regions. International sales also provide attractive margin characteristics due to lower servicing requirements. Domestically, we are taking a disciplined approach to scaling our sales organization in 2026. Our focus is on expanding selectively, increasing market education, and improving conversion efficiency. Overall, the underlying performance of our business will continue to improve as a combination of reimbursement clarity, expanded adoption pathways, and a more diversified commercial strategy positions us well for sustained growth and profitability. With that, I will turn the call over to Javier for a review of the financials. Javier Rampolla: Thank you, Michael, and good afternoon, everyone. I will briefly review our financial results for 2026, starting with revenue. Revenue for the quarter was $3.4 million compared to $8.3 million in the prior-year period. The year-over-year decrease was primarily driven by the absence of sales to our historically largest customer as well as a lower number of total units shipped. As a reminder, the prior-year period included a significant number of direct sales to that customer. In the current quarter, we had no sales to that customer, which reflects our ongoing transition towards a more diversified customer base. Importantly, excluding sales to that customer in the prior-year period, revenue increased compared to $2.7 million, demonstrating underlying growth driven by a broader mix of customers. In addition, a portion of systems shipped during the quarter were under the Fair Deal Agreement program and rental arrangements, where revenue is recognized over the term of the agreement rather than at the time of shipment. As a result, these placements contribute to revenue over time rather than upfront. Turning to cost of sales. Cost of sales was $2.4 million compared to $4.0 million in the prior-year period. The decrease was primarily driven by lower unit volumes, again reflecting the absence of sales to our historically largest customer, as well as the shift towards FDA and rental placements. Moving to gross profit and margin. Gross profit was $1.0 million compared to $4.4 million in the prior-year period, and gross margin was 29.2% compared to 52.2% in 2025. The decline in gross margin was primarily driven by product mix. This includes a higher proportion of international shipments, which carry lower average selling prices, as well as costs associated with the new system placements under our Fair Deal Agreement program. As utilization increases, these arrangements are expected to contribute more meaningfully to revenue and margin over future periods. Turning to operating expenses. General and administrative expense was $2.0 million compared to $2.2 million in the prior-year period, with the decrease primarily driven by lower professional fees. Selling and marketing expenses were $1.7 million compared to $2.2 million in the prior-year period. The decrease was primarily due to our decision to lower trade show-related spending to focus on events with the highest potential for sales generation. Research and development expense was $1.6 million compared to $2.6 million in the prior-year period. The decrease reflects lower lobbying costs related to reimbursement efforts as well as reductions in headcount and product development spending for next-generation systems. Adjusted EBITDA for 2026 was negative $4.2 million compared with negative $2.5 million for 2025. Adjusted EBITDA, a non-GAAP financial measure, is defined as earnings before interest, taxes, depreciation, amortization, and stock compensation expense. Please see our earnings release issued earlier today for a reconciliation of GAAP and non-GAAP financial measures. Other income was $0.1 million compared to $0.2 million in the prior-year period and relates primarily to interest income. Net loss for the quarter was $2.6 million, or $0.16 per share, consistent with the prior-year period. Finally, we continue to maintain a strong balance sheet, ending the quarter with $18.3 million in cash, no debt, and inventory of $16.5 million, an increase from $14.6 million as of 12/31/2025. This inventory level positions us to continue to meet demand in the coming quarters for both direct and for placements under the Fair Deal Agreement program. Before I turn the call back to Joe, I would like to provide some perspective on how we are thinking about the remainder of the year. We expect second quarter revenue to be higher than first quarter, and we also expect revenue in the second half of the year to be higher than the first half as we continue to build on the momentum we are seeing in our pipeline and customer engagement. From a margin perspective, as discussed earlier, first quarter gross profit and margin reflect the impact of product mix, including a higher proportion of international shipments, as well as costs associated with new system placements under our Fair Deal Agreement program. As utilization under these arrangements increases and revenue is recognized over time, we expect these dynamics to evolve over the course of the year. With that, I will turn the call back to Joe. Joseph C. Sardano: Thank you, Javier and Michael, for those updates. Before we open the call for questions, I want to reiterate that we believe SRT is increasingly being viewed as a compelling noninvasive treatment option that allows practices to expand patient access, improve workflow efficiency, and offer an alternative for treating patients with non-melanoma skin cancer. The new dedicated CPT codes for superficial radiotherapy significantly improve physician reimbursement and support broader adoption of our technology while benefiting patients with certainty of coverage for noninvasive treatment options. As we move through 2026, we remain focused on executing against our five priorities: education and training, accelerating customer adoption, expanding recurring revenue, broadening our commercial reach, and driving Sensus Healthcare, Inc. toward profitability. We believe we are still in the early stages of this transition and look forward to updating you on our progress throughout the year. Thank you for your continued support. Operator: We will now open the call for questions. Your first question today comes from Anthony V. Vendetti with Maxim Group. Anthony V. Vendetti: Joe, how are you doing? Hey, Mike. My first question is a two-part question. Your largest customer, which I think you had 15 units sold to in 2025, so with zero in first quarter 2026, it is not too surprising that revenue is down over 50%. When you said second quarter should be higher than first quarter, should we look at your largest customer, who is not buying any units right now, as upside if they come back? Are you internally assuming they do not come back, and if they do, it is upside? And then I have a follow-up question. Joseph C. Sardano: If they do come back, it is upside. We have not included them in our model for this year, but that does not mean they cannot figure out the new model they have to come up with so that they can remain strong in the market. Anthony V. Vendetti: Okay. So it is still a possibility. Then, with the new CPT codes that took effect January 1 and the approximately 300% increase in the per-fraction delivery code, are you seeing that translate into shorter sales cycles or a bigger pipeline of new business? If there is a pipeline, has it just not yet converted into revenue and you expect it to in time, or is it taking a while for the pipeline to build even though the code has significantly increased? Joseph C. Sardano: I will give you an overview, and then I will let Michael handle it since he was responsible for working directly with CMS to gain those codes. What we are seeing on an overall basis is that interest has increased significantly because of the dedicated and guaranteed coding system for SRT for dermatology. In the past, that did not exist. They were orphan codes that mostly came from ASTRO, and these new codes are specific to dermatology and to SRT. So we are excited for all of that. Regarding the interest from the field, more and more offices are contemplating bringing SRT into their practice because of those codes. Very clear, very obvious. Many are deciding whether they want to go with an FDA, an outright purchase, or a fair market value lease. They are taking it seriously because now all of these sites can consider this a long-term decision for their practice since those codes are in place. Michael? Michael J. Sardano: Sure. Thanks, Anthony. Great question. Joe covered most of it. The thing I will add is that on January 1, 2026, all of the codes took effect, but when it comes to coding and reimbursement, you do not know whether you are going to get paid or how the structure works until after you bill that patient and wait the four to six weeks. So people were not able to see the EOBs of these patients until mid-February to early March when you started treating patients. With those EOBs coming in, now we have actual proof, like Joe said, that we are getting paid. Private insurance, Medicare, Medicaid, CMS, etc., are paying these new codes the way they are supposed to. Now that we have that black-and-white proof, it is in our sales team’s hands, and we are giving it to the market. A big point we did not touch on is that our largest show of the year, AAD, took place March 27 to 31. Those leads could not close in Q1, so they are moving into Q2. I am very confident going into Q2 compared to Q1. As I said on the call, we expect to continue to grow and improve throughout the year, quarter over quarter. As Javier mentioned, we have more recurring revenue shipments than we have ever had before. From an FDA standpoint and also this rental model, as we get 10 rental contracts, then 30, then 40 or 50, we are quickly transitioning to a more recurring revenue base that will require patience. We are transitioning in a way investors have asked for over the last ten years—more recurring revenue, not solely focused on one revenue source—and now we are achieving that. I think we will see improvement on that. Anthony V. Vendetti: That makes sense. As best you can, can you timeline it for us? As you build this pipeline of recurring revenue and the Fair Deal Agreement, do you feel like, whether this quarter, next quarter, or sometime in 2026, you lap that pipeline and then it is easier to see revenues grow? Is there an inflection point you are looking for? Michael J. Sardano: As the education continues to roll out, for instance, we just had two or three more meetings this past April with large roll-up groups in addition to Florida-, Arizona-, and California-based meetings. As that happens, you are going to see education expand. The black-and-white codes greatly help us. This is the first time in our sixteen years that I have been able to go in a room and tell a doctor that these are black-and-white codes with no gray area. As that comes in, you will see a lot of people who were not interested over the last ten years now become interested because their accountants and lawyers can make sense of it. That is about education. The longer you give us, the more we can educate, and more people will adopt SRT. It is here to stay now. CMS has given us exclusive codes for SRT for the first time ever. We do not have to go to Washington as much anymore, which is good for time and money. We are excited. The sales team is fired up. We have already hired three more salespeople into territories—some new and some rehires. We are very excited to keep going. Joseph C. Sardano: Let me add one thing to your question about the recurring revenue piece. One of the codes involves radiation physics and the consults for radiation physics. This code has to be applied to every patient, and our introduction of SensusLink is a main focus for our customer base. They can charge that code once per week. For example, if their protocol uses 20 treatments at two treatments per week over ten weeks, this radiation physics code can be charged at an average of $93.85 per week across the country. That is ten weeks of treatment, or about $930. With our software, we will be sharing that revenue with our customers. The only way that they can access that reimbursement is through SensusLink. That is an important piece of our business that we did not have before. Anthony V. Vendetti: When did SensusLink officially go live? Joseph C. Sardano: It is live now and performing in several accounts already. Anthony V. Vendetti: Great. That was great color. Thanks. I will hop back in the queue. Appreciate it. Michael J. Sardano: Thanks, Anthony. Operator: Seeing no additional questions, this concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. Joseph C. Sardano: I think everybody heard where we are headed this year. We believe we are going to have a profitable year, with each and every quarter being better than the previous. We have a very solid start to the year and are looking for increased revenues throughout. With that being said, we look forward to a very successful second quarter and to talking to you again at the next earnings call. Thank you so much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon, and welcome to the Gevo, Inc. Quarter One 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, we will now open the call for questions. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Thank you. I would now like to turn the call over to Eric Frey. Please go ahead. Eric Frey: Good afternoon, everyone, and thank you for joining us on today’s call to discuss Gevo, Inc.’s first quarter and full year 2026 results. I am Eric Frey, Vice President of Finance and Strategy at Gevo, Inc. With me today, we have Paul D. Bloom, our Chief Executive Officer; Oluwagbemileke Agiri, our Chief Financial Officer; and Unknown Speaker, Executive Vice President of Operations and Engineering. Earlier today, we issued a press release that outlines our first quarter 2026 results and some of the topics we plan to discuss. Copies of the press release are available on our website at gevo.com. Please be advised that our remarks today, including answers to your questions, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently anticipated. Those statements include projections about the timing, development, engineering, financing, and construction of our alcohol-to-jet project; the potential expansion and debottlenecking of our Gevo, Inc. North Dakota plant; the potential expansion of our carbon sequestration well; our expected future adjusted EBITDA; our agreements with Ara Energy; and other activities described in our filings with the Securities and Exchange Commission, which are incorporated by reference. We disclaim any obligation to update these forward-looking statements. In addition, we may provide certain non-GAAP financial information on this call. The relevant definitions and GAAP reconciliations may be found in our earnings release which can be found on our website at gevo.com in the Investor Relations section. Following the prepared remarks, we will open the call for questions. I would like to remind everyone that this conference call is open to the media, and we are providing a simultaneous webcast to the public. A replay of this call and other past events will be available via the company’s Investor Relations page at gevo.com. I would now like to turn the call over to the CEO of Gevo, Inc., Paul D. Bloom. Paul? Paul D. Bloom: Thanks, Eric. Good afternoon, everyone, and thanks for joining us. This quarter was about advancing execution and strengthening the foundation for scale. Our team continued to build on the momentum of last year, strengthening our core business while advancing the next phase of our growth. We made measurable progress on our ATJ 30 project and our planned debottlenecking and expansion of Gevo, Inc. North Dakota. We continued to improve the performance of our existing business and refine our financing strategy. 2026 was our fourth consecutive quarter delivering positive non-GAAP adjusted EBITDA that reflected better than expected results with improved margins on top of solid production volumes. Our carbon business continued to deliver strong returns from low carbon ethanol compliance markets. In Q1, we sold approximately 57% of our carbon attributes attached to fuel. We also generated nearly 20 thousand tons of engineered carbon dioxide removal credits, or CDRs, to be sold into the voluntary carbon market and continue to see steady demand and relatively strong credit pricing for low carbon ethanol sales in markets where we participate. Our customers for CDRs continued to grow in Q1, including purchases and retirements by Amgen, Bank of Montreal, and PayPal, while continuing to advance more sizable long-term CDR deals. Importantly, we see continued growth this year even before our debottlenecking at Gevo, Inc. North Dakota comes into effect. Last year, we reported approximately $16 million adjusted EBITDA. For 2026, we expect approximately $30 million of adjusted EBITDA as we progress towards our previously stated target of achieving $40 million of adjusted EBITDA on an annualized run-rate basis from existing operations by the end of this year. The impact of our debottlenecking and other growth plans is incremental to this target. To further support our efforts, we have launched a corporate-wide initiative we are calling the EBITDA Challenge. This is about unlocking new revenue growth, improving operational performance, and managing costs across our organization. We look forward to providing more updates as we make progress on this critical initiative. Now let me turn to our alcohol-to-jet project that we call Project NorthStar, since I know that is top of mind. As previously announced, we made the decision to withdraw from the DOE financing process following a conversation with them around certain new requirements for the loan guarantee, including enhanced oil recovery as a business objective. These requirements did not align with our duty to maximize value for our stakeholders, from both an economic and timeline perspective. Withdrawing from the DOE process allows us to fully engage with a broader group of private capital providers while adding greater certainty and flexibility to our financing efforts. I am pleased to report that we have received nonbinding indications of interest from multiple lenders, which supports our goal of securing financing for Project NorthStar by the end of 2026. As a reminder, we are pursuing a combination of non-dilutive project-level debt and strategic capital options for Project NorthStar. Beyond financing, we are making good progress on our other key milestones that include engineering and offtake agreements. On engineering, we talk about front end loading, otherwise known as FEL, for which stage two has been completed. We remain on track to complete FEL 3 this quarter, which will further refine our capital cost estimates and position us to move forward to detailed engineering. Regarding offtake, we have already secured approximately half of the financeable long-term contracts for synthetic aviation fuel and carbon attributes for the project. Currently, we are at the term sheet stage for additional contracts which, upon completion, we expect will meet our financing requirements. We see a clear path to final investment decision, or FID, and based on our progress, continue to believe that Project NorthStar can deliver approximately $150 million of adjusted EBITDA per year once fully commissioned and online. Switching gears to our expansion projects, on March 30, we announced our intent to expand the capacity of Gevo, Inc. North Dakota by up to 75 million gallons per year, bringing our total capacity to an expected 150 million gallons per year. This expansion would effectively double the carbon capture and low carbon ethanol production and all the value that comes with that, from our original acquisition of the plant last year. To help finance the expansion, we entered into a preliminary agreement with Ara Energy, a global private equity and infrastructure firm focused on industrial decarbonization, to co-invest in the project. We still have to finalize the details, but we believe partnering with experienced capital providers will allow us to move faster than our balance sheet alone would support, while maintaining a disciplined approach to capital projects, avoiding dilution, and optimizing risk-adjusted returns. We expect construction of that expansion to take approximately 18 to 24 months following final investment decision. Lastly, let me touch on the debottlenecking and other site improvements that are currently in progress at Gevo, Inc. North Dakota. As previously announced, the volumes unlocked by our debottlenecking efforts should expand adjusted EBITDA in the Gevo, Inc. North Dakota segment by an anticipated 10% to 15%. We are on track to deliver the debottlenecking and operational reliability projects by the end of 2026. Site improvements are underway, and Unknown Speaker will talk more about that and our other operational and engineering highlights. But first, I will turn it over to Oluwagbemileke Agiri to run through the financial performance for the quarter. I will come back at the end to recap. Oluwagbemileke Agiri: Thanks, Paul. During Q1 2026, we reported revenue of $43 million compared to $29 million in Q1 last year, net loss attributable to Gevo, Inc. of $22 million, or $0.09 per share, which is coincidentally the same as it was in Q1 of last year. I would emphasize that first quarter results include debt extinguishment and modification of $11 million, and non-GAAP adjusted EBITDA of $9 million compared to a loss of $15 million in Q1 last year. Adjusted EBITDA largely reflects contributions from our carbon capture, low carbon ethanol and RNG operations, and corporate expenses. While our adjusted EBITDA for full year 2025 was $16 million, we continue to see adjusted EBITDA growth in 2026 and are excited to reaffirm our target of reaching an annualized run-rate adjusted EBITDA of $40 million this year. During the 12 months of 2026, we expect $30 million of adjusted EBITDA. Our first quarter results were better than expected due to strong production and margin performance, in spite of typical seasonal softness in ethanol margins. We are optimizing value from monetizing carbon, commodity, and tax credits, in addition to our strong focus on fiscal discipline and cost management. As Paul mentioned, we launched a corporate-wide initiative that we are calling the EBITDA Challenge. This is not just a cost-cutting exercise. This is about unlocking new revenue growth, improving operational performance, and managing costs across our organization. Going forward, we continue to expect some quarter-to-quarter variability in adjusted EBITDA, but overall, we reaffirm our targets. I also note that we see some potential upsides to our targets across a number of fronts, including unlocking revenue from expected new low carbon fuel pathway approvals we have been working on for over a year. Turning to cash flow and the balance sheet, we ended the quarter with approximately $39 million of cash and cash equivalents. We reported negative operating cash flow of $21 million. This reflects timing-related impacts, including $17 million of tax credits that have been generated but have not yet been monetized, and roughly $4 million of one-time costs tied to debt refinancing and extinguishment. Adjusting for these factors, operating cash flow would have been close to neutral, in line with our expectations and consistent with our path toward achieving our 2026 cash flow objectives. Refinancing our growth, we are taking a disciplined and methodical approach. Our priority is to ensure that any capital we raise aligns with our long-term strategy, preserves flexibility, and supports sustainable value creation for our shareholders. Regarding ATJ 30, we are actively evaluating indications of interest that we have received from private capital providers. This process is focused not only on securing funding, but partnering with capital providers who understand the strategic position of our project, share a commitment to our execution timeline, and help minimize dilution. On debottlenecking and other asset enhancement projects, we expect to spend $26 million this year that we plan to fund internally, as we have said previously. And as Paul mentioned, we expect to finance our expansion project with capital partners like Ara Energy. Overall, we believe our cash and cash flow put us in a strong place to execute this year and confidently pursue our long-term objectives. And now I will hand it over to Unknown Speaker to talk about operations. Unknown Speaker? Unknown Speaker: Thanks, Oluwagbemileke. From an operations standpoint, we saw consistent performance across our asset base in the first quarter. At Gevo, Inc. RNG, we produced about 92 thousand BTUs of renewable natural gas compared to about 80 thousand during the same quarter last year, or a 15% increase. Last quarter saw improved reliability as a result of our continued focus on operational stability. At Gevo, Inc. North Dakota, the plant delivered 18 million gallons of low carbon ethanol, plus 16 thousand tons of dry distillers grains, 51 thousand tons of modified distillers grains, and 5 million pounds of corn oil co-products. This was even better than expected as a result of our continued focus on operational excellence. The team remains focused on executing the debottlenecking and asset reliability projects that are expected to unlock incremental volumes and expand margins. During a planned shutdown in April, we succeeded in making the process tie-ins we need for these improvements. We believe we will not need any additional or unplanned outages to complete and commission the debottlenecking. That is great because we can start adding long-term production capacity without sacrificing our short-term volume this year. We are currently in construction of a new fermenter, liquefaction tank, beer degassing system, and a new milling building, which are all part of our plans to increase the plant capacity to around 75 million gallons per year of low carbon ethanol starting in 2027. For comparison, the current nameplate capacity is 67 million gallons per year, which we are already exceeding. We budgeted $26 million in capital expenditures this year for the debottlenecking and site improvements, funded by Gevo, Inc. North Dakota operating cash flows, as Oluwagbemileke mentioned, and we continue to expect about that level of capital spend. On our plant expansion from 75 to 150 million gallons a year, we are repurposing much of our work, design, and team from our previous ethanol project that was originally planned for South Dakota. We believe these efforts, while working with our existing network of partners, including Fluid Quip Technologies, will accelerate the expansion. Finally, on ATJ 30, we are on schedule to complete FEL 3, which will bring us to a plus or minus 10% estimate on the capital cost of the project, including the modularization work being done by Praj along with the Gevo, Inc. engineering team in India. Our U.S. engineering team and engineering partners are focused on completing the balance of plant design and integration of the entire project. In summary, we are focused on delivering operational excellence while also positioning our assets to support the next phase of growth. Now I will turn it back to Paul. Paul D. Bloom: Thanks. As you can see, we are in a much stronger position than we were a year ago. We have a solid operating base, a clear path to improving profitability, and multiple opportunities to scale our business in a meaningful and repeatable way. In addition, the conflict in the Middle East has highlighted, among other things, the relative inelasticity of jet fuel supply and demand, underscoring the critical importance of renewable alternatives like SAF. With the expected increase in global demand for jet fuel in the future, Gevo, Inc. has seen increased interest in our SAF and franchise strategy, both in our carbon management and our anticipated ability to supplement regional supply with our modular approach to deploying alcohol-to-jet capacity. Let me finish by saying our focus is clear. First, expand our cash-generating business. Second, secure a durable capital structure. Third, deliver our first commercial-scale SAF project. And lastly, build a repeatable platform for growth. With that, I will turn it back over to the operator to take your questions. Thank you. Operator: We will now open the call for questions. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Your first question comes from Amit Dayal from H.C. Wainwright. Please go ahead. Amit Dayal: Thank you. Good afternoon, everyone. Thank you for taking my questions. Good to see all the progress, Paul. On the debottlenecking front, should we assume that the impact from these efforts will reflect in the financials in 2027? Paul D. Bloom: Hi, Amit. Thanks for the question. Yes, that is the plan here because, like Unknown Speaker mentioned, we have already got the tie-ins done for the expansion. We are working on that construction today. That will be done at the end of the year, so that should immediately start in 2027 in Q1 to start delivering that extra 10% to 15% that we are talking about compared to where we end the year. Amit Dayal: Understood. Thank you for that. And with the efforts with Ara, does that require any capital commitment from you, or will that also be project finance? I am just trying to think through whether that puts any burden on the balance sheet or whether you have optionality to fund that through project financing and outside sources. Oluwagbemileke Agiri: Thanks for the question. High level, we are going to arrange project-level debt to complete the capital stack. So the combination of cash that we have on hand with capital from Ara Energy completes all the capital we need to complete that expansion project. Paul D. Bloom: Yes, we were really excited about that, Amit, to say we found what we think is a really good partner in Ara Energy. We are looking forward to getting that finalized so we can get started because the clock is ticking, and we want to get that done as soon as possible. Like we mentioned, we have a timeline of 18 to 24 months to get that completed, and that effectively doubles what we have at Gevo, Inc. North Dakota. That is a pretty exciting project for us, and we just cannot go fast enough. Amit Dayal: On that front, Paul, can we assume that if everything closes in a timely manner, work on the buildout starts this year in 2026 itself? Paul D. Bloom: Absolutely. We have already started to work on this project because, Amit, we had a lot of the team working on ethanol plant design back when we had the South Dakota greenfield plant. We have done a lot already, so we are repurposing the team. Unknown Speaker mentioned we are already working with Fluid Quip, for example. So we have already started. How do we get this done? What does that engineering look like on site? We started talking about that right after we got the acquisition done of the Red Trail assets, now Gevo, Inc. North Dakota. So this has been in the works and in the planning for some time, and we are ready to hit the ground running. Amit Dayal: That is good to hear. Just last question. Did not hear too much about Verity. Just wondering how that is progressing and if you are seeing traction with potential customers on that front? Paul D. Bloom: Sure. Thanks for the question on Verity. We love Verity. Verity has become part of our core franchise business for one because if you look at a bottle of Jet A and a bottle of SAF, they look the same because the molecules are essentially identical. The only difference is how we got there: what was the source of the feedstock, how we produced it, and the carbon intensity score, and customers want that proof. So as we build out our business, we will have Verity inside everything that we are doing, whether it is low carbon ethanol or on the SAF side. On Verity specifically, we have more customers. We had a couple of partnerships that we announced over the past few months. One was with Bushel, who basically services about 50% of the grain elevators in the United States and Canada. We think that is a really good way to take Verity and combine it with another software platform and get out to the market faster. We have also been working with a company called Cboe, and Cboe really helps with data acquisition, boots on the ground. We have signed up 8 customers so far. We are really excited about this. The one thing that we need to still see for Verity—because we designed this to take the benefits from the field to the fleet, or the field to the seat on the aircraft—is ag benefits, the 45Z ag benefits specifically included into 45Z. We have been waiting for that. We think we are getting closer, but we really need to see that, and I think that is a catalyst for Verity to really take off and grow in the marketplace because we have a tool that was designed to do that. Amit Dayal: Understood. Thank you, Paul. That is all I have. I will step back in the queue. Paul D. Bloom: Great. Thanks. Operator: Your next question comes from Jeffrey Grampp from Northland Capital Markets. Please go ahead. Jeffrey Grampp: Afternoon, guys. I am curious, with respect to the project finance opportunities for both the expansion project and ATJ, given that the timelines could potentially coincide a bit, are you evaluating perhaps a single source of capital for both projects? Does it make sense to have varying capital for different projects? Just curious how you are evaluating funding since it seems like there is perhaps some overlap. Oluwagbemileke Agiri: Thanks for the question. High level, we are evaluating all executable project financing plans, and some of the current project capital providers that we are talking to have expressed appetite in both projects. At the end of the day, we have a decision to make in terms of how we prioritize the capital providers that optimize our return for each of the various projects we have in front of us. We are really excited about the opportunities and the engagement that we have so far. Stay tuned. We will be sharing more definitively in terms of what those selection criteria are and the parties that we are going to be developing those projects with, especially ATJ 30, in due course. Paul D. Bloom: Thanks, Oluwagbemileke. Just to add on to that, Jeff, one of the things that we want to make sure of is we go as fast as we can on these projects. Making sure that we have the right options, whether they are together or independent, could change timelines on some things. Like we said, we are looking at all the options and are really excited and happy about the response that we have at this point. Jeffrey Grampp: For my follow-up, somewhat related to the financing but more specific to ATJ. It sounds like you have half the offtake in place and you are working on additional offtake. Is it safe to assume that is a prerequisite to closing anything on that side? And are there any other major obstacles or negotiating points outside of the offtake beyond just normal terms and conditions? Paul D. Bloom: The offtakes are the major gating item that we are still working through here, Jeff. We are focusing on delivering those bankable contracts that everybody is comfortable with on the financing side. We are pretty far along. We just need to finish up a few things that are at the term sheet stage. We will get that completed here, hopefully in the near future. I do not want to have everything under contract either for the ATJ 30 project. Project NorthStar we believe is going to be very accretive, and we want to make sure that we have some free to sell in the market so we can be opportunistic with those sales because who knows what those carbon values and jet fuel prices are going to be in the future. We will get enough to get where we need to be for the financing and go from there. Jeffrey Grampp: Understood. If I can sneak one more in related to that last point, what is that right mix? I understand there is not a single right number, but what kind of spot exposure makes sense for you? Oluwagbemileke Agiri: Ideally, you effectively do the math to understand what amount of contracted offtakes underpin the investments from our capital providers. It is a negotiation that we are going through. Typically, when you look at capital projects like ours, you see facilities under contracted offtakes somewhere between 70% to 80%. Maybe we will be in that mix. Maybe we can expose our volumes to more spot offtake volumes. That is yet to be determined. Did I address your question? Jeffrey Grampp: Yes, that is perfect. I will turn it back. Thank you, guys. Oluwagbemileke Agiri: Thanks. Operator: Before we proceed, again, if you would like to ask a question and join the queue, simply press star 1. Your next question comes from Derrick Whitfield from Texas Capital. Please go ahead. Derrick Whitfield: Good afternoon all, and congrats on the strong quarter. Paul, I am sure a lot of this was in process with your team before, but you have hit the ground running with this release. Paul D. Bloom: Thanks. We have been busy. It is a busy group. Derrick Whitfield: On the EBITDA Challenge, could you speak to the scale and scope of the program and what it could reasonably yield on the current platform before accounting for debottlenecking and expansion? Paul D. Bloom: Sure thing. We are pretty excited about this. It is focused on getting us to the run-rate of $40 million in adjusted EBITDA per year as soon as possible. We said we are going to do it, and the main thing is: how are we going to do it and measure it? We put process and an initiative in place for all Gevo, Inc. colleagues where we are capturing the metrics of what we are putting in place. It is part of an incentive plan that all employees have to drive EBITDA, not just to that $40 million but well beyond that. Think of this as phase one. It is getting us all to think about how we work, how we do our jobs the most efficient way, and deliver value—whether unlocking revenue, managing our costs, or coming up with better operational projects. We have a whole list already, and that list will continue to grow. I think it will go well beyond the $40 million that we set as a target by the end of the year. If you look at the investor presentation, after $40 million, we will have the debottlenecking. After debottlenecking, we are looking at the terminal for third-party CO2, and then we have the expansion with Ara Energy, and then monetizing that pore space fully. That gets to over $100 million in adjusted EBITDA that we are targeting. Again, think of it as a phased approach. We will continue this challenge. The challenge never ends; it will just go in phases as we work through it. Oluwagbemileke Agiri: One of the key points is we are targeting sustainable EBITDA growth. As we look at cost management, we also look at opportunities for investment to expand margins. Those are aspects that we hope to translate into recurring EBITDA growth and drive shareholder value. Paul D. Bloom: One other thing to reinforce: we have a number of fuel pathways today where we are selling low carbon fuel with the carbon attributes attached in compliance markets as part of our carbon business. Some of those recognize the value of carbon capture and sequestration, or the CCS value; some do not. We have made sure with our sustainability team that we have optionality to sell that value with or without the fuel, and we are getting more approvals. We expect additional approvals this year that should unlock substantial value. That is an example of a revenue unlock that could be quite substantial for us going forward. Derrick Whitfield: Along the same lines, are you seeing opportunities to further improve your ethanol netbacks? Ethanol is, globally, the cheapest octane in the world at present, and the global product markets are exceptionally tight. It seems like there are ways to make more economics just on the brown molecule as well. Paul D. Bloom: Absolutely. A couple of things are going on. We will see where the farm bill gets with E15, but that could increase ethanol demand by 5% just right there if we go to year-round E15. We have also seen other markets that are pulling for export, just extra demand. We see demand growth in Japan as they think about E10 and then moving on to E20. We look at marine markets where there has been a lot of talk and potential expansion. We are going to stay focused on the markets that we service really well because those are great markets for us, and we see new low carbon fuel markets open up. Hawaii just announced a low carbon fuel standard. We have New Mexico that is starting to take shape. The Canadian market is really strong today on their credit pricing and demand, and they are a large importer of U.S. ethanol. We are well positioned to take advantage of that growth. Unknown Speaker: I would add, as we look inside the fence and drive operational excellence, we are very focused on energy consumption—how we can be more energy efficient—and also how we can drive value in our co-product valorization. One project is how we can be even better with our corn oil recovery. Paul D. Bloom: That operational excellence piece is important. The Red Trail assets and the team there have done a phenomenal job over time. We are bringing our team and combining forces now as Gevo, Inc. North Dakota to drive operational excellence. These are not just small incremental amounts. These are step-change kinds of improvements we could see. Corn oil recovery is a big one. As we look at things like D4 RINs, we will see how that continues to drive values for things like distillers corn oil as the D4 RINs in the recently announced RVO have gone up. That is also good for potentially jet fuel in the future because we believe that RVO increase, with SAF anticipated to qualify for a D4, is all moving in the right direction. Derrick Whitfield: With respect to project financing plans, how much of the total project CapEx could you reasonably cover with project financing? And should we think about the cost of financing as, let us call it, 200 to 300 basis points wide of DOE funding? Is that the right way to think about it? Oluwagbemileke Agiri: We are targeting a leverage ratio of around 60% of the total project cost for ATJ 30. That is our target, and our engagement with private capital providers is on that basis. We think that tracks what the market will bear and what we are going to transact. On pricing, what you are triangulating is close to fair. The cost of debt that the DOE brought to us will erode a little bit as we engage with private capital providers. Some of those reasons you know: the subsidized capital and the guarantee structure that DOE had does not exist with other parties, and they have to charge closer to what the market rate is. The range you gave is close to where we might end up. Derrick Whitfield: Fantastic. Great update, guys. Thanks for your time. Operator: There are no further questions at this time. I would now like to turn the call back over to Paul D. Bloom for the closing remarks. Please go ahead. Paul D. Bloom: Thanks again, everybody, for joining us for this quarter’s update. We are really happy with the team’s performance. We are headed strong, and you will see continued focus on our EBITDA growth, which is one of the critical things for us. Stay tuned for more updates on our ATJ 30 financing—Project NorthStar—as we get that done by the end of this year. Again, great quarter. Really pleased with the progress that everybody is making, and thanks for joining us. Operator: Ladies and gentlemen, thank you all for joining. That concludes today’s conference call. All participants may now disconnect. Thank you.
James Hart: Good day, everyone, and welcome to the Progyny, Inc. earnings conference call. At this time, all participants are placed on a listen-only mode. If you have any questions or comments during the presentation, you may press star 1 on your phone to enter the question queue at any time, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to hand the floor over to your host, James Hart. Thank you, and good afternoon, everyone. Welcome to our quarterly conference call. With me today are Peter Anevski, CEO of Progyny, Inc., and Mark Livingston, CFO. We will begin with some prepared remarks before we open the call for your questions. Before we begin, I would like to remind you that our comments and responses to your questions today reflect management's views as of today only and will include statements related to our financial outlook for both the second quarter and full year 2026, any assumptions and drivers underlying such guidance, the demand for our solutions, our expectations for our selling season for 2027 launches, anticipated employment levels of our clients in the industries that we serve, the timing of client decisions, our expected utilization rates and mix, the potential benefits of our solution, our ability to acquire new clients and retain and upsell existing clients, our market opportunity, and our business strategy, plans, goals, and expectations concerning our market position, future operations, and other financial and operating information, which are forward-looking statements under the federal securities law. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business as well as other important factors. For a discussion of the material risks, uncertainties, assumptions, and other important factors that could impact our actual results, please refer to our SEC filings and today's press release, both of which can be found on our Investor Relations website. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events. During the call, we will also refer to non-GAAP financial measures, such as adjusted EBITDA. More information about these non-GAAP financial measures, including reconciliations with the most comparable GAAP measures, is available in the press release which is available at investors.progyny.com. I will now turn the call over to Peter. Peter Anevski: Thanks, James. Thank you, everyone, for joining us today. We are pleased to report that we have had a good start to the year, with record first-quarter revenue coming in at the higher end of our expectations, and net income, earnings per share, and adjusted EBITDA all above our guidance ranges. These results reflect that we continued to see healthy member engagement during the quarter, with utilization trending to the high end of our historical range, and our continued discipline in managing the business, which yielded strong margins overall as well as healthy cash. In addition, we also made meaningful progress during the quarter in laying the foundation for future growth through our planned investments to expand the capabilities of the platform, enhance our already industry-leading member experience, and extend our position as a solution of choice in women's health and family building. As the second quarter begins, engagement is pacing consistent with the typical seasonal patterns following the start of the year. Mark will take you through the details shortly, but we are pleased to issue ranges for Q2 that reflect sequential increases from Q1 across all the key results. We are also raising our full-year expectations for adjusted EBITDA, net income, and EPS as well. In short, we have begun 2026 on a strong positive note and are excited for the rest of the year ahead. Contributing to our excitement is the level of activity and energy we are seeing in the market. One example is at the recent Business Group on Health Conference, which is one of the most impactful events for the benefits industry. We had the honor of sharing the stage with one of our largest clients. During this joint session, our client discussed the results of a study they commissioned using a third party to analyze their claims data warehouse, which included all claims, not just family building, from Progyny, measuring the impact of our program over an eight-year period versus what they experienced prior to Progyny. The findings reaffirm what we have been reporting to this client regarding outcomes and value that we have been delivering since program inception. They showed that we increased the number of fertility-related pregnancies per year, doubled the pregnancy effectiveness of each treatment, decreased the multiples rate, lowered the miscarriage rate, and more than halved the preterm delivery rate. These results, in turn, lowered the average cost across fertility and related pregnancies, cost per baby, and their NICU costs. The client put it best when they said this is the kind of story they feel needs to be told, as it achieves the trifecta of member experience, improved health outcomes, and cost avoidance, all of which delivers hard ROI. As an aside, this type of analysis has also been performed by a handful of our other jumbo clients, independently analyzing their respective claims data warehouses, and they have all come to similar conclusions. Thought-leadership events like this, where HR leaders and decision-makers come together to share their experiences and help determine their priorities for the year ahead, are just one aspect of our selling season. This activity, amongst others, has the 2026 selling and renewal season off to a good start, with the level of activity and overall engagement we are seeing affirming how family building and women's health solutions remain a priority for every type of employer. Our overall pipeline and the early build of new pipeline are substantially favorable versus a year ago, and early commitments are pacing ahead of this time last year. Additionally, on the renewal side, we have meaningfully de-risked the season by securing early favorable notifications from some of our largest clients whose agreements were up for review this year. Consequently, the remaining renewal exposure, measured in dollars on the book of business yet to be secured, is at its lowest level at this point relative to prior years. Separately, regarding pipeline, we are encouraged by the activity with aggregators and other distribution partners for our Progyny Select offer. While the timing for its incremental contribution to pipeline will be later in the year due to normal buying patterns for these groups, we are pleased with the progress so far relative to our first-year expectations around Select. Taking all of our pipeline activity together, we believe this once again demonstrates not only how important family building and women's health are to employers, but also highlights the market's recognition that our evidence-based solutions drive measurable value to employers through proven cost containment. Let me spend a few minutes walking you through the drivers to pipeline and overall activity. First, we are seeing good traction across our health plan partners overall, and with Cigna in particular. You will recall this is our first full season with Cigna as a partner, and as expected, we are seeing a good inflow of opportunities from that channel. Second, we are seeing a good contribution from our traditional demand generation activities, where our opportunities remain distributed across greenfields and brownfields—companies looking to add the benefit for the first time or considering a switch from their existing provider. Lastly, we are seeing significantly stronger activity from RFPs on business that is currently with stand-alone competitors. In fact, the activity there has thus far already outpaced what we saw across all of last year. Conversely, we are seeing fewer RFPs than we normally expect from our existing client base, and as previously mentioned, two of our largest clients who were up for review this year have already indicated their intention to continue with us. In short, we believe we are well positioned for the season ahead, we are excited about the activity we are seeing, and we look forward to reporting our progress in the coming quarters. We believe one of the reasons for this positive market activity is that employers are increasingly looking for cost-effective solutions that can address the large and growing portion of their workforce being impacted by infertility and who are in need of coverage and support in order to realize their family building and overall health and well-being goals. The CDC recently reported that the number of births in the U.S. and the overall fertility rate have continued to decline, reaching record lows and extending the trends that began nearly two decades ago. Fortunately, if we peel back the layers of this data, we see something more insightful and certainly highly actionable. While the overall birth rate is declining, it is being driven entirely by women aged 29 and younger. On the other hand, birth rates amongst women aged 30 and over have continued to increase, such that women 30 and over now comprise nearly 53% of all births. This is the highest proportion ever for that age group. I will remind you that the population we serve in our family building solution is generally 30 to 42 years old, with the average age of a woman going through IVF at 36. What all this data tells us is that society has increasingly chosen to defer family building to later in life, and while that may be the preferred path to parenthood for the clear majority of people today, there is a biological reality in that conception without the use of assisted reproductive technologies often becomes more difficult as we age, and for many, unaffordable. We believe this is a macro trend that employers simply cannot afford to ignore. This is no less true even given the heightened focus on the state of the labor market, particularly as it relates to the potential for disruption from AI. As just one data point on that topic, the Wall Street Journal recently reported on a survey of 750 CFOs who concluded that the impact of AI is only expected to reduce their companies' headcount by just 0.4% as compared to what it otherwise would have been for 2026, and that impact is largely expected at entry-level roles or clerical and administrative functions where the tasks are more easily automated. This is all the more reason why having family building benefits in a company's overall benefit offering is critical. We recognize that investors are pricing into our valuation the potential for a negative impact on member engagement or on employer demand for our services. To be clear, we are not seeing any signs of either. As we see it, these concerns are more rooted in what we have called headline risk as opposed to accurately reflecting a shift in market dynamics, which we do not believe will adversely impact our business. Before I turn things over to Mark, let me conclude by saying that we believe our results and outlook reflect that we are as well positioned as we have ever been for this opportunity. This is highlighted by five key areas: early sales commitments; our overall pipeline; the progress we are making with our channel partners; our de-risking of the renewal season and the favorable notifications we have already received; and the traction we are seeing with Progyny Select. We view all of this as evidence of the continuing macro tailwinds, and we believe we are in the best position ever to take advantage of those. Although some headwinds always exist, the outsized emphasis of what is seemingly anticipated in our current valuation runs contrary to what we see. We have seen this play out before throughout our history, when in past years there were concerns at varying times regarding high inflation, tariffs, a potential recession, general macro uncertainty, and the loss of our largest client two years ago. Yet we continued to grow through all of the above, and we expect to continue to do so in the future. We recently completed our $200 million share repurchase program, and Mark will take you through those details shortly. Our board is currently evaluating potential options for a new share repurchase program. We anticipate a decision around May, and we expect to make an announcement at that time. Let me now turn the call over to Mark to walk you through the quarter. Mark Livingston: Thank you, Peter, and good afternoon, everyone. Before I begin, I will note that the 8-K we filed a short while ago includes our usual slide presentation, which summarizes both the results in the quarter and highlights some of the longer-term trends that we believe are important in understanding the health and direction of the business. We have also posted that on our website. Rather than repeating what is covered by that material, I will focus on the key themes that impacted both the quarter and how we think about the rest of 2026 and beyond. The first theme is that this quarter's results reflect once again that member engagement has remained healthy and at levels that were consistent with what we were seeing when we issued the guidance in February. The consistency we are seeing in overall engagement continues to demonstrate that members are pursuing the care and services they need in order to achieve their family building and overall well-being goals. As a result, first-quarter revenue came in closer to the high end of our guidance range, reflecting an increase of 1.4% on a reported basis and more than 12% when excluding the contribution from a large former client who was under a transition-of-care agreement in 2025. As a reminder, the transition agreement pertaining to this client ended as of June 30, 2025. Accordingly, the second quarter that is now underway will be the last quarterly period you have to take that into account when looking at our comparative results. The second theme is that we continue to maintain healthy margin performance even as we continue to invest to expand our product platform, enhance features for our members, and lay the foundation for future growth. Gross margin expanded as we continue to realize efficiencies in care management and service delivery, as well as the anticipated reduction in stock compensation expense. And while adjusted EBITDA reflects investments for our longer term, our adjusted EBITDA margin remains healthy even at a higher level of investment. Our first-quarter CapEx was $6.3 million, reflecting a $3.5 million increase over the prior-year period. I will remind you that we were still ramping this investment program over the early part of 2025. Our third theme is the flexibility to both invest in the business while also returning value to our shareholders. We generated approximately $446 million in operating cash flow, yielding over $200 million on a trailing twelve-month basis, a level we have maintained for five consecutive quarters now. Through our ongoing focus on process improvement and revenue-to-cash management, we also continue to drive further improvements in DSO, which was 11 lower than the first quarter a year ago. This improvement occurred even with the customary build in DSO on a sequential basis from Q4 as we work to establish the payment flows with our newest clients who launched on January 1. As of March 31, we had total working capital of $266 million, which includes $225 million in cash, cash equivalents, and marketable securities. There are no borrowings against our $200 million revolving credit facility and no debt of any kind, and we have no planned use for the facility at this time. The fourth and final theme is that during the quarter we repurchased more than 5.5 million shares for approximately $116 million under our most recent share repurchase program, which began in November and provided us with up to $200 million overall. We have now completed that program through the repurchase of approximately 8.8 million shares in aggregate. Turning now to our expectations for the second quarter and the remainder of 2026, as the second quarter begins, member engagement is pacing consistently with the typical seasonal patterns following the start of the year. Although the unexpected variability in engagement that we previously experienced has not recurred since 2024, the assumptions we are making today, particularly at the low end of the ranges, reflect the potential that further variability in activity and treatments could occur. To be clear, this is the same approach we have been following for more than a year when setting our guidance range. The table at the back of today's press release also outlines our assumptions at both ends of the ranges. In terms of utilization, we are maintaining our full-year assumption of 1.04% to 1.05%, which is consistent with our long-term historical ranges. We are also maintaining our assumption for ART cycle consumption per female unique at 0.93 at the low end of the range and 0.95 at the high end. For the second quarter, we are assuming the customary sequential increase reflecting the ramping of member journeys. On the basis of these assumptions, we are projecting revenue between $1.365 billion to $1.405 billion, reflecting growth of between 5.9% to 9%. If we exclude the $48.5 million in revenue from the client who was under a transition-of-care agreement over 2025, our full-year revenue growth is projected to be between 10.1% to 13.3%. At these levels, we expect 2026 to be our eighth straight year of double-digit top-line growth since we became a public company. With respect to profitability, we are increasing our full-year adjusted EBITDA, net income, and EPS expectations. For adjusted EBITDA, we expect a range of $232 million to $244 million, with net income of $103.7 million to $112.3 million. This equates to $1.23 to $1.34 in earnings per diluted share and $1.98 to $2.09 of adjusted EPS on the basis of approximately 84 million fully diluted shares. As it relates to the second quarter, we expect between $342 million to $355 million in revenue, reflecting growth of 2.7% to 6.6%. Again, if we exclude the $17.2 million in revenue from the client under the transition agreement in the year-ago quarter, our second-quarter guidance reflects growth of 8.3% to 12.4%. On profitability, we expect between $58 million to $62 million in adjusted EBITDA in the quarter, along with net income of between $25.8 million to $28.7 million. This equates to $0.31 to $0.35 of earnings per diluted share or $0.50 to $0.53 of adjusted EPS, on the basis of approximately 83 million fully diluted shares. At the midpoints of the ranges for both the quarter and the year, you can see that we are expecting a consistent adjusted EBITDA margin throughout the year, at a level that is also consistent with our full-year result from 2025, even with the investments we are making to grow the business. We will now open the call for questions. Operator, can you please provide the instructions? Operator: Certainly. Everyone at this time will be conducting a question-and-answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you are listening on speakerphone to provide optimum sound quality. And once again, if you have any questions or comments, please press star 1 on your phone. Your first question is coming from Jailendra Singh from Truist Securities. Your line is live. Jailendra Singh: Thank you. Thanks for taking my questions, and congrats on a strong quarter. My first question is on the early sales activity commentary—very encouraging comments there. A few follow-ups. First, how are these early commitments split between not-nows from last year who might have delayed versus employers looking at this benefit for the first time? And then you also called out, Peter, that you are seeing more RFPs from employers who are currently with your competitors. Are there one or two consistent themes that you are hearing from these employers that are driving more pickup in this RFP activity from competitor clients? Peter Anevski: Regarding your first question, as always, early commitments—a higher proportion of them do come from not-nows. But either way, it is positive overall activity and commitments to date versus last year, as we mentioned. As it relates to your second question, nothing really constructive that I could share relative to what we are hearing. Normal general reviews and general comments, but none that are constructive to share here. The bigger, more important data point is the level of activity that we are seeing versus last year and really any other year relative to potential opportunities around solutions that are with current competitors. Jailendra Singh: Okay. And then my quick follow-up. Last quarter, you called out membership changes because of administrative changes. I know the number of eligible lives is a less important metric for you guys to focus on, but given your experience last quarter, have you made any changes in the process over the last two to three months to make sure you get more regular updates from your clients and we do not get any more surprises like what we saw last quarter? Peter Anevski: We are getting regular updates, but what we are also doing is we are in the process of getting full eligibility files as opposed to just updates relative to numeric headcounts from our clients. We have already increased the level of eligibility files that we are getting from our clients since year-end and expect to continue to do so throughout the year, and by year-end, expect to have eligibility files from the significant majority of our clients. Throughout the year, a combination of the periodic updates and having full eligibility files will help mitigate and identify that again. Jailendra Singh: Great. Thanks a lot. Peter Anevski: Thank you. Operator: Your next question is coming from Brian Tanquilut from Jefferies. Your line is live. Analyst: Hi. Congrats on the quarter. This is Cameron on for Brian. I am just wondering if you could give me some more color on the increase you saw in revenue per ART cycle. Can you walk us through the moving pieces of this? Was this ancillary uptake rate? And do you expect this to persist throughout the year? Thank you. Mark Livingston: Sure. In the beginning of the year, you will see a slightly higher rate of overall revenue per ART cycle because you have a higher proportion of clients—particularly for the new ones—that are starting their journey, so they are in the initial consultation phase. There is revenue associated, but not ART cycles. That was a little less evident last year because the revenue that was contributed from the large client that was under the transition-of-care program was more skewed towards ART cycle activity by the definition of how that transition-of-care program worked. What I would say is more instructive is looking back a couple or few years to see how that progresses through the year. Analyst: Thank you. Operator: Thank you. Your next question is coming from Michael Cherny from Leerink. Your line is live. Analyst: Hi. Good evening. This is [inaudible] on for Michael Cherny. Congrats on the great results. As we think about the investments that you are making in future growth, can you give us an update on the pipeline in terms of new products and maybe some timing on that as well? And could you also give some color on what you are seeing and expecting in terms of upsells of new products both this quarter and this year? Thank you very much. Peter Anevski: Regarding your second question, it is a little early to comment on upsells, but simply to say that upsell activity is also positive. Other than that, it is early relative to any more color than that. As it relates to expectations around new products, the investments and capabilities are not necessarily new products, but additional capabilities for the existing products and/or expanded products that address the same areas for our global population. Analyst: Great. And just as a follow-up, what is embedded in the guide in terms of expectations for upselling of new products for the rest of the year? Peter Anevski: The guidance—everything in guidance—is what is already committed. We do not generally put in expectations of any material kind relative to upselling or new activity. The upsell activity impacts materially the following year. Analyst: Got it. Thank you very much. Operator: Thank you. Your next question is coming from Scott Schoenhaus from KeyBanc. Your line is live. Scott Schoenhaus: Congrats on the quarter and the guidance. It seems like you are managing as best as you can the renewal process and seeing a great start to the selling season, so congrats on all. My question is on utilization, and your previous comments when you said this last selling season this year produced higher-utilizing clients. I guess you are still seeing that, but what drove that utilization towards the higher end? Was it this new cohort? How are they progressing? And so far in April and May, your comments were in line with seasonal activity. Is the new cohort seeing elevated utilization through the first month and a half of the quarter? And then I have a follow-up for Mark. Peter Anevski: Thanks for the comment. If you recall, when we talked about it, it is not that the new cohort is having higher-than-normal utilization as a cohort, but it is because the sales in the cohort this year were weighted more towards a higher contribution of certain industries. Overall, it is generally performing as expected. I would not say it is higher or better or anything else like that, but as expected, as we have talked about. Scott Schoenhaus: Okay. Great. And my follow-up for Mark is clearly you beat on the bottom line here despite the investments. Maybe you can walk us through what further investments are needed throughout the rest of the year and where you could potentially see upside to the margin guidance throughout the rest of the year because you did such a solid job in the first quarter? Mark Livingston: I would say that even since February, we have contemplated the investments and phased them throughout the year, so I think they are already well factored in. We had a good quarter, and we have had some puts and takes—nothing that I would call out specifically—but the things that we felt were recurring, we have already now baked into the full-year guide. We brought up the low end of the range a little bit. We kept the high end of the range the same on the top line, but we have increased the adjusted EBITDA, and that is really just reflective of some of the efficiencies that we were able to gain in Q1 that we see recurring through the rest of the year. Scott Schoenhaus: Thanks, guys. Operator: Thank you. Your next question is coming from Sarah James from Cantor Fitzgerald. Your line is live. Sarah James: Thank you. I am wondering if a larger portion of this year's early pipeline sales are coming from clients that were not-nows in past years—so people that you have been talking to for a while—and, if so, why the uptick this year in the decision process to start benefits? Peter Anevski: In general, early commitments—a higher proportion of them—come from not-nows. This is no different. If you recall, some of the things we talked about last year were that the pipeline build was later than normal, and as a result, that could be part of the contribution to early commitments. Either way, the early commitments are just one indication of the selling season. The overall positive activity and all the things I already mentioned that are driving it are, I think, how I look at the overall activity for the selling season, including the early commitments. Sarah James: Got it. And one more just on the general market. How do you see the mix of client demand between case rate versus back-end savings? Is the market trending in one direction, and would you ever consider a product model that has back-end savings? Peter Anevski: You are talking about some sort of value-based care model and risk? We have not needed to do that to win business, and the back-end savings are part of what drives our success in client retention. The current model has served us well, and we are not getting real pushback on it in terms of the current model versus a back-end savings model with risk and upside, etc. So I do not have any plans to modify. Mark Livingston: I would just point out that in Peter's prepared comments, he highlighted the third-party study that was done by one of our largest longstanding clients, and I think the major takeaway is that the savings are demonstrated by our current model. Sarah James: Great. Thank you. Operator: Thank you. Your next question is coming from David Larsen from BTIG. Your line is live. David Larsen: Hi. Congratulations on a good quarter. Can you just remind me what the revenue growth would have been in 1Q, excluding that one major client from the year-ago period, please? Mark Livingston: A bit more than 12%. David Larsen: Okay. And then with regards to growth in your existing clients, it is my sense that the cost of oil affects everything. The stock market broadly speaking had pulled back significantly a couple of months ago, at the end of last year and first quarter. It has now rallied back up. Are you seeing positive signs from your existing client base in terms of adding employees, which would potentially add to your life count in maybe '26 or into '27? Basically, did this Iran war cause the 400,000 lower count at the start of the year? And could it come back up now that things seem to be getting resolved? Mark Livingston: The Iran war, I do not believe, had anything to do with the true-ups we reported before. In general, we are seeing our existing client base, from a lives perspective, stay relatively flat. The good news is, as it relates to everything costing more, as you said, we are not seeing any impact, including what we are seeing so far in Q2. And as we all know, the war has been going on now for a couple months, give or take. We are not seeing any impact on engagement or anything else like that as well. David Larsen: Okay. And then just any comments on Select? What is the market reception to Select? Thanks. Peter Anevski: The market reception is positive. We are signing up aggregators and distributors. Reaction is positive, and we do not expect to see pull-through on that until really the end of the year when small employers normally make their buying decisions and then renewal period is. Nonetheless, so far we are pleased with the activity and the reception. David Larsen: Thanks. Congrats on a good quarter. Peter Anevski: Thank you. Operator: Thank you. Your next question is coming from Alan Lutz from Bank of America. Your line is live. This is Dev on for Alan. Analyst: Pete, I just wanted to touch on the market growth for ART cycles. I think the latest data CDC put out—it was about a 10% CAGR for ART cycles. Progyny, Inc. is now moving closer to that range, but obviously still appears to be taking share. I would love to get your view on what you think the ART cycle growth is for the market and how we should think about that over the medium term? And I have one follow-up. Thanks. Peter Anevski: There is no data I have gotten that suggests the growth rate has changed relative to what we saw over the last ten years based on the most recent data that is available. That is really all I can share. Relative to growth, some of the pharma manufacturers are reporting growth—they are not giving me exact percentages—but they are reporting growth. It continues to grow, but I cannot comment by how much. Analyst: Okay. Great. No problem. And then, sorry to hop on this—true-ups on the administrative side—but just curious what that came in like this quarter. From what I understand, it is a quarterly process. Was that a positive this quarter? Just commentary from what you are hearing from your employer clients around the health of the employees and retention there. Thank you. Mark Livingston: We are basically at the same level as we have seen in most typical quarters. There are some that are up a little, there are some that are down a little—they have largely offset. As Peter highlighted on an earlier question, we are doing a lot of work to gain actual eligibility files on a recurring basis from these clients, which should help us refine and avoid adjustments like that in the future. We already have some coming in, and we expect to have a majority of our clients providing eligibility files on a regular basis by the end of this year. All of that should help. The last thing I would point out is the revenue growth is exactly what we expected. As we tried to highlight on our last call and since, it is really not a driver per se of activity, but an indicator around it, and those adjustments have not seemed to have any effect on our expectations around revenue. Analyst: Great. Thank you. Operator: And our final question comes from Richard Close from Canaccord Genuity. Your line is live. Analyst: Hi. John Penny on for Richard Close. Thanks for the questions, and congrats on the quarter. First, good to hear on the Business Group on Health study. I know it is early in the selling season, but just qualitatively, is there anything about the value proposition of your services that is resonating more this selling season or anything different than past selling seasons that you would comment on? Peter Anevski: I would say no. I spoke more to the demand, even though the pacing of commitments is ahead also. It is more about demand in the pipeline. We are now in the normal process of articulating our capabilities, differentiating ourselves, and articulating the value that we deliver. Nothing substantially different, but just emphasizing, as we always do, that we manage for each individual member on a sponsor's behalf that goes through the program—good outcomes and favorable outcomes—but we also manage overall program cost containment, which is really important for sponsors as they review their alternatives. Analyst: Alright. Just as one follow-up, non-GAAP gross profit or gross profit margin was very strong in the quarter. Anything in particular that is driving that? And is this level sustainable, or is there going to be some coming back here the rest of the year? Mark Livingston: A couple of key things. We have been highlighting that stock compensation expense will be coming down as some of the recognition period for older grants begins to expire. It really started last year in the middle of the fourth quarter, so that is a significant piece of that savings. There is also recurring, regular efficiency that we have been able to gain, which will recur. Both are recurring throughout the balance of the year. It is part of what is contributing to the improvement in adjusted EBITDA that we have now included in the guidance versus what we did a couple months ago. Analyst: Alright. Thanks. Operator: Thank you. That concludes our Q&A session. I will now hand the conference back to James Hart for closing remarks. Please go ahead. James Hart: Thank you, and thank you, everyone, for joining us this afternoon. We know it is a busy day. For those we will not see next week at the conference, please feel free to reach out to me at any time for any follow-ups. Thank you again. Operator: Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
Operator: Please standby. Your meeting is about to begin. Hello, and welcome, everyone, joining today's Clean Energy Fuels Corp. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Note this call is being recorded. We are standing by should you need any assistance. It is now my pleasure to turn the meeting over to Tom Driscoll, Vice President, Strategic Development and Sustainability. Please go ahead. Tom Driscoll: Thank you, Dana. Earlier this afternoon, Clean Energy Fuels Corp. released financial results for the first quarter ending 03/31/2026. If you did not receive the release, it is available on the Investor Relations section of the company's website, where the call is also being webcast. There will be a replay available on the website for 30 days. Before we begin, we would like to remind you that some of the information contained in the news release and on this conference call contains forward-looking statements that involve risks, uncertainties, and assumptions that are difficult to predict. Such forward-looking statements are not a guarantee of performance and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the Risk Factors section of Clean Energy Fuels Corp.'s Form 10-Q filed today. These forward-looking statements speak only as of the date of this release. The company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this release. The company's non-GAAP EPS and Adjusted EBITDA will be reviewed on this call and exclude certain expenses that the company's management does not believe are indicative of the company's core business operating results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for or superior to GAAP results. The directly comparable GAAP information, reasons why management uses non-GAAP information, a definition of non-GAAP EPS and Adjusted EBITDA, and a reconciliation between these non-GAAP and GAAP figures is provided in the company's press release, which has been furnished to the SEC on Form 8-K today. With that, I will turn the call over to our President and Chief Executive Officer, Clay Corbus. Clay Corbus: Alright. Thank you, Tom. I want to start by saying that I am honored to be named CEO of Clean Energy Fuels Corp. I have been part of this company for 19 years and have been involved in every major chapter of our evolution, from our days building out the fueling network to our initial investments in RNG in 2008, to the integrated platform we operate today. I have a huge amount of confidence in our team and the foundation we have built, and I am very excited about the opportunity ahead of us. Now as CEO, I plan to focus on growth, strengthen execution and operating discipline, and fully leverage the assets, infrastructure, and people we have in place. We have a strong balance sheet, recurring cash flow, and a very capable team. I also see opportunity to be more technology-forward, using data and software to improve efficiency across operations, corporate functions, RNG, and how we identify new customers and serve existing customers. All of this supports the same objective: deliver value for our customers and stakeholders. At its core, I believe deeply in this business and our product. RNG is domestically produced, lowers fuel costs, reduces greenhouse gas emissions, and uses existing infrastructure. Those fundamentals have always mattered, but they are especially relevant today. Beginning in early March, the conflict with Iran caused a sharp rise in crude oil prices, which quickly flowed through to diesel across the U.S. Diesel prices increased by roughly $1.50 to $2 per gallon or more, a 50% increase almost overnight. Fuel is a meaningful component of cost per mile, and this level of volatility strains fleets, carriers, and shippers, and ultimately leads to higher costs for consumers. This environment reinforces why Clean Energy Fuels Corp. exists. Compared to diesel, natural gas is cheaper, cleaner, domestic, and less exposed to geopolitical events abroad. As you have heard many times before, nearly 100% of the fuel delivered to our stations today is renewable natural gas, which captures all the benefits I just mentioned and helps our customers advance their sustainability goals. Now turning to the quarter, we delivered 67 million gallons of RNG, we generated $16.6 million of Adjusted EBITDA, and we ended the quarter with $126 million of cash on the balance sheet. In our downstream business, performance across core markets remained steady. Our transit and refuse sectors continue to be consistent contributors, supported by long-standing customer relationships and the reliability of RNG. We also see underappreciated growth potential in these segments. Over the past five years, battery-electric and hydrogen solutions have proven costly and challenging to deploy in many locations. As those realities become clearer for transit and refuse fleets, RNG offers a practical, cleaner, and lower-cost alternative to diesel, and many of these fleets already have firsthand experience with RNG. In trucking, the recent diesel price hikes and volatility have brought total cost of ownership back into focus. Heavy-duty trucking remains our largest growth opportunity. Class 8 trucks with the Cummins X15N engine allow fleets to capture RNG's economic and environmental benefits without sacrificing range or performance. The technology works, the infrastructure is in place, the fuel is available today, and it is cheap and less volatile. Quite simply, the case for switching from diesel to RNG has never been stronger. At the same time, adoption of the X15N has been slower than we originally expected. Diesel is the incumbent fuel for the vast majority of fleets. In the last two years, the sector has faced challenging freight fundamentals, federal and state regulatory uncertainty, particularly in California, and frankly, ESG whiplash as companies balance long-term sustainability goals with fluid policies and near-term stakeholder expectations. Even though RNG delivers a lower total cost of ownership, natural gas tractors still carry a higher upfront cost than diesel. In that environment, many fleets have chosen to delay change and stick with the status quo. Our strategy is to be targeted, focusing on applications and fleets where RNG delivers the clearest economic and low-carbon advantages. In our upstream RNG production business, we now have eight projects operating and three under construction. The first quarter reflected continued ramp-up at our South Fork project in Texas and our East Valley project in Ohio. The first quarter also had extreme winter weather, which impacted production, particularly in the Upper Midwest. We were able to get our projects back on track and anticipate production and financial results to improve as the year progresses. I would also like to highlight a positive regulatory milestone. In March, CARB approved the pathway for our Del Rio Dairy project in Texas with a carbon intensity of approximately negative 300. We also continue to await an upgraded GREET model from the Department of Energy for determining 45Z credit values, which is expected to better reflect the negative carbon intensity of dairy RNG. As we scale our RNG production business, projects have taken longer to develop and ramp up than initially expected, and some have faced operational challenges. We have responded by taking a more hands-on approach to operations, strengthening internal oversight, and replacing vendors where performance fell short. These improvements and transitions take time, but we are making progress. We remain focused on improving performance at our operating sites and executing projects under construction. It remains true that Clean Energy Fuels Corp. is an advantaged owner of dairy RNG production. Customer demand for low-CI RNG remains strong, particularly in California, where we have the largest RNG station network. Now, in concluding, I want to take a moment to recognize Andrew J. Littlefair. Andrew J. Littlefair founded this company, led it for three decades, and built Clean Energy Fuels Corp. into the platform that it is today. I have had the privilege of working alongside Andrew J. Littlefair and learning from him. We are fortunate that he remains actively involved by continuing his work on policy matters in Washington and serving on our board. On behalf of the entire company, I want to thank him for his contributions and continued commitment to Clean Energy Fuels Corp. With that, I will hand the call to our CFO, Robert Vreeland, to walk through the financials. Robert Vreeland: Thank you, Clay, and good afternoon to everyone. Overall, our financial performance was in line with our expectations with normal variations within our integrated businesses. For example, while extreme cold weather impacted upstream RNG production, we were able to monetize a larger-than-expected amount of RIN and LCFS credits from our East Valley dairy in Idaho, which was placed into service in March. Increased RNG volumes delivered by our fuel distribution business drove higher RIN revenues, and we were able to optimize our gas costs in this volatile commodities market. To a lesser degree in the quarter, but still ongoing today, we enjoy the dynamics of higher retail fuel prices while our natural gas commodity costs did not increase proportionally at the same level as oil and diesel prices. In fact, despite increases in our natural gas costs and retail prices, we maintained a large discount on our fuel price compared to diesel. Consequently, one of the effects we see of elevated commodity and retail prices is higher revenue. Coupled with higher fuel volumes, which drive both base fuel sales revenue as well as RIN and LCFS revenues, we reported $117.6 million in revenue for 2026 compared to $103.8 million last year. RNG volumes delivered in 2026 were strong. In addition to our normal recurring volumes, we saw higher demand from customers outside our network of stations needing RNG for transportation. We have seen this before, and it is nice to have the supply to accommodate those deliveries. We believe we will come off the first-quarter RNG volumes by a few million gallons or so as we look forward, but remain confident in achieving our annual guidance of delivering 250 million gallons or more given the first quarter of RNG for the year. GAAP net loss was $12 million for 2026. Certainly, there was a return in 2026 to more normal operations versus a year ago in the first quarter, where we reported a GAAP net loss of $135 million, which included a couple of large non-cash charges totaling $115 million. Adjusted EBITDA of $16.6 million in 2026 compares to $17.1 million of Adjusted EBITDA a year ago. In addition to the normal variations I mentioned for 2026, we also saw lower, albeit still very adequate, base fuel margins, which we anticipated in our outlook for 2026. And, as well and also anticipated in our 2026 outlook, we lowered SG&A expenses in 2026. One reporting comment I will make is a change in where the non-cash Amazon warrant charge is recorded in our financial statements. You will notice in 2026, a portion of the warrant charge is included as a charge against our O&M service revenue, whereas previously, 100% of the charge was in our products revenue. There is more detail on the Amazon warrant charge—it is just a different place in the income statement that you are seeing it this year. There is more disclosed in our 10-Q. In addition to the $126 million in cash and investments on our balance sheet, there is another $46 million in cash off balance sheet at our dairy RNG joint ventures. And during the first quarter, we contributed $12 million to our MAS Energy Works JV, with another $12 million that was contributed in April. MAS Energy Works continues to make good progress toward completing the three dairy projects under construction. And with that, operator, please open the call to questions. Operator: Thank you. To leave the queue at any time, press 2. Once again, that is 1 to ask a question, and we will pause for just one moment to allow everyone a chance to join the queue. Our first question comes from Eric Stine with Craig Hallum. Please go ahead. Your line is now open. Eric Stine: Hi, Clay. Hi, Bob. Clay, you touched on it a little bit, just with the X15N. I mean, I know that now there are two OEMs in the market and prior to Freightliner's entry, pricing was an issue, so incremental cost has come down some. And obviously we have all read the glowing feedback of fleets that have been testing this. But the market conditions, as you said, you have a more difficult environment, but obviously it highlights the price benefit. Do you view this as just going to make it more likely that it is going to be the large fleets rather than the small one-off adoption stories? Or how do you view that? I mean, is this the kind of thing that, if it persists, could be what actually jumpstarts this market? Because as you have said, although Cummins' view of it has not changed in terms of the overall opportunity, it is well behind schedule. Clay Corbus: Yeah. Well, Eric, it is what we spend a lot of time thinking about and focused on. I do not think anybody really thinks that diesel is going to stay at these prices forever. But I do think that this run-up in diesel has really heightened the awareness of the volatility. You know, we were at the ACT conference the last few days, and what a lot of people are talking about is, if you just take the last five years and do a regression analysis on what the price of diesel has been, and then you compare that to the price of natural gas, it is just higher overall. And when fleets are trying to plan going forward what their fuel costs are going to be and their total cost of ownership, they are factoring that into those decisions. So it certainly helps us because it helps us with the total cost of ownership and the payback period for that incremental cost. I would also say that I do not know that it changes the types of fleets we are looking at, whether they are large fleets or small fleets. Because even with the large fleets, they are not going to change 2,000 trucks overnight. I think what we are seeing is that—as we heard from some of the fleets—they are going to start out with five trucks, start out with 10 trucks, dip their toe in the water, get their mechanics used to it, get their drivers used to it, get their routes used to it, and then from there, expand it into larger numbers within the fleet. I think that, combined with the advantages that we are seeing now in the total cost of ownership, will result in incremental adoption as we go forward. But it is a long sales cycle. It takes a long time to get trucks ordered, and it takes a long time to get them on the road. So it is not something where people can see high diesel prices and say they are going to order a truck tomorrow. It is a longer decision process than that. But certainly, the fundamentals behind it are reopening a lot of discussions that we are excited to take part in. Eric Stine: Got it. That is very helpful. And then maybe just my second one for Bob. So you mentioned lower base fuel margins and something that was kind of the expectation. Was that commentary for Q1 or early in the year? Because if I think about, especially in trucking, when you have got high diesel prices, you can still offer a pretty healthy discount, and it is a pretty good margin environment for you. So just maybe clarify that statement and how you are thinking about that for the remainder of the year? Robert Vreeland: Yeah, Eric, that comment is looking at the full year. When we gave our guidance back in February, we talked about some of the dynamics that could impact our guidance for 2026, and the possibility of lower margins from a variety of reasons was in the mix, and it is really throughout the year. But I will say, to the point you are making, we have numerous levers. So while the margin gets impacted from one area, the fact that we are enjoying higher prices with our costs remaining pretty stable helps offset some of that. But it is a go-forward look and certainly in our plan. Eric Stine: Okay. Thanks a lot. Clay Corbus: Great. Thanks, Eric. Operator: Thank you. We will now go to Rob Brown with Lake Street Capital Markets. Please go ahead. Your line is open. Rob Brown: Hi, Clay and Bob. Thanks for taking my call. On the RNG volume you talked about in the quarter from kind of third parties, could you just clarify how that works and maybe sort of visibility on that? Clay Corbus: Yeah. You know, it was a strong growth quarter, particularly when you compare it against last year. But I think we want to be careful on that because part of that growth was that the first quarter of last year, we did see our volumes trend down. If you remember, we had the biogas reform that pushed a lot of our volume into 2024, so 2025 was lower. And then, of course, we always have bad weather in the first quarter, but last year it was really spread throughout the country, and so we had less RNG from our third parties, in addition to our own production that was down. So while we are very pleased with the first quarter, a lot of it really was that we were comparing against a very easy comp in 2025. Rob Brown: Okay. Thank you. And just to clarify, given the CARB pathway certification right now, it sounds like that is great. How does that flow through into the ability to get credits? Clay Corbus: Well, it basically almost doubles the number of LCFS credits we can generate. When you are at a negative 150 versus negative 300, you are able to generate more credits off the same fuel that is coming through. Rob Brown: Okay. Thank you. I will turn it over. Clay Corbus: Yeah. Thanks, Rob. Operator: Thank you. We will now go to Matthew Blair with TPH. Please go ahead. Your line is open. Matthew Blair: Thanks, and good afternoon, Clay and Bob. Could you talk a little bit more about the comment where you mentioned higher demand from customers outside of your network? Could you unpack that a little bit? Do you think you were taking share from some of your competitors? Or was it just a situation that these customers were utilizing their existing CNG trucks a little bit more and just needed more fuel given rising diesel prices? And could you also talk about what end markets you saw increased demand from? And then on the fuel distribution guide for 2026—it looks like you did not change it, still 67 to approximately 70 million despite the good result in the first quarter of 19 million. I think you mentioned that you would expect things to roll off a little bit in Q2. Are you already seeing softer conditions so far in the second quarter, or is that just your general expectation? Clay Corbus: Yeah. So, Matthew, there are other folks out there with CNG fueling stations, and there are instances where, based on supply availability and that sort of thing, we will flow our RNG into those stations. It is really a supply-demand dynamic, and I could not necessarily tell you what is going on with their demand, but I know that they need the supply, and we are able to move it. We have done it before. It is not necessarily routine, but that is what that looks like because we have the RNG and we can flow it to other places. It is the beauty of the distribution model. As for the fuel distribution guide, I will not comment on what I am seeing intra-quarter. Second quarter is not really softer or consistent; it is more a comment relative to the volatility and the strength that we saw in the first quarter, and knowing that we may not see that level of strength as we go forward. We had some unique opportunities to sell some RNG to some of our customers that are probably not going to be repeated. So while it was a good result, it was an easy comp against last year, and you should not just multiply it by four for the full year because there were some unique opportunities in Q1 that we took advantage of. Matthew Blair: Sounds good. Thanks for your comments. Clay Corbus: Yeah. Thank you, Matthew. Operator: We will go next to Betty Zhang with Scotiabank. Please go ahead. Betty Zhang: Thank you for taking my questions. I wanted to ask about Amazon and that relationship. Earlier, Amazon announced its logistics services. Do you think there would be an opportunity to leverage that existing relationship and maybe increase some RNG volumes to them? And then for my follow-up, also related to Amazon, on those warrant charges, you mentioned it is now shared between the fuel and services. Is this a change in the contract with Amazon, or how would you describe that change? Thank you. Clay Corbus: Betty, I will take the first comment. We do not comment specifically on Amazon. We want to be very careful—that is not something we can, or will, do. Across our customers, though, every single customer with existing trucks—whether they are 12-liter, 9-liter, wherever they are—we work with all of our customers to try to increase the penetration into their fleet with the X15N. So I am not going to speak specific to Amazon, but it is just good business sense to work with customers that you already have and see if you can continue your growth with them. As far as the Amazon warrant charge, I will let Bob take that one. Robert Vreeland: Yeah. And Betty, I really cannot say that much, but it was not an arbitrary change. Any change like that is typically going to be driven contractually. We are just doing the appropriate accounting based on the contract that we have. Betty Zhang: Thank you. Operator: At this time, there are no further questions in the queue. I will now turn the meeting back over to Clay Corbus. Clay Corbus: Alright, Dana. Thanks very much. And thank everybody else for joining us. We look forward to speaking with you next quarter. Unknown Speaker: Thank you. Operator: This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Welcome to the Q1 2026 ICF International, Inc. earnings conference call. My name is Lauren Cannon, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I will now turn the call over to Lynn Morgen of Advisory Partners. Lynn, you may begin. Lynn Morgen: Thank you, Lauren. Good afternoon, everyone, and thank you for joining us to review ICF International, Inc.'s first quarter 2026 performance. With us today from ICF International, Inc. are John Wasson, Chair and CEO; Anne Cho, President; and Barry M. Broadus, Chief Operating and Financial Officer. During this conference call, we will make forward-looking statements to assist you in understanding ICF International, Inc. management's expectations about our future. These statements are subject to a number of risks that could cause actual events and results to differ materially, and I refer you to our 05/07/2026 press release and our SEC filings for discussions of those risks. In addition, our statements during this call are based on our views as of today. We anticipate that future developments will cause our views to change. Please consider the information presented in that way. We may, at some point, elect to update the forward-looking statements made today but specifically disclaim any obligation to do so. I will now turn the call over to ICF International, Inc. CEO, John Wasson, to discuss first quarter 2026 performance. John? John Wasson: Thank you, Lynn, and thank you all for joining us this afternoon to review our first quarter results and discuss our business outlook. The first quarter represented a solid start to the year. We executed well across our client set, reflecting successful strategic initiatives to diversify our business model and our track record of delivering positive outcomes for our clients. This track record is a function of ICF International, Inc.'s deep domain expertise paired with cross-cutting capabilities in technology, digital transformation, complex program management, and engagement. By going to market with this unique combination of capabilities and experience, we continue to maintain healthy win rates, record industry-leading book-to-bill ratios, and build our business development pipeline — all metrics that underpin ICF International, Inc.'s future growth potential. Key takeaways from 2026 include: First, an 8.6% sequential increase in our revenues from federal government clients, representing a strong indication that this part of the business has stabilized and is on the upswing. As we noted last quarter, we expect to see sequential improvement in our revenues from federal government clients through the third quarter of this year, with year-on-year growth in this client category anticipated for the 2026 fourth quarter. Second, a 17% year-on-year increase in revenues from international government clients, which was a strong showing tied directly to recent contract wins, many of which are single-award contracts. Third, of the total of $12 million in revenues that shifted out of the first quarter through the timing of project work for commercial and international government clients, we expect one-half to be recognized in the second quarter and the remainder to come through the second half. And lastly, we continue to win north of 90% of our recompetes. New business, including modifications, represented 65% of this quarter's awards, a strong indication of how well our qualifications are aligned with client demand. ICF International, Inc. was awarded $450 million in contracts in the first quarter, maintaining our 12-month book-to-bill ratio at a healthy 1.21. After this quarter's awards, our business development pipeline stood at $8.5 billion. Also, we were pleased with our strong margin performance in the first quarter, which we achieved while continuing to invest organically in areas we have identified as drivers of long-term growth for ICF International, Inc., namely commercial energy, disaster recovery, and federal technology modernization. There are several important secular trends supporting our growth expectations for these areas, including rapidly growing demand for electricity in North America highlighting the importance of energy efficiency and grid modernization programs; increased frequency and severity of natural disasters, including hurricanes, wildfires, and other extreme weather events, which often result in major damage to homes, businesses, and critical infrastructure; and the tremendous need for digital and AI-driven technology modernization to improve mission delivery across federal civilian agencies. ICF International, Inc. is well positioned to capture more than our fair share of growth in these markets, which supports our confidence that ICF International, Inc. will return to mid- to high-single-digit organic growth in 2027, and continued growth beyond. When you layer on the potential for accretive acquisitions, you see a clear path to return to double-digit growth. Given our expectations for continued favorable business mix and our ongoing internal efficiencies, many of which are coming from AI and other tools, we expect our earnings growth to continue to outpace revenue growth as we look forward. I know that investors are concerned about the impact of AI tools on the technology modernization work that is being done at federal government agencies. While we understand the concerns, we are doing work in this market every day, and over the last two years we have adjusted our offerings to strengthen our resilience to just that concern. For example, we focus on longer-term demand drivers including AI-augmented application development, foundational modernization, and AI governance and orchestration. Here are several insights that are relevant to ICF International, Inc. First, 80% of our technology modernization work for federal clients is fixed-price or outcome-based, and our civilian agency clients require a lot of support in this area. As AI-augmented methods enable us to complete projects in less time and at a lower cost, we will simply move on to the next project more quickly than in the past. Technology is moving quickly, and there is a substantial backlog of modernization work to be done to address the existing technical debt in the federal civilian arena. Second, as our clients move to advance AI at enterprise scale, we anticipate even greater demand for foundational data, cybersecurity, and cloud services. This is the foundation that determines whether AI deployments produce reliable, secure, and scalable outcomes or fail in production. We are prepared to help our clients continue on their journeys to improve and modernize their data and cloud architectures in order to capitalize on the promise of AI. Third, these AI capabilities also open up a larger technology market. We will see new opportunities for smarter workflow automation as agencies reimagine what is possible. Also, people will address legacy technical debt that was heretofore too expensive to address through traditional modernization. Finally, we will help our clients in addressing new challenges with AI governance, orchestration, and platform optimization that are all emerging as we speak. These areas we talk about require technology and domain expertise combined with human judgment and oversight to get it right. The upside is that the government technology market is expanding in scope, shifting in shape, and asking more of its partners than it did before AI. ICF International, Inc. is positioned to lead and grow through this evolution. Before turning the call over to Anne Cho, our President, who will provide a more detailed business review, I want to comment on M&A. Last year, we were fully concentrated on building our capabilities across our non-federal client base and on tightly managing our federal government business in light of the volatility that we experienced in 2025. This year, we are taking a more aggressive stance with respect to M&A given the substantial opportunities we see in our key growth markets, and in particular, commercial energy. We remain disciplined, but if we find an acquisition that meets our criteria for driving revenue synergies in growth areas and for being accretive soon after completion, we will move forward. Acquisitions have been an important part of ICF International, Inc.'s growth chassis over the last 25 years. We have a great track record of using free cash flow to pay down debt quickly. I will now turn the call over to Anne to discuss first quarter business performance across our client set. Anne? Anne Cho: Good afternoon, everyone. I am pleased to be presenting our business review on my first official call as President of ICF International, Inc. During my 30-year tenure, I have had the opportunity to work in many areas of the company, which makes it very exciting for me to be able to speak to you about the totality of the business. First quarter revenues were led by commercial, state and local, and international government clients, accounting for over 58% of total first quarter revenues, and are on track to exceed 60% of our full-year 2026 revenue. Taking a closer look at our client categories, I will start with commercial energy. There continues to be strong underlying demand for our utility programs, which include energy efficiency, flexible load management, and electrification. These programs represent approximately 80% of the trailing 12-month commercial energy revenue. The addressable market for these services is large, and ICF International, Inc. is a market leader. We continue to gain share, receiving plus-ups on existing contracts reflecting the results we are delivering, introducing new services, and then winning contracts from competitors. Our commercial energy advisory work delivered mid-teens growth in the first quarter. This growth reflected considerable demand for our market assessment and due diligence work, which supports client M&A; the expansion of the grid reliability and protection work; and increasing demand from data center developers. In addition, our engineering support to utilities working to accommodate data center loads continues to accelerate, as those clients expedite the development of new substations. Many of these engagements draw on our proprietary tools like Energy Insights, SightLine DER, and ClimateSite Energy Risk. We pair these model outputs with actionable decision support within the confines of the regulatory and stakeholder environment. From a Q1 perspective, as John noted, there was a timing shift affecting our work on several fixed-price energy efficiency programs that must be completed in 2026. Without this shift to the right, commercial energy revenues would have increased 8.3% in the first quarter instead of the reported 2%. Next, I am going to talk about our state and local portfolio. Q1 state and local government revenues were stable. For the full year, we expect revenues in this client category to increase at a mid-single-digit rate. ICF International, Inc. is a recognized market leader in disaster management and recovery services, which continue to account for about 45% of this client category's revenue. In February, we announced the award of a comprehensive management services contract by the State of Florida, which positions us to compete for a broad portfolio of projects that extend beyond disaster management to include habitat conservation planning and agricultural land conservation. We are also encouraged that, following the confirmation of the new Secretary of the Department of Homeland Security in late March, DHS went on to approve the obligation of $730 million Hazard Mitigation Grant Program funding, signaling the continued intent to fund rebuilding efforts that mitigate future disaster loss. DHS also recently indicated its intent to restart the FEMA Building Resilient Infrastructure and Communities, or BRIC, program that we have historically supported. The combination of these events supports our confidence that disaster management and recovery services will continue to be a driver for ICF International, Inc. over the mid and long term, and will expand our efforts well beyond the current 75 disaster recovery programs in 22 states and territories that we support today. Technology has always played an important role in our work for state and local government clients, and we have expanded our offerings there to include advanced technology solutions and services as well. As we discussed in our last call, our international portfolio is growing nicely. International government revenues increased 17.5% in the first quarter, reflecting the significant contracts that ICF International, Inc. has been awarded over the last 18 months by the European Union and UK clients. The additional $4 million that shifted into the second quarter and second half of this year represented the timing of pass-through revenues that are associated with outreach and marketing events that are under fixed-price contracts requiring the work to be completed in this year. Sales continue to be strong across our international portfolio, winning key recompetes and securing new contracts with international government clients to support growth for the next several years. Finally, I will talk about our work for U.S. federal clients. Our federal business has stabilized, and we continue to expect consecutive revenue growth in Q2 and Q3 and then year-over-year growth in Q4, as we execute on the nearly $1 billion in federal government contracts that we have won over the last 12 months. We are pleased to see procurement activity pick up in the first quarter. Some opportunities that were paused or canceled last year have re-entered the market. We have seen a restart of some of the work we were awarded in the past, such as support of a grant program for the Department of Energy. The procurement environment has changed in the last year, and we have pivoted, focusing more on rapid prototyping and demonstration of capabilities than ever before. Several sweet spots exist at the intersection of the administration's priorities, the agencies' gaps in manpower, and our expertise. These include applying AI and advanced analytics for fraud prevention and supporting child and family services, transportation safety, grid reliability, and technology modernization. A good example of how we combine deep domain expertise and advanced technology with human judgment is our work modernizing the Center for Medicare and Medicaid Quality Improvement and Evaluation System. The program involves the transition of more than 278 million clinical assessments into a national repository, enabling real-time monitoring of care standards across skilled nursing facilities, home health agencies, and hospitals. This work advances the administration's priorities around quality of care, fiscal responsibility, and system resilience. In summary, the trends underlying our business are aligned with our expectations. Our leaders are leaning in across the full portfolio with a winning mindset and eagerness to emerge as a partner of choice as our clients navigate what is a really fast-moving and exciting time. Now I will turn the call over to our Chief Operating Officer and Financial Officer, Barry M. Broadus. Barry M. Broadus: Thank you, Anne. Good afternoon, everyone. I am pleased to provide additional details on our first quarter 2026 financial performance and the factors shaping our results, as well as our outlook for the remainder of the year. At a high level, first quarter results reflect solid execution across our diversified client base. Margins remain strong, contract awards resulted in a book-to-bill above one, we continue to have a healthy pipeline of opportunities which we are pursuing, and, as Anne mentioned, procurement activity in the federal space is showing signs of improvement. In fact, in the federal space, we submitted nearly $400 billion of bids in the first quarter, the majority of which were for new opportunities. While first quarter total revenue came in below our expectation, this was entirely due to timing of certain commercial energy and international government contract work. We fully expect to recover these revenues throughout the balance of the year, with half expected in the second quarter. I would also note that our first quarter tax rate came in above our expectations, which I will address in more detail shortly, but our full-year outlook for a tax rate of 20.5% remains unchanged. Before discussing the first quarter financial metrics, I want to highlight some of the strategies that are supporting margin improvement and helping to drive shareholder value. First, cost optimization has been a key theme as we work to manage our infrastructure costs while funding growth initiatives. We continue to invest in modernizing our ERP systems and our back-office operations while implementing AI tools. These ongoing investments have and will continue to make us more efficient, providing us the ability to scale over time by offering both operational and financial benefits. From a strategic financial standpoint, we continue to focus closely on capital allocation. To that end, organic projects, share repurchases, and acquisitions are top of mind. In the first quarter, we repurchased slightly more than 217,500 shares, and we will continue to opportunistically repurchase additional shares. Further, as outlined by John, we are actively pursuing acquisitions given our strong cash flow and borrowing availability, which was expanded as part of the refinancing we completed last month. In summary, we are executing on our strategic plan and remain on track to return to growth in 2026, and deliver on our full-year top and bottom line guidance. With that context, I will now review our first quarter financial results. Total revenue in the first quarter was $437.5 million, a decline of 10.3% compared to 2025. As we discussed on our fourth quarter call, both first quarter and full-year 2026 revenue comparisons will reflect the impact of federal contract cancellations that occurred between February and May 2025. First quarter revenues were approximately $12 million below our expectations, reflecting a push to the right of roughly $8 million in project work for commercial energy clients on fixed-price contracts and $4 million in international government. The timing of the work simply shifted later in the year. We will recover all of these revenues over the balance of the year, approximately half expected in the second quarter. As a result, we are reiterating our expectation that revenues from commercial, state and local, and international clients will grow at a double-digit rate and represent over 60% of total revenues for the full year, supported by strong underlying demand from utility clients, continued ramp-up of international contract wins, and growing state and local revenues. In our federal government business, we were encouraged to see revenues grow 8.6% sequentially to $182.3 million, which was aligned with our expectations. The sequential improvement was supported by our technology modernization work, which we are well positioned to win and deliver in the current procurement environment. Subcontractor and other direct costs were $102.7 million, representing 23.5% of total revenues, up from 22.7% in the prior-year quarter due to higher pass-throughs on certain non-federal contracts. Despite the year-over-year decline in revenues, gross margin rose 10 basis points to 38.1%, highlighting our favorable business mix and a contract mix that remains largely comprised of fixed-price and time-and-materials contracts. Fixed-price and T&M contracts represented approximately 93% of first quarter revenues, with cost-reimbursable contracts accounting for only 7%. Indirect and selling expenses were $118.8 million, a decline of nearly 10% year over year and representing 27.2% of total revenues. As I mentioned previously, as we optimize our indirect spend, we will continue to invest in high-growth areas, including energy and technology modernization, while preserving our core capabilities in the programmatic side of the federal business, ensuring ICF International, Inc. is well positioned when the market recovers. First quarter EBITDA was $47.3 million compared to $52.1 million last year. Adjusted EBITDA totaled $48.9 million with an adjusted EBITDA margin of 11.2%, stable compared to the 11.3% reported in last year's first quarter, demonstrating the effectiveness of cost management initiatives and the structural improvement in our business mix. We continue to expect adjusted EBITDA margin expansion of 10 to 20 basis points for the full year. Net interest expense in the first quarter was $6.7 million, down 8.5% year over year, reflecting a meaningful reduction in our average debt balance compared to the prior-year period. Our first quarter tax rate was 25.1%, above our expectations due to less-than-expected deductible equity-based compensation expense. This compares to 10.5% in the prior-year quarter, which, as a reminder, included a one-time tax benefit. We continue to expect a full-year tax rate of approximately 20.5%, with each of the next three quarters expected to see a lower tax rate than the first quarter, the largest offsetting benefit expected to be in the third quarter. To close out on taxes, I should note that the higher-than-expected first quarter tax rate had an unfavorable impact of $0.07 on GAAP EPS and $0.09 on non-GAAP EPS in the first quarter. But given that we still expect a full-year tax rate of approximately 20.5%, the Q1 tax rate does not change our outlook as to how taxes will impact our full-year EPS guidance. Net income in the first quarter was $20.5 million, or $1.12 per diluted share, compared to $26.9 million, or $1.44 per diluted share, in the prior-year period. Non-GAAP EPS was $1.50 compared to $1.94 per diluted share in 2025. As noted, both GAAP and non-GAAP EPS for the first quarter of this year reflected the unfavorable tax item that I previously described. We remain confident in our full-year outlook, which calls for 3% revenue growth at the midpoint of our guidance range, supported by recent contract activity and the strength of our backlog and pipeline. Our backlog stood at $3.4 billion at quarter end, approximately 51% of which is funded, and our business development pipeline remains healthy at $8.5 billion. Taken together, these metrics provide good visibility for the year. Now turning to our balance sheet and cash flows. We used $3.1 million in operating cash flow during the first quarter, a meaningful improvement compared to the $33 million used in last year's first quarter, reflecting improved receivables collections and working capital management. Days sales outstanding were 74 compared to 81 days in last year's first quarter. Capital expenditures totaled $2.8 million compared to $3.5 million in the first quarter of last year. We ended the quarter with net debt of $436 million, down considerably from the $499 million at the end of last year's first quarter, and approximately 40% of our current debt is at a fixed rate. Our adjusted leverage ratio was 2.23 turns versus 2.25 turns at the end of last year's first quarter. Subsequent to the end of the first quarter, we refinanced our credit facility and remain well positioned to invest in organic growth, repurchase shares, and pursue strategic acquisitions in our key markets while maintaining our dividend. Today, we announced a quarterly cash dividend of $0.14 per share, payable on 07/10/2026 to shareholders of record as of 06/05/2026. To wrap up, we are pleased to reaffirm our guidance for a return to revenue and EPS growth in 2026, with our revenues expected to range from $1.89 billion to $1.96 billion, representing 3% growth at the midpoint; GAAP EPS from $5.95 to $6.25; and non-GAAP EPS from $6.95 to $7.25, or 5% growth at the midpoint. To further help you with your financial models, please note the following for the full year 2026: both depreciation and amortization, and amortization of intangibles are expected to continue to be $22 million and $24 million, respectively. Likewise, we continue to expect full-year interest expense to be between $27 million and $29 million. As I mentioned earlier, our full-year tax rate expectation remains unchanged at approximately 20.5%. In the second quarter, the rate is estimated to be around 23%, with a significant reduction in the third quarter. We anticipate capital expenditures to total $24 million to $26 million. Given share repurchases in the first quarter, we now expect our year-end fully diluted share count to be 18.3 million shares compared to our prior expectation of 18.5 million shares. And we continue to expect operating cash flow of $135.15 billion for the full year. With that, I will turn the call over to John for his closing remarks. John Wasson: Thank you, Barry. We are pleased that 2026 is shaping up as we expected — to be a year in which ICF International, Inc. returns to growth. In many ways, the trials of 2025 have made us a stronger company. We are more diversified, more efficient, and more agile. As we look to the future, we see a clear path to return to mid- to high-single-digit growth in 2027 and continued growth beyond. The dedication of our professional staff has been critical in helping us navigate dynamic business conditions, pivot to take advantage of new opportunities, and set the stage for ICF International, Inc.'s future growth. We appreciate their support. We will now open the call for questions. Operator: Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your questions, please press 11 again. Our first question comes from the line of Jason Tilgin with Canaccord Genuity. Your line is now open. Jason Tilgin: Good afternoon, and thanks for taking my question. I believe in the prepared remarks you talked about the advisory business for commercial energy growing mid-teens year over year in the quarter. I am wondering if you could help give us some additional color on where you are seeing the most activity today as it relates to the data center opportunity, how those conversations are evolving, and what exactly, as it relates to your skills and capabilities, is giving you an edge to continue to win business in that area. Thanks. And then one additional follow-up. High level, in terms of some of the investments that you are making today in the ERP system and other technology, I am wondering if you could help frame how much of those investments today are offsetting some of the benefits from recent cost optimization efforts, and how we should be thinking about the cadence of maybe more substantial gross or operating margin expansion over the coming quarters and years? Thanks. Anne Cho: Sure. When I mentioned the advisory side and that growth, it is important to point out the work we are doing expanding our client portfolio. A couple of years ago, we acquired a firm called CMY, which added engineering capabilities. We have been able to expand our client set in that area, providing those engineering skills to utilities, for instance, that are trying to build out capacity to support data centers in their area. Our power modeling team has been benefiting from a resurgence of work from renewable developers across a suite of technologies — not just wind, but solar, storage, etc. — and then increased demand from data center developers as well. Barry M. Broadus: Yes. This is Barry M. Broadus. From an overall perspective, we have had a program for the last few years where we are modernizing our ERP systems, and that is driving efficiencies. We do this in a balanced way whereby we are receiving benefits — becoming more efficient and able to process and work faster internally. In addition to ERP systems, we are also implementing AI in many of our back-office processes, which is continuing to drive additional efficiencies. We have the ability to deliver more margin, but we are using dollars we save to invest in long-term growth initiatives in the areas that John Wasson and Anne Cho mentioned as part of their opening comments. We do this in a balanced way, and I do not see it detracting from our ability to continue to improve margins as we move forward. Operator: Thank you. Our next question comes from the line of Samuel Kusswurm with William Blair. Your line is now open. Samuel Kusswurm: Hey, everyone. Thanks for taking our questions here. To start on the commercial energy business, it grew 2%, but I think you shared it would have grown 8% if we were to add back the $8 million in project work that got pushed out. At the start of the year, you shared you were expecting at least 10% organic growth for the year in this business. Do you still expect that, and what are you seeing in your backlog that is really supporting it? And then also, can you comment on how the residential and utility energy piece of the business performed versus more of the commercial and industrial energy piece? John Wasson: I will start off. We remain confident in 10% growth for our commercial energy business. We have a strong backlog and a strong pipeline. Those markets are growing high single digits, and we have been benefiting from plus-ups and takeaways that increased our growth rate above the market average. We remain confident that we will continue to do that. In terms of residential versus industrial and commercial, we are the market leader in residential energy efficiency programs. We have about 35% market share and think we can continue to expand that. We are also placing significantly on the commercial building side, where we have about 15% to 20% market share. Anne Cho: I do not have an update beyond what we discussed on the last call in terms of the share of residential versus commercial. One more thing to underline what John Wasson mentioned about the long-term growth trajectory: upstream of these programs we run, we also provide regulatory and consulting support to utilities, which gives us a good sense of the programs coming down the pike. That is another indicator supporting strong sales for both recompetes and wins on the program side. Barry M. Broadus: Historically, in our commercial energy business, we typically recognize roughly 47% of our annual revenues in the first half. The back half is when we typically hit certain milestones with regard to energy incentives, which creates a natural uptick in the back half versus the front half. Samuel Kusswurm: Got it. I appreciate the color. I think I will ask about the federal business next. There was something that caught my ear in the prepared remarks — capturing more of the federal opportunities aligned with the administration's priorities. Could you expand upon that more? From an operating standpoint, what does it mean to pivot in that direction? Are there any recent successes you could point to, or is it still early? Anne Cho: There is definitely a different way of selling in this environment in the federal space — more focus on showing what we can do. We come in with prototypes and good ideas that we can demonstrate, and where we can demonstrate the ability to take a client to a relatively quick win. That is an example of pivoting in capture and business development. In terms of new opportunities, we have been successful winning in new areas and offices at agencies where we have worked before — for instance, the Department of State, Department of Labor, and Department of Defense. We recently won a large BPA with the Defense Counterintelligence and Security Agency, and that is one where we incorporate AI-driven components to modernize very complex operational processes, with human oversight and deep expertise. Those are the kinds of places where our skills resonate. John Wasson: I would also add the administration wants work to be outcome-based or fixed-price, and the vast majority of our work is in that category. We are in the single digits now on cost-plus, and that has been declining. There is a real focus on AI-first. We have our ICF fathom AI platform, which allows us to do rapid prototyping and other work for federal agencies. We also have a real capability around waste, fraud, and abuse at CMS that came to us with the Semantic Bits acquisition. It is a material part of our technology business and our HHS work, and that is an area where there is a lot of focus and we are seeing a lot of opportunity. Operator: Thank you. Our next question comes from the line of Tobey Sommer with Truist. Your line is now open. Tobey Sommer: Thank you. I was hoping you could give us a sketch of what your M&A could look like given the pressures in the federal space. The valuation in your own stock and the group largely has declined. How do you think about multiples and leverage in this context? How engaged and active do you expect to be? Also, from a commercial energy perspective, I understand some work was pushed to the right. What kind of growth cadence do you expect this year, and how quickly will the year-over-year or sequential growth resume? And you talked about a resurgence of renewables — could you give us more context around that in a little more detail? John Wasson: As you know, M&A has been a key part of our strategy over the last 20 years as a public company. There have been three or four times where we have levered up and then, within a year or 18 months, paid down the debt. It has been quite successful for us in terms of both organic and inorganic growth. It remains a priority for us. Generally, we are focused on opportunities in our key growth areas. Right now, energy is first among equals, and the primary focus on the M&A front is on the commercial energy side. We would look for opportunities aligned with our core energy business — bringing us additional geographies, scale, capabilities, and clients. We will also look at adjacencies with more of an engineering focus. Anne Cho mentioned CMY, which brought grid engineering and large-load capabilities; that is an adjacency where there could be real synergies for us. At a high level, we want any acquisition to be accretive in the first year, with strategic and cultural fit, and we would need to see material revenue synergies to achieve those goals. On multiples, the energy arena for our current business retains premium multiples, so we need the right fit with the right synergies to meet our criteria. On leverage, historically when we have levered up, we have gone to about 3.0x to 3.5x — maybe 3.75x at the peak with Semantic Bits and ITG before that. I do not see us going higher than that. We want something we could pay down quickly with our strong cash flow — within a year or 18 months. Barry M. Broadus: On the commercial energy cadence, you could expect mid- to upper-single digits as we move into the next quarter or so, and then it will go beyond that and continue to ramp up as we move throughout the second half. The fourth quarter continues to be the strongest growth period as many energy incentives are realized during that time. Anne Cho: On the resurgence of renewables, there is renewed interest, and “all of the above” is really more of a thing. Hyperscalers have made commitments to provide renewable energy to support their data centers, creating opportunities for us to support the analysis. That can include stakeholder engagement and crisis communication, as well as siting and interconnection analysis. With developers, we are doing siting analysis, expanding renewable facilities, looking at brownfields repurposing with an eye on potential renewables, and gas procurement strategies are still in there. Understanding interconnection applications and speed to power is really important. Battery storage is much more in the forefront now, and that has always been part of our work, but it is now of much greater interest to our clients. Operator: Thank you. Our next question comes from the line of Kevin Steinke with Barrington Research Associates. Your line is now open. Kevin Steinke: Great, thank you. From a housekeeping perspective, can you expand on what resulted in the later timing of some revenue in both the commercial energy and international markets? And in the federal space, you mentioned you submitted $400,000,000 worth of bids in the first quarter. Can you give us more flavor around the type of work you are predominantly bidding on? John Wasson: In terms of the shift of revenue to the right, it was a confluence of events on a handful of projects where we did not ramp up the work quite as quickly as expected, both for ICF International, Inc. and our subcontractors. These are all fixed-price contracts; it is all in backlog, and it all has to be recognized in 2026, but we have to meet certain milestones to book the revenue and that was pushed out a bit. Our fees are performance-related when we meet specific energy production goals, and those were pushed out. It was just a confluence of events that pushed to the right for a handful of projects. There are no underlying challenges or problems with the projects. On federal bids, within HHS, CMS remains an area where we are seeing opportunity, and that was a key part of those figures. We are bidding more opportunities on the technology front at the Department of Defense. We have won several IDIQ contracts in the last year or 18 months, and we are seeing more opportunity for the types of skills we have. The Department of Homeland Security is also an area of opportunity that we are pursuing. We work at FEMA and other DHS agencies. Other civilian clients include NASA and EPA. Barry M. Broadus: On that most recent Department of Defense vehicle John Wasson mentioned, we recently won our first task order on that too, which was good to see. Kevin Steinke: Thanks. One more — you mentioned the target of returning to mid- to high-single-digit revenue growth in 2027. Does that contemplate a return to year-over-year growth in the federal government space? John Wasson: Yes. That would assume a return to growth in the federal space. We have 60% of our business — commercial, state and local, and international — growing 10% or more collectively, and we believe that is a long-term trend. We have indicated that our IT modernization business will return to low-single-digit growth this year. That gets 80% of our business to grow. Our guidance this year for the remaining 20% of our federal business is down mid- to high-teens given difficult comps from last year’s impacts. We think we have bottomed out and are stabilizing there. If that stabilizes and the other 80% is growing, that gets us to mid-single-digit or better organic growth. The upside would be doing better than stabilization in that remainder or higher growth in IT modernization and the other 60%. And, of course, acquisitions could move us to double-digit growth. Operator: As a reminder, to ask a question, press 11 on your telephone and wait for your name to be announced. Our next question comes from the line of Marc Riddick with Sidoti. Your line is now open. Marc Riddick: Hey, good afternoon, everyone. I wanted to touch on what you are seeing on the state and local government activity levels as far as RFPs and demand, as well as the disaster side of things. And could you also touch on what you are seeing internationally as far as the opportunity set? Anne Cho: On the state and local front, beyond disaster, our environmental services to state and local governments have been buoyed by a focus on new broadband fiber installations and opportunities in the mining sector where gold and critical minerals are in high demand. We have won some recent engagements in broadband and see more coming. For state transportation and metropolitan planning organizations, we won a suite of separate but related projects that address the resilience of transportation infrastructure to extreme weather and also focus on safety and mobility. That work is interesting, utilizes proprietary ICF International, Inc. models and deep expertise, and focuses on providing actionable, investable recommendations. We are also seeing opportunities to support states with advanced technology solutions akin to what we do for federal modernization. For a major state client, we are working on a legacy modernization project where we have the opportunity to pilot the use of generative modernization code to speed the process. That pilot is showing promise and is a new place for us to engage on the state side. On disaster, much of the work has shifted to states over the past several years, and we support state and local governments in proactive resilience. Leaning in to increase resilience before a storm is less expensive than responding after a storm. That is a priority of this administration. Programs like BRIC, and others in that proactive resilience front, are important. Internationally, we are very focused on delivery — we have won a lot in Europe and the UK in the last couple of years and are ramping up large contracts. Procurement activity there has been exciting. We continue to see strong recognition of ICF International, Inc.’s brand with UK and EU government clients. With 17.5% growth in the first quarter, there is momentum, and we continue to expect strong growth over the course of the year. John Wasson: Two points to add: our expectation is our state and local business will grow mid-single digits this year, and international will be strong double-digit growth. Marc Riddick: Thank you for the details. One follow-up: on the prioritization of federal areas like fraud prevention, do you anticipate or are you beginning to see any of that type of work at the state and local level as well, or other examples where states are moving in the same direction as federal? Anne Cho: Some states are more focused in areas that are priorities for the federal administration, and others are focused in areas that are not priorities for the administration. In both directions, we have skills that can support state agencies. Some states are trying to fill gaps they see left by the administration shifting away from certain priorities, while other states are aligning directly with administration priorities. We are following those cues accordingly. Operator: I am showing no further questions at this time. I would now like to turn it back to John Wasson for closing remarks. John Wasson: Thank you for participating in today's call. We look forward to seeing you all at upcoming conferences and meetings. Thanks again for attending. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, and welcome to The Joint Corp. First Quarter 2026 Financial Results Conference Call. All participants will be in a listen-only mode. After today’s presentation, to ask a question, you may 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 Richard Land, Alliance Advisors Investor Relations. Please go ahead. Richard Land: Thank you, Danielle, and good afternoon, everyone. This is Richard Land with Alliance Advisors Investor Relations. Joining us on the call today are President and CEO, Sanjiv Razdan, and CFO, Scott Justin Bowman. Please note we are using a slide presentation that can be found on The Joint Corp.’s IR website. This afternoon, The Joint Corp. issued a press release for the first quarter ended 03/31/2026. If you do not already have a copy, it can also be found on the company’s website. Please be advised that today’s discussion, including any financial and related guidance to be provided, consists of forward-looking statements as defined by securities laws. These statements are based on information currently available to us and involve risks and uncertainties that could cause actual future results, performance, business prospects, and opportunities to differ materially from those expressed in or implied by these statements. Important factors that could cause such differences are discussed in the risk factor section of The Joint Corp.’s filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date the statements are made, and the company assumes no obligation to update them except to the extent required by applicable securities laws. Management uses non-GAAP financial measures such as EBITDA, adjusted EBITDA, free cash flow, and system-wide sales. Descriptions of these measures are included in the press release issued earlier this afternoon and reconciliations to the most directly comparable GAAP measures are included in the appendix to the presentation and press release, both of which are available in the Investors tab of our website. With that, I will now turn the call over to Sanjiv Razdan. Sanjiv, please go ahead. Sanjiv Razdan: Thank you, Richard. Good afternoon, everyone. Alongside the strong first quarter results we reported today, we continue to make meaningful progress with our Joint 2.0 initiative, the first phase of our transformation journey. In April, we entered into an agreement for the sale of 45 company-owned or managed clinics in Southern California. When combined with the two other signed refranchising agreements that are pending closing, just three clinics out of our entire portfolio remain company-owned or managed. That is down from 135 at the start of this process. This is a defining milestone. With our refranchising efforts effectively complete, The Joint Corp. is now, in every meaningful sense, a pure-play franchisor. And as we continue to implement heightened cost discipline across our operations, our financial results are benefiting. These benefits include higher profitability and free cash flow conversion, which we are in part allocating for the benefit of our shareholders, including through our continued share repurchases, as well as through recent RD territory buybacks. On slide five, let me touch on the Q1 financial highlights before walking through the details of our transformation. Revenue from continuing operations grew 13% year-over-year to $14.8 million. Adjusted EBITDA from continuing operations was $2.2 million compared to $46 thousand in Q1 2025, underscoring the operating leverage we are generating as we shift toward more royalty- and fee-based franchise revenue. Net income from continuing operations was $1.1 million compared to a net loss of $506 thousand in Q1 2025. And cash flow from operating activities improved by $2.2 million from 2025, helping to drive a $2.3 million improvement in free cash flow over the same period. On slide six, now I will walk through our recent refranchising activity in more detail. In March 2026, we signed a letter of intent for the sale of five company-owned or managed clinics. Then in April, subsequent to quarter end, we signed an asset purchase agreement for the sale of 45 company-owned or managed clinics for a total of $2.3 million. When completed, these two transactions, along with the asset purchase agreement announced in December, will bring our company-owned clinic count down to just three, which compares to 135 corporate clinics at the start of our Joint 2.0 initiative. Completing this journey ahead of schedule is a testament to the strength of our operator relationships and the attractiveness of The Joint Corp. franchise model. In addition to our success with refranchising, we also recently completed buybacks of three regional developer territories, allowing us to capture a greater share of long-term royalty economics in those markets. Now that we have bought back these RD territories, it allows us to provide strong direct support to our franchisees and drive growth over time. On slide seven, with The Joint Corp.’s 2.0 transformation efforts nearing completion, I want to share our thinking about what comes next. We are increasingly focused on The Joint Corp. 3.0, the next phase of our journey, which will begin in earnest in 2027. That phase will prioritize growth through new channels, including B2B, expansion into underpenetrated U.S. markets, and potential entry into our first international market. Underpinning this is a powerful set of consumer trends, including growing interest in longevity, health span, mindfulness, sleep quality, and noninvasive whole-body care. Chiropractic care and The Joint Corp.’s unique model are exceptionally well positioned against this backdrop. We see significant opportunity to evolve our brand positioning not just around the theme of pain relief, but also around moving better, with quantifiable patient outcomes through the creation of the Joint Move Score feature. In line with this positioning, we are exploring signature treatments, nutritional supplements, and orthotics. On slide eight, now turning to our marketing efforts and how we are driving top-line momentum. Our messaging continues to center on chiropractic care for pain relief, helping patients improve their mobility and get back to doing the things they love. This message tends to attract patients who stay with us longer. Our national marketing and advertising program, which was launched in November, is now several months in. We have seen sequential improvement in member growth each month since launch, which is encouraging. On the digital side, our ongoing SEO and AI visibility optimization work is driving higher organic traffic and lead quality, with our AI visibility score improving to between 78 and 80, up from about 70 at the beginning of the process. We now exceed the industry benchmark. Meanwhile, all local clinic microsites have been migrated to the new optimized template, and we are seeing continued positive trends in traffic and high-intent actions, including new inbound phone calls and form submissions. During Q1, we benefited from new sales initiative tests, including the introduction of a new three-month minimum term commitment program and new, more flexible offerings to drive conversion and longer-term retention, and we signed our first B2B partnership program, which gives our partners’ employees access to care at The Joint Corp. In addition, we have started to roll out our new CareCredit program nationwide, which provides patients with deferred payment options on higher-ticket packages and plans, improving their access to care. It also enables access to 12 million members in the CareCredit program network. Lastly, our pricing optimization efforts continued during the quarter, with $5 to $10 price increases now rolled out across approximately 300 clinics, with the rest of the portfolio starting to implement this pricing beginning in the third quarter. Feedback to date indicates no meaningful patient pushback, and we are using this data to ensure pricing changes support revenue optimization without impacting patient acquisition or retention. Turning to slide nine, I will speak to comp sales and patient engagement. Q1 comp sales of negative 4.2% reflected the impact of continued macro headwinds, such as general cost of living pressures across the entire market. However, comp sales are expected to consistently improve throughout the balance of the year, as Scott will speak to shortly. Beginning with January, we have now had four consecutive months of month-on-month improvement in active member count per clinic. We expect comp sales trends to improve throughout the balance of the year as our national campaign matures, SEO improvements compound, and pricing optimization rolls out more broadly. Growing our active member base remains a central driver of comp sales improvement, and we will drive growth through stronger lead generation, better in-clinic conversion, and improved retention, along with the benefit of optimized pricing. Our patient retention rate has improved over the prior year, supported by more flexible offerings and longer contract minimums. This gives us a stronger foundation from which to accelerate growth. With that, I will turn it over to Scott, our CFO. Scott Justin Bowman: Thanks, Sanjiv. To start, let us discuss our operating metrics. System-wide sales in the first quarter were $126 million, a decline of 4.9% compared to the same period last year. Comp sales were negative 4.2%, consistent with the headwinds Sanjiv discussed earlier. Meanwhile, adjusted EBITDA from consolidated operations grew 22% to $3.5 million, demonstrating our profitability improvements. Turning to slide 12, I will review our results from continuing operations for the first quarter unless otherwise specified. Revenues grew 13% to $14.8 million, reflecting the early benefits of transitioning clinics to continuing operations as part of refranchising. Cost of revenues was $2.7 million, down 8% compared to the same period last year, primarily due to lower regional developer royalties. Selling and marketing expenses were $3.7 million, up 6% compared to the same period last year, driven by the transition of clinics to continuing operations. Meanwhile, G&A expenses increased 2% to $7.1 million, of which approximately $300 thousand relates to expenses that will not be incurred upon the completion of our refranchising strategy. Overall, we expect G&A to decline as a percentage of revenue as we complete the transition of company-owned clinics to franchise clinics. Net income from continuing operations was $1.1 million compared to a net loss of $506 thousand in the same period last year, while consolidated net income was $1.3 million compared to $1 million in the prior-year period. And lastly, adjusted EBITDA from continuing operations was $2.2 million compared to $46 thousand in the same period last year, a clear reflection of the operating leverage we will have in our pure franchise model. On slide 13, let us discuss our clinic count. Total clinic count was 943 at the end of the first quarter, compared to 960 at year-end 2025. During the first quarter, we opened three clinics and closed 20, resulting in 868 franchise clinics and 75 company-owned or managed clinics. This reflects our previously discussed strategy to optimize the portfolio for quality and performance. As Sanjiv noted, the asset purchase agreement signed in April, combined with the letter of intent signed in March, will reduce our company-owned clinic count to just three when the transactions close. Meanwhile, our work to improve new clinic performance through enhanced preopening protocols continues to drive faster time to breakeven for new openings. Now I will review our balance sheet and capital allocation. Unrestricted cash at the end of the first quarter was $20.7 million compared to $23.6 million at year-end 2025. We maintain our $20 million line of credit with JPMorgan Chase, which remains fully undrawn and is available through August 2029. In early May, we extended the maturity of our credit facility by two years from August 2027 to August 2029. During the quarter, we repurchased approximately 137 thousand shares for total consideration of $1.1 million at an average price of $8.35 per share. We now have $4.5 million remaining under the $12 million authorization approved in November 2025. As Sanjiv mentioned, we also completed three RD territory buybacks recently, which will further optimize our portfolio economics. Through these buybacks, we expect to realize approximately $450 thousand in reduced RD royalties on an annualized basis, partially offset by internal costs to manage these territories. On to slide 15, we are reiterating our full-year 2026 guidance, as originally provided in March 2026. We expect system-wide sales of $519 million to $552 million, comp sales in the range of negative 3% to positive 3%, consolidated adjusted EBITDA in the range of $12.5 million to $13.5 million, and new franchise clinic openings in the range of 30 to 35. As Sanjiv noted, we expect comp sales trends to improve throughout the year, with a general cadence of slightly negative comps in Q2, followed by positive comps in Q3 and Q4, with the fourth quarter expected to be higher than the third quarter. New clinic openings will continue to be offset by closures as we reshape the portfolio around stronger operators and healthier sites, meaning that on a net basis, our clinic count at the end of 2026 will be lower than 2025. This clinic portfolio optimization leaves us with a stronger foundation to grow from, and we continue to believe that there is potential for more than 1,800 franchise clinics in the U.S. alone. On slide 16, we continue to work towards our pure-play franchisor model, which will be capital-light with lower G&A expense and higher profitability margins. Once refranchising is complete, we expect to achieve this model starting in 2026. Keep in mind that these are not our long-term targets. They are just a starting point once the full benefit of refranchising is realized, which we intend to build on in 2027 and beyond. For the model, gross margin is expected to be 83% to 85% of revenues, compared to 90% in 2025. G&A expense is expected to be 40% to 42% of revenues, compared to 64% in 2025. Capex is expected to be approximately 3% of revenues, and free cash flow conversion, which we define as free cash flow divided by adjusted EBITDA, is expected to be 60% to 70%. These assumptions would result in an estimated adjusted EBITDA margin of 19% to 21% and net income margin of 13% to 15%. Finally, on slide 17, I will speak to our capital allocation. As highlighted by our activities in Q1, we remain committed to a disciplined capital allocation framework that prioritizes investments in growth initiatives, share repurchases, and opportunistic repurchase of RD territories. With that, I will turn it back over to Sanjiv. Thanks, Sanjiv. Sanjiv Razdan: On slide 19, Q1 was another quarter of continued progress toward reigniting growth. The financial results, with 13% revenue growth from continuing operations and 22% consolidated adjusted EBITDA growth, are starting to reflect the franchisor model we have been building. The Joint Corp. 2.0 transformation is now nearing complete, and we are securing a strong foundation to launch The Joint Corp. 3.0 as a capital-light pure-play franchisor with a growing national brand, improving patient acquisition trends, and a pipeline of new B2B initiatives. Meanwhile, our capital allocation, including share repurchases, RD buybacks, and disciplined investment in growth initiatives, reflects our conviction in the long-term value of this business and our commitment to delivering returns for stockholders. And finally, we are also building a business that is well aligned with where healthcare and wellness are heading. Consumer demand for longevity, health span, and noninvasive whole-body care is growing, and The Joint Corp. is uniquely positioned to meet that demand at scale. With that, operator, we are ready for Q&A. Operator: We will now open the call for questions. To ask a question, you may press star then 1 on your touch-tone phone. 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. The first question comes from Jeff Van Sinderen from B. Riley. Please go ahead. Jeff Van Sinderen: Hi, everyone. Just wondering on the timeframe to close the refranchising transactions. I think you said second half, you expected those to be completed. So it sounds like they are closing in the next month or so, couple months? Scott Justin Bowman: Yes. The timing on those is dependent on getting the leases assigned to the new owners, and so that is an ongoing process. Over the next couple of months, we should be very near completion of that lease assignment process. Sanjiv Razdan: Jeff, in addition to that, what I want to make sure is clear is that all but six or seven of those clinics now are being operated by the buyers of these clinics. Either those leases have already been transferred to them and they are owning and operating those clinics, or they are operating them under a management services agreement, which, for all intents and purposes, mirrors the economics of a pure franchisor model. So the only mechanical piece that needs to be complete to conclude these deals is to reassign those leases, which we are confident will happen here in the next couple of months. We do have one other small cluster of four or five clinics in Northern California that are under a letter of intent where an APA is expected to be signed shortly. And that then leaves us with three clinics that we are also addressing. I hope that clarifies. Jeff Van Sinderen: I am sorry, that last cluster you mentioned, how many clinics is that? Sanjiv Razdan: The last cluster is five. Jeff Van Sinderen: Got it. And then I am just, I know you went through a bunch of different things in the prepared comments, but I am trying to get a better sense of what you think are the main drivers of getting the same-store sales turned around. It sounds like you feel like you are on the right path to that, but maybe you could just delve a little bit more into that and how you see that coming about. Scott Justin Bowman: Yes, absolutely. Sanjiv Razdan: First of all, I think what I did not say in my prepared comments, but I do not want this point to be lost. As we have now practically concluded refranchising, it is going to allow this entire team here to be single-mindedly focused on growth outcomes. What gives us confidence that we will continue to see the sequential improvement we are seeing is based on the work that we started late last year, which, to recap: one was to pivot the external messaging to pain relief; secondly, we transferred $500 per clinic per month from local marketing to national advertising to invest more on the brand awareness side; three, we got caught up on search engine optimization and now have optimized for AI search where we are slightly ahead of the industry benchmark and we are being rated well there. So that is work that we have already done, and that impact is compounding. In addition, our patient retention is improving. It is significantly better than last year. That is happening as a result of two things. One is that we have extended the minimum contract term from two months to three months, and we have had zero pushback from patients on that. The other thing we have done is create a new offering to help extend the lifetime value of patients. Patients who are on our wellness plan that gets them four visits a month, should they wish to cancel, we are offering them the option of a plan called AlignOne, which gives them one visit per month at $35 a month or $39 a month depending on what part of the country they are in. That gets them one visit per month and then the ability to buy incremental visits. We find that people are, on balance, quite happy to extend their membership with us on that plan, and we are seeing significantly lower attrition on that plan. Even though it is a one-visit-per-month plan, we are seeing the actual uptake closer to two visits per month. Those are some of the things that are giving us confidence. Plus the pricing, Jeff, that was rolled out to 300 clinics — we now feel very confident extending that to the rest of the enterprise, and that is expected to happen early in the third quarter. Jeff Van Sinderen: Okay, good to hear. And then can you just remind us how many RD rights you still have left to buy back if you wanted to buy those back? Sanjiv Razdan: Yes, and just as a reminder, we have now bought back four RD rights in the last 12 months or so, which equate to about $1.3 million in RD royalties, which we are now going to be able to recover. One of those four was done last year, and three we have just concluded and shared with you on this call. I am going to let Scott answer what exactly how many RD territories are left. Scott Justin Bowman: Yes. Remaining, we have 12 RD territories. We will continue to evaluate those opportunities and work with the RDs. Jeff Van Sinderen: Okay, great. Thanks for taking my questions. I will take the rest offline. Sanjiv Razdan: Thank you, Jeff. Operator: The next question comes from Jeremy Hamblin from Craig-Hallum. Analyst: This is Will on for Jeremy. Thanks for taking my questions. First, I was just wondering if you could give us a sense of the demand elasticity you have seen in geographies where you have taken the most price, and then also what you have seen in terms of comp impact from that $10 raise. Scott Justin Bowman: Yes. It is interesting. We have done the analysis looking at the trends, and we coupled that with conversations with the local operators just to understand the dynamics of the price increases. One thing I will start off by saying is that these price increases are just for new patients. Everybody that was already on a plan continues at that same price. It is just for new patients. We have seen little or no pushback. Even with a little bit of an increase in price, we still provide tremendous value. A couple of metrics that we look at are our conversion rate, to see if that has gone down — it has not; no meaningful movement in conversion — and our attrition rate has actually improved. The metrics tell us that it is working, the operators confirm that, and so that gives us the confidence to roll it out further. Analyst: Okay, that is helpful. And then I was just wondering how we should be thinking about SG&A dollars here post-refranchise for the remainder of 2026, and when you would expect to hit stride with the new go-forward run rate. Scott Justin Bowman: The go-forward run rate — we should be mostly on that new model in the back half of this year. As Sanjiv talked about, we signed some agreements late in the quarter making those transitions, which do take a little time to get fully transitioned over. In many ways, they are mimicking the franchise model with the services agreements that they are under, but it is going to be in the back half where we will start to see that model come into play, based on the model that I put out there. From a G&A standpoint, in the materials we show that we were $7.1 million in G&A for the quarter, and that is continuing operations. We will likely see some reductions in that number for the remaining quarters. But keep in mind, that is a continuing operations number. Sanjiv Razdan: In addition, Will, what I would like to add is that the slide that Scott shared on this call about where we expect to land in mid-2026 — that is exactly that. We expect to be there in the back half of this year. As we start to hit that run rate, we expect our ability to bring even more resources to drive growth on the top line and equally optimize our cost structure. Over time, we expect that those numbers we have shared for mid-2026 will only continue to strengthen as we get into 2027 and beyond. Analyst: Okay, that is super helpful. And then just last one from me: wondering how the new clinic pipeline is shaping up — any new interest from new franchisees versus existing — and the cadence of openings for the remainder of the year to get to the guidance. Sanjiv Razdan: Yes. Our guidance of 30 to 35 — we have confidence to get to that guidance, which is why we have reiterated it. The cadence of openings is skewed toward the back half of the year. In terms of when those openings are happening, they will be second half, more heavily loaded. What we are seeing is two things. One, the new openings we had in 2025 — if you recall, we had 29 openings — those 29 openings have outperformed our run rate of prior openings and are tracking to breakeven times at half the time of the run rate. The two clinics that opened very early this year are tracking, at the moment — it is very early days — at an even faster run rate. We are very optimistic about the new clinic openings because of who is opening these clinics — stronger franchisees — strong diligence on site selection and approval, and very robust on-the-ground new clinic opening protocols, which we believe is yielding these results. We are seeing interest from new franchisees coming into the system as well as existing franchisees. An area of focus for us is to grow and develop in the Northeast, where we have been traditionally underpenetrated, and we have had some great early successes there. And even our Southern California corporate clinic bundle we have just sold to a franchisee that is completely new to our system. So we are very excited and encouraged by existing franchisees doubling down on investing in the brand as well as new franchisees being attracted to the brand. Once we publish our franchise disclosure document, we will be able to share some of these numbers more publicly with potential franchisees, and we are optimistic about the impact that will have on our pipeline. Analyst: Understood. Thanks for taking my questions. Operator: As a reminder, if you have a question, please press star then 1. The next question comes from George Kelly from ROTH Capital. Please go ahead. George Kelly: Hey, everyone. Thanks for taking my questions. First one is on pricing. Maybe I missed it in your prepared remarks, but did you settle on a $10 pricing increase? Do you expect to take some kind of price across the entire base by year end, or by Q3? Scott Justin Bowman: We are leveraging a $10 price increase more, and looking at the analytics and working with the operators, that is the preferred increase that we have right now. We expect to take that price across the base by Q3. George Kelly: And then you mentioned the four consecutive months of improved active members. Could you give a sort of comp trend over that same timeframe? Where did you exit the quarter, and what kind of comp growth did you generate? I think you said it was slightly negative. Could you just quantify where comps are trending currently? Scott Justin Bowman: Yes. To end the quarter, they were similar to the full quarter, negative 4.2% — right in that range. However, once we got into April, we did see some improvement, and so quarter-to-date we are running about negative 3%. As Sanjiv mentioned, we are seeing some good signs and month-over-month improvement in our active member growth. That improvement is better trends in attracting new patients, the conversion of those patients, and improvement in our patient retention. Those three areas are what we look at as KPIs to drive active member growth, and we have seen improvement in all three. George Kelly: Two other quick ones. Back to the prior question about your G&A, go-forward G&A. If I look at the $7.1 million in Q1, you mentioned that there was $300,000 of nonrecurring — post-refranchising — that is expected to come out. Was that a quarterly number? And there was also a $600,000 restructuring charge in the quarter — did that fully hit G&A? If I take those two amounts out, is the go-forward G&A run rate somewhere in the low six range? Scott Justin Bowman: Yes, the $300 thousand — you are right — that was a quarterly number, which will go away with one portfolio we refranchise. The restructuring — most of that was in G&A and then was added back for adjusted EBITDA. George Kelly: Last question for me. You mentioned the FDD and your optimism around messaging when that comes out, I presume shortly. If you could, the question I have is just on four-wall margin. Has that stabilized? Do you still hear a lot of input from your franchisees about labor inflation and other aspects of inflation, or do you have a sense that four-wall margin is holding in? Sanjiv Razdan: George, two things. One, of course the FDD is due out shortly, so prospective franchisees and anybody who looks at it will get transparency to the Item 19 and some of the numbers there. What we are seeing now is stabilization. For quite some time — by which I mean several months, almost a year — the labor wage inflation that we were seeing in this business has stabilized, and that is not growing at the same rate that it was in the post-pandemic period. Our input cost structure is relatively stable. As active members keep growing and our ability to transfer some of that cost that we have not transferred on to consumers — we found with these 300 clinics where we have taken the price increases, there has really been no impact to conversion or retention. We are optimistic that will help start to shore up some of the unit-level economics as the new pricing starts to kick in early Q3. George Kelly: Okay. I appreciate it. Thank you. Operator: This concludes our question and answer session. I would like to turn the conference back over to Sanjiv Razdan for closing remarks. Sanjiv Razdan: Thank you all for joining us today. Have a great day. And remember, at The Joint Corp., we always have your back. 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 Quantum-Si incorporated First Quarter 2026 Earnings Call and Business Update. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Risa Lindsay. Risa, go ahead. Risa Lindsay: Good afternoon, everyone, and thank you for joining us. Earlier today, Quantum-Si incorporated released financial results for the first quarter ended 03/31/2026. A copy of the press release is available on the company's website. Joining me today are Jeffrey Alan Hawkins, our President and Chief Executive Officer, as well as Jeffry R. Keyes, our Chief Financial Officer. Before we begin, I would like to remind you that management will be making certain forward-looking statements within the meaning of the federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward-Looking Statements of our press release. For a more complete list and description of risk factors, please see the company's filings made with the Securities and Exchange Commission. This conference call contains time-sensitive information that is accurate only as of the live broadcast date today, 05/07/2026. Except as required by law, the company disclaims any intention or obligation to update or revise any forward-looking statements. During this call, we will also be referring to certain financial measures that are not prepared in accordance with U.S. Generally Accepted Accounting Principles, or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is included in the press release filed earlier today. With that, let me turn the call over to Jeffrey Alan Hawkins. Jeffrey Alan Hawkins: Good afternoon, and thank you for joining us. On today's call, we will provide a business update and review our operating results for 2026. After that, we will open the call for questions. As we communicated on our last earnings call, we expect that 2026 will be a transition year with revenue primarily driven by consumable utilization from our installed base, some new placements of Platinum, very modest new capital sales, and a laser focus on Proteus development, preparing the market for a strong commercial launch by 2026. As such, our three corporate priorities for 2026 are as follows: to deliver Proteus with the capabilities customers need, to prepare the market for Proteus launch, and to preserve our financial strength. Our first priority is to deliver Proteus with the capabilities customers need. We made significant progress with the Proteus development program during 2026. The results of this progress were highlighted in our recent announcement regarding the successful completion of sequencing on fully integrated Proteus instruments. The achievement of a milestone of this complexity is a significant de-risking event for any new platform development program. To accomplish this result, we had instruments and software that automatically performed all the steps in the sequencing process from reagent preparation to sample loading through to sequencing and data capture and analysis. We also had developmental sequencing reagents, kinetic arrays, and associated surface chemistry that enabled single molecule loading and sequencing with the detection of 17 amino acids. While there is more work to do to get to the commercial launch, it is clear that the Proteus platform is a fundamentally superior technology compared to Platinum. Beyond automation and throughput, which customers will certainly value, the core technology in Proteus consistently delivers higher proteome coverage. At its core, Proteus has a better signal-to-noise ratio and can reliably detect much shorter pulses of recognizers, which translates into detecting more amino acids per peptide and longer average peptide read lengths. In terms of recognizer development, we recently reported that our internal developmental sequencing kit was able to detect 17 amino acids. Not only have we increased the number of unique amino acids detected from 15 in December 2025 to 17 in just four months, but we have also made improvements that increased detection frequency across all the amino acids we detect. Our recent progress in this area and the pace of improvement we are seeing provide us with high confidence that we are well on our way to delivering Proteus by 2026 with the detection of 18 amino acids, demonstrating detection of all 20 amino acids during 2026, and, in turn, delivering a sequencing kit in 2027 that detects all 20 amino acids. Finally, I want to provide an update on our progress toward enabling post-translational modification capabilities on Proteus. For background, depending on the PTM, customers today have two choices: affinity-based methods, which are limited to a specific site or specific protein of interest, or mass spectrometry, which requires complex sample preparation procedures and access to sophisticated bioinformatics personnel to collect, filter, and analyze the data using a variety of software tools that are required to provide site-resolved profiles. This is true for a well-studied PTM like phosphorylation. When you move into other PTMs like methylation, acetylation, or citrullination, the options are even more limited, with the available analysis tools often being lab-developed versus commercially available. During our November 2025 investor and analyst day, we provided insight into three different ways that our technology can detect PTMs. One of those ways is via kinetic signatures. In short, using the rich set of data that each recognizer generates as the sequencing reaction moves through each amino acid in the peptide, the software can automatically determine if a PTM is present or not, which PTM it is, and at which specific amino acid site. The primary advantage to this method is that the sequencing chemistry is universal, and the PTM detection is accomplished using automated analysis algorithms. This is in stark contrast to affinity-based methods, which require site-specific PTM reagents and, in some cases, those reagents are protein-specific as well. Given the extremely large amount of data we expect to generate in a Proteus sequencing run, and leveraging the power of advanced AI tools, the potential to develop PTM capabilities using kinetic signatures and continuously expand those capabilities over time is immense. This is why we are laser focused on this approach, and I am pleased to report that we are making great progress in this area and expect to have more specific updates to share in the near future. Our second corporate priority is to prepare the market for Proteus launch. In preparation for commercial launch of Proteus, we are focusing our commercial and scientific affairs teams on three main strategic initiatives: demonstrating the value of our single molecule protein sequencing technology, expanding awareness of Proteus across geographies and end market segments, and identifying and developing a funnel of potential Proteus customers to ensure successful commercial adoption upon launch. To demonstrate the value of single molecule protein sequencing, our scientific affairs team has been working with customers using our first-generation Platinum instrument and commercially available kits to generate data and release the results via posters at industry conferences and manuscripts via preprint and peer-reviewed publications. Since the start of 2026, we have had a total of three customer manuscripts released via preprint or peer review, five posters presented at industry conferences, and a customer podium presentation during US HUPO. The data released this year show a wide range of applications, from rapid pathogen and toxin detection to clinical proteomics to detection of post-translational modifications in translational research. Importantly, the data released this year also span multiple end market segments, including academic research, clinical, biopharma, and government. We believe that these sets of customer data and other studies in the pipeline will continue to demonstrate that the potential opportunity for our technology extends well beyond the basic research markets that we operate in today. This is important since customers in biopharma, translational research, and clinical testing typically have higher consumable utilization rates and repeat order patterns compared to basic research customers. Turning now to our work on expanding awareness of Proteus across geographies and end markets: In April, we announced the beginning of the Proteus roadshow series. These events are designed to educate the market on the value of our proprietary single molecule protein sequencing technology and the Proteus instrument and projected capabilities. The individual roadshow events can take the shape of one of two types of formats. First, in institutions where we have an existing customer, we work with them to bring together as many of their colleagues as possible to expand the institutional awareness of our technology. Expanding institutional awareness can benefit our existing user by creating more demand for inclusion of our technology in ongoing research studies, and it also aids us in building a large community of interested users for Proteus, increasing the number of potential avenues to pursue for funding the purchase of the instrument in the future. The second type of event is tailored to locations where we do not have an existing customer. In these locations, we focus on a centrally located venue, and our outreach focuses on engaging potential users from as many unique institutions in the surrounding area as possible. While we have just started the roadshow series, the early data are encouraging. At one recent event, we had 25 people register or attend, but on the day of the event, we had 35 people in attendance. All the attendees were researchers who currently use or want to begin to incorporate proteomic technologies into their research. Importantly, these 35 attendees invested nearly two hours of their time to learn about our technology, the Proteus system, and to discuss potential applications with members of our commercial and scientific affairs team. We expect to continue with roadshows throughout the year, and we will provide more updates on specific cities and associated event metrics as the program progresses. Finally, in addition to supporting our existing Platinum users, our sales team is focused on identifying and developing a funnel of potential Proteus customers to ensure successful commercial adoption upon launch. Our team has been assigned quantitative goals for each quarter, and we are pleased with the current progress we are seeing. As part of this process, we recently announced that we had completed sequencing of our first customer samples on the Proteus prototype. In this first instance, the customer is an existing Platinum user, and they were interested in seeing how much better the data would be with Proteus. While there were many exciting takeaways from the data, two that resonated the strongest with the customer were the increase in the number of amino acids detected and the increase in the average read length on Proteus compared to Platinum. When combined, improvements in these two attributes provide the customer with significantly more sequence-level information about each of their proteins of interest. The positive response from this customer confirms our belief that offering the ability for customers to send in samples for evaluation could be a valuable tool to deepen engagement and advance the customer through the buying process prior to Proteus commercial launch. We are working closely with our manufacturing partners to increase the number of Proteus instruments available within our R&D labs, and once complete, we expect to be able to offer sample evaluations more broadly to prospective customers. Our third priority is to preserve our financial strength. We believe that the data we will generate over the coming months will continue to demonstrate that Proteus is not only a new architecture with greater throughput and automation, but also a significant leap forward in terms of sequencing performance and application breadth. We continue to believe that Proteus will be the long-term driver of commercial adoption, revenue growth, and our path to profitability. We remain committed to continuing to operate with a high level of fiscal discipline while ensuring the core strategic initiatives are appropriately funded to deliver Proteus on time and with the capabilities customers are asking for. I will now turn the call over to Jeffry R. Keyes to review our financial results. Jeffry R. Keyes: Thanks, Jeff. I will now walk through our operating results for 2026. Revenue in 2026 was $258 thousand, consisting of revenue from our Platinum line of instruments, consumable kits, and related services. Gross profit was $74 thousand, resulting in a gross margin of 29%. Gross margin in the quarter was primarily driven by revenue mix with a higher proportion of consumables relative to hardware. As we have discussed and guided for 2026, we expect revenue in the near term to reflect the anticipated launch of Proteus as some customers time purchasing decisions closer to the availability of our new platform. Turning to expenses, GAAP total operating expenses for 2026 were $24.1 million compared to $25.6 million in 2025. Adjusted operating expenses were $21.4 million compared to $22.9 million in the prior-year quarter. Year over year, we funded R&D at a slightly higher level to support Proteus development while maintaining discipline in total overall adjusted operating expenses. Dividend and interest income was $1.9 million in 2026 compared to $2.5 million in the prior-year quarter. The year-over-year decrease reflects lower interest rates and changes in invested balances. As of 03/31/2026, we had $190.4 million in cash, cash equivalents, and investments in marketable securities. As we presented on our last call, our outlook for 2026 includes total revenue of approximately $1 million, adjusted operating expenses of $98 million or less, and total cash usage of $93 million or less. 2026 is a delivery transition year as we prepare the anticipated launch of Proteus, and we are making intentional choices that prioritize long-term platform adoption over near-term revenue maximization. This includes embedding upgrade paths in certain Platinum Pro unit sales in 2026, which has a near-term revenue impact, as well as expected timing shifts as customers plan for Proteus availability. With our development progress, Proteus roadshow events, and continued education of channel partners worldwide, we are seeing strong interest in Proteus, which is influencing customer purchasing timelines. Our operating expense guidance and cash remain on track and reflect the activities required to complete development and support a successful commercial launch of Proteus. Our expected cash usage also includes modest inventory build and commercial readiness efforts ahead of the launch. With over $190 million in cash and investments at March 31, we continue to believe we have cash to support operations into 2028, approximately a year and a half after our estimated Proteus launch date. After the Proteus launch, we expect meaningful operating expense leverage over time as launch-related development spend rolls off. Because we are utilizing key external partners for certain development-related activities, we anticipate the ability to ratchet down R&D spend post-launch. This gives us flexibility to reduce total operating expenses and extend our cash runway while retaining the option to selectively redeploy resources into high-return commercialization initiatives as we scale. Finally, management and the board remain aligned with shareholders. Insider ownership remains meaningful, and recent Form 4 activity by management continues to reflect routine tax-related mechanics associated with equity compensation vesting, with no management team members selling shares outside of plan-mandated sales to cover required tax withholdings. In addition, it is important to note that two of our board members collectively purchased 600 thousand shares during the quarter in the open market. With that, we are happy to take your questions. Operator: We will now open the call for questions. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while we compile the roster. Our first question comes from Scott Robert Henry with AGP. Scott, go ahead with your question. Scott Robert Henry: Good afternoon. The first kind of bigger-picture question: as customers are starting to use Proteus and they are seeing more amino acids and longer read length, can you talk a little bit about what that means to the customer experience? I know you mentioned more information, but is it also better information, faster information, new applications? I am just trying to get an idea a little bit more about the customer experience with Proteus versus Platinum. Thanks. Jeffrey Alan Hawkins: Yeah. Thanks, Scott, for that question. So maybe we will break it down into three different application buckets. One bucket could be: I have a sample, and I want to identify the proteins that are present in that sample. Another bucket would be post-translational modifications. And a third sort of application area would be, let us say, variants—an engineering approach where I want to see if there are variants of the target protein I am trying to make. If you think about getting more amino acids and getting longer read lengths—so getting more content per protein—if you are in that protein identification area, it means you are going to be able to deal with a more complex mixture of proteins. You will have more unique content, unique information, with which to determine the variety of proteins that are there. Even more importantly, when you look at post-translational modifications or looking for variants in proteins, that is where more amino acid coverage and longer read lengths give you the ability to detect more of those events. You see those events may be spread out along the length of a peptide; they are not always at the beginning of a peptide. So these things give you a much higher level of fidelity and capability when you start thinking about those applications like post-translational modifications or variants. So that is maybe a way to think about what these fundamental sequencing capabilities mean to a customer in terms of the applications they are doing. Scott Robert Henry: Okay, great. Thank you for that color. And somewhat related—and this relies a little bit on your perception and perhaps some of the earlier customer feedback you have gotten—how could you anticipate customers' volume when one switches from Platinum to Proteus, because you have all these added benefits? Could it double volume? Could it 4x volume? I realize this is a bit of guesswork, but I just want to get your thoughts on that. Jeffrey Alan Hawkins: Yeah, I mean, I think it is the right question, Scott, and I think it is a little hard to predict right now. If we maybe take the question up to the 10,000-foot level, within the Platinum customers, Proteus clearly is going to bring a broader set of applications, which we would expect would open up the utilization of our technology in a lot more research studies. So we would expect within that Platinum base that Proteus should see more volume than Platinum sees. Exactly how much that is—is that a factor of two? Is that a bigger number than that?—I think that is the part that, until we get machines in the field and running, is a little hard to predict. The other aspect is all those labs and customers and some of the market segments that we just have not been able to access with Platinum at all. We think the capabilities, focusing in on post-translational modifications and focusing in on those protein variants, are going to open up a whole bunch of new customers. Today, we do not even have a Platinum in there; we are getting no volume. That will be sort of a new addressable set for us and the ability to go farm that account across a lot of different researchers in one institute and really drive volume into our machine. Scott Robert Henry: Okay, great. Thank you for that feedback. Final question: between now and launch—you have about six months—are there any gating factors technologically, or is it mostly production and building of inventory between now and then? Jeffrey Alan Hawkins: Yeah, Scott, so the way I think about it is you have the invention or the big technological breakthrough phase. That has happened; that is behind us. We have achieved that. We know the technology works. We know we are getting the performance from the fundamental components of our technology, whether that is the consumable, the instrument, or sequencing reagents. So really what we view the next six months as is a mix of the manufacturing transfer and bring-up that you mentioned, but also what I would call very standard hardware or instrument engineering and systems integration—driving up the reliability and the success rates, making sure you really get to the target specifications you want, not just in terms of amino acid coverage but the precision you are getting, the reliability you are getting, the mean time between failures. I would put all of those things into what would classically be considered pretty standard systems engineering or systems integration work. So it is technical in nature, but not something where we would expect the need to have some sort of innovation breakthrough. We think the innovation phase of the program and the invention phase are behind us, and it is really now more an operational and execution-related development effort. Scott Robert Henry: Great. Thank you for taking the questions. Jeffrey Alan Hawkins: Thanks, Scott. Operator: Our next question comes from Michael King with Rodman & Renshaw. Michael, go ahead with your question. Michael King: Hi. Good afternoon, guys. Thanks for taking the question. A couple of quick ones. I am trying to understand how you have lower operating expense in the quarter—$24.1 million versus $25.6 million in the same period last year—but you say you funded research and development at a higher run rate year on year. So how does that math work? Jeffry R. Keyes: Hey, Michael. This is Jeff. From an overall R&D standpoint, it can be a little lumpy from quarter to quarter just as we deploy with third-party partners that help on certain aspects of related activities. So that is why I was saying this year compared to last year, we were spending at a slightly higher level in R&D, but we were spending in SG&A at a slightly lower level based on other activities that we have pulled back and streamlined as part of our overall OpEx optimization to ensure that we have good runway going forward. So R&D can be a little lumpy from quarter to quarter, but overall we expect to spend within those guidelines that I mentioned earlier. Michael King: I see. Okay, thanks for clarifying that. The next question is, are you ramping—I know you use a third-party manufacturer—but are you ramping their production in advance of shipments, or will that not happen until later in the year? Or does that just happen as a function of incoming orders? Maybe you can talk a little bit about that. Jeffrey Alan Hawkins: Yeah, Michael, right now the focus is really ramping the delivery of instruments that we are using for R&D purposes. That is really the main focus today—just building out that base of instruments. That said, some of the build that is happening will ultimately support the early access customers in the summer as we work through the continued development. In terms of building inventory for the launch, that is something we will start to look at as we move through the year and really pace that for what we see as the funnel and any preorders that may come in at the back end of the year. So think right now of more of an internal scale-up to continue to expand the development activities and be able to support those early access sites in the summer. Think of inventory build for sales as being something later in the year. Michael King: Okay, thanks for clarifying that. And then I am curious about the roadshow activity. How many cities, how many sites do you expect to hit? And are you thinking about bringing your existing customers or potential customers into your headquarters to train them up so that once the installation is completed, they can immediately start doing their sequencing at scale instead of having to climb the learning curve? Jeffrey Alan Hawkins: Sure. Let us break the question into two parts. In terms of the roadshows, we put out a press release a couple of weeks ago talking about the first few cities that we were targeting with those events. We are continuing to scale that up. We are committed to continuing to provide a press release around the cities. Right now, we have been most heavily focused in the U.S. market, but we have begun locking in the dates for some of the roadshows and events in Europe. Keep your eyes out for press releases in this area; we will continue to update you on the new cities each quarter as we move through. We are seeing this as a very valuable tool in terms of us reaching people and the amount of time you get. If you are a sales professional trying to educate somebody on a new product or technology and you just go as a sales call, you typically get allotted a fairly short period of time—maybe 30 minutes, a really generous customer maybe an hour—and it could take several sales calls to build the level of information awareness that we get when we do these roadshows, where people come and spend about two hours on average at these events. We like the format, we are liking the engagement, and we are getting positive feedback. To your point on training, the roadshow is more educational; it is not really hands-on with the technology. As we get our internal fleet of instruments up to the number we would like to have, with some additional capacity to apply to customer work, we would look to have customers initially send samples to us so we are generating data. They get that data in their hands and are starting to work through that evaluation process and ultimately the budgeting process. When we get to launch, we will have some number of customers who have already done the prework, and what they will be doing more is working through their budgeting process to get the capital to purchase the machine. Once it is in their lab, we are very comfortable with how to train a customer. We have done it to date on the Platinum instrument, and Proteus, having all of the sequencing components automated, should be easier to train a customer on than it even is today. We are not worried about that back-end training component. We think that sample evaluation access early to get data in their hands is the key thing, and that is the next major milestone we are looking to accomplish over the coming quarter. Michael King: Amazing. And then one final quick question. What does the early access site selection process look like, and how many sites do you expect to have active by the end of the summer? Can you give us a range or point estimate? Jeffrey Alan Hawkins: I would say the process looks like we are going to want to have early access sites that span market segments. Clearly, we are going to want some number of academic institutes because those folks will be the type of customer who not only will do the early access but are also going to publish. That said, we are also evaluating the potential to have one or more of the early access sites be in a commercial environment—whether that be biopharma, antibody production, some area like that—because we really want the data and the experience in that market segment. But we know that when you get into a commercial setting, oftentimes customers are not able to publish. So we are thinking about those factors: demonstrating the capabilities, multiple segments, and also thinking about geographies. We have not set out an exact number. The way we are thinking about it is we are going to want to have a reasonable number of these. Do not think you are going to see us do 10 of them, but at least a handful is probably in the neighborhood of what we would be looking to implement over the course of the summer and even into the fall, again spanning geographies and end markets. Michael King: Super. Thanks so much for taking the questions. Jeffrey Alan Hawkins: Thank you, Michael. Operator: Our next question comes from Charles Wallace with H.C. Wainwright. Charles, go ahead with your question. Charles Wallace: Hi. This is Charles on for RK. Thanks for taking my question. You called out that any Platinum Pro unit sold in 2026 is going to have an embedded credit towards Proteus. Have you sold any Platinum Pro units, and do you have some of these credits stacked up at this point? Jeffrey Alan Hawkins: I will start, and if I do not get everything out, I am sure Jeff will jump in here with anything I miss. Not every Platinum Pro has to have that credit. It is a credit that is available to customers if they want to have that ability. Sometimes when you have a new machine coming, people say, “I want to buy it, but I am not really sure what is going to happen when the new machine comes out—how long will you support it?” Those types of things. So they want to have a credit. It is available to customers if they request it. That said, sometimes the machines you are selling now were ones that were budgeted for many months ago, up to a year ago. Those processes and those quotes would have gone out without this credit. So that might not show up in some of the machines that get sold throughout the year if they were budgeted for in the past. At this point, we are not really breaking out which of the capital sales have had the credit or not. As we go through the year and see other metrics of the funnel building, perhaps we will be in a position to provide a little more color on that, because a credit is really a protection for the customer. They still have the option to buy the Proteus or not. At this point, we are not breaking it out; we do not want to overstate the demand for the future machine just based on whether somebody asked for a credit or not. Charles Wallace: Okay, that makes sense. For the early access program, you mentioned maybe a handful of units, and then you also said you are building a fleet of internal units. How large of an internal fleet are you targeting, and how long does it take typically for an instrument to be built and be fully ready? Jeffrey Alan Hawkins: In terms of the internal fleet, I do not know that we have an exact number that we would give out. You can think about the internal fleet as needing to support our instrument engineering team—people working on instruments, integration, software. We have reagent development—the people putting the sequencing reagents into consumables and getting those optimized and ready to go—so they have to have access to machines. Then, of course, as we are bringing up manufacturing, we have to have some number of machines in our quality control testing environment to develop the QC tests, run the specifications that we will hold ourselves to when we are launching, when we are finalizing a kit, and ultimately deciding what can be shipped to a customer. So we have multiple groups who need access. In general, our strategy is to continue to build those and maximize their utilization. If we see that those are all maxed out, we keep building. We do not ever want to be throttled in terms of our ability to push as much testing volume and development volume through those internal machines. In terms of timelines for build, it would be a little early to put a specific timeline on the lead time to build an instrument. There are a small number—as is the case in most instruments—of long-lead parts. We procure those in advance and hold those parts. The assembly process itself is more about applying the labor and optimizing those processes. We are not having issues with a machine showing up at a Quantum-Si incorporated facility and functioning properly. We are not having those types of challenges that sometimes exist in early hardware development programs. Are we operating the line with perfect efficiency and perfect throughput? It is safe to say we are not yet, but we are very comfortable that we know how to do that, and we can optimize that well in advance of any commercial ramp. Since it is very labor-oriented, we have external partners, and one of the reasons we use those partners for instrument manufacturing is they have the capacity and the people. They can flex that up or down as our forecast requires. As long as we maintain those long-lead parts in inventory, the ability to flex up or down is a pretty efficient thing to do when you have external partners who have that kind of capacity. Charles Wallace: Great. Makes sense, and thank you for all the color. Operator: Our next question comes from Kyle Mikson with Canaccord Genuity. Kyle, go ahead with your question. Charlotte Mauer: Hi. This is Charlotte Mauer on for Kyle. Thank you so much for taking our questions. To start, could you elaborate a little bit more on the recent successful sequencing run on Proteus and how the performance compared to your expectations? What were some of the most notable improvements, and were there any specific challenges that need to be addressed before moving forward? Jeffrey Alan Hawkins: Thanks, Charlotte. I will work on that question backwards to forwards. The last part of your question was whether we experienced any challenges testing those samples, and the answer is no. We were able to run those samples successfully. We ran them both on Platinum and on Proteus so we could get a same-time comparison. In this particular situation, these are a series of proteins that the customer has previously worked with and tested in their own lab using a Platinum instrument. What they were focused on for their application was trying to both identify these proteins, and they are also doing some really novel work around developing tools for essentially de novo detection of amino acids. They are really focused on the coverage and the read length. Getting data from Proteus—one is just the amount of output you get. The number of reads is much, much higher with Proteus simply based on the number of features on that chip compared to Platinum. The coverage—as I mentioned in the prepared remarks—not only are we detecting 17 amino acids now, but our detection frequency of the others is considerably higher. And then, when you think about read length, what the customer saw in these particular samples is that the read length on Proteus was about double—about twice as long as what they are used to seeing on Platinum. If we go back to one of my earlier answers to Scott—why would a customer care about more amino acids being detected or longer read lengths? In this case, they are working on samples where they want to identify these proteins and potentially variants or modifications of them. They are thinking about algorithms they are developing for de novo detection. More content, longer reads, more complete information are going to really help them with their exploratory algorithm work in addition to the basic performance in identifying and subtyping those different proteins. Charlotte Mauer: Thanks for that additional color. I also had some questions about the roadshow. It sounds like there has been some strong early interest, but could you dive a little deeper into any relevant feedback or interest that you have received from customers at this point about Proteus, key highlights or takeaways, and any feedback on pricing? Jeffrey Alan Hawkins: Early interest is largely where we anticipated it: customers are really excited to have the ability to analyze PTMs. It is an area of translational research, basic biology research, and mechanisms of action where—outside of phosphorylation—it is a pretty difficult field to tackle even if you have access to some of the highest-end mass spec machines. So PTMs are a big draw. On the two roadshow formats, in the first format where we go to an institution with an existing Platinum and open up the education, we are seeing not just the core lab but many other researchers—translational and basic biology—who have an interest, a study in mind, a potential way to utilize the technology. That has been a really positive learning for us as we think about driving institutional momentum toward funding: helping the core lab see that their internal customers have a desire to get access to the tech. That type of momentum can be really helpful when working through where the funding proposal sits among all the other capital equipment they are looking at. On pricing, we have announced the price. We have not heard any pushback. I would not expect to at this point for two reasons. First, if you are thinking about PTM applications, those folks are often using very high-end mass spec equipment that can cost upwards of $1 million or more. Us sitting at $425 thousand is really attractively priced compared to what they might be spending on one of the high-end mass spec machines. Second, we have not given people enough information today that someone has to really make the decision on the price. The good news is no one is hearing it and running away, so we are not too high. We will get more nuanced feedback as we continue to put out more data or they are able to start getting sample evaluations in hand. Thus far, no one has been concerned. People have thought it is very reasonable for its capabilities, and we will keep driving home the message around the capabilities at $425 thousand versus having to go all the way up over $1 million for a mass spec that can do the same thing. Charlotte Mauer: Great, thank you. And one last question: looking ahead to expectations for 2027 and some of your capital deployment, you mentioned utilizing key external partners for certain development-related activities. Where in the process do you expect to use these partners the most, and how should we think about this reduction in capital deployment relative to your 2026 levels given a full year of spending on commercialization efforts for Proteus? Jeffrey Alan Hawkins: Let me start, and then I will pass it to Jeff for a little additional color. We are using these partners today across some of our consumable development efforts, our optic system that is inside of Proteus, and instrument development. We have partners who are working with us across those various R&D efforts. Some of those partners will flip into our manufacturing partners next year. They will be with us, but it will be more in terms of building inventory and supporting that. Maybe, Jeff, you can give a little feel for how we think about the burn-down after we launch. Jeffry R. Keyes: Regarding total OpEx as we move forward into 2027, we will need some of these partners to help stabilize the program shortly after launch, which is typical for a new development project. But after that, since we are using a significant amount of partners, we are going to be able to ratchet down that R&D spend specifically. As I noted earlier, we would be able to either bank that savings or redeploy it, but we are going to look for opportunities between R&D and other activities to ratchet down our OpEx, and we will gauge that relative to how Proteus uptake goes in 2027. We will be able to manage it going forward. It is definitely on our radar, and external partner R&D spend is the first obvious step, followed by other items we can look at going forward. Jeffrey Alan Hawkins: And, consistent with what we did this year, as we look at our guidance in 2027, we will be able to be more quantitative when we get there in terms of how we think about our adjusted OpEx or cash use. We will continue to provide that guidance. It is just a little early to be providing it right now, but you can gather from Jeff’s and my feedback how we are thinking about rotating those dollars off in R&D, some deployment perhaps into other initiatives, and banking the majority of that savings. Charlotte Mauer: Awesome. Thank you so much for all the time. Jeffrey Alan Hawkins: Thank you. Operator: This concludes the question and answer session. I would now like to turn it back to Jeffrey Alan Hawkins for closing remarks. Jeffrey Alan Hawkins: Thank you for attending our call today. We look forward to providing additional business updates on our next earnings call. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Welcome to GSI Technology, Inc.’s Fourth Quarter and Fiscal Year 2026 Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. At that time, we will provide instructions for those interested in joining the Q&A queue. Before we begin today’s call, the company has requested that I read the following safe harbor statement. The matters discussed in this conference call may include forward-looking statements regarding future events and future performance of GSI Technology, Inc. that involve risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties are described in the company’s Form 10-K filed with the Securities and Exchange Commission. Additionally, I have also been asked to advise you that this conference call is being recorded today, 05/07/2026, at the request of GSI Technology, Inc. Lee-Lean Shu, the company’s chairman, president, and chief executive officer will be hosting the call today. With him are Douglas M. Schirle, chief financial officer, and Didier Lasserre, vice president of sales. I would now like to turn the conference over to Lee-Lean Shu. Please go ahead, sir. Lee-Lean Shu: Good afternoon, and thank you for joining us. To review our fourth quarter and fiscal year 2026 financial results. Fiscal 2026 was a year of meaningful progress for GSI Technology, Inc., marked by strong performance in our SRAM business, continued advancement of Gemini II to commercialization, and the initiation of the PLATO design. While I am pleased with the progress we have made on several fronts, significant work remains. Our team is executing our key milestones and advancing business development for the APU, and I have had several encouraging conversations on numerous fronts in these amounts. We end fiscal 2027 with continuous momentum, promoting the APU and building our customer traction. With that, I will now hand the call over to Didier. Didier Lasserre: Thank you, Didier. Let me start by stepping back and framing where we are today. Because I think the context is important. Our SRAM business performed well in fiscal 2026 and remains the revenue foundation of the company, providing cash for APU development. For the full year, the SRAM business grew 22% year-over-year and gross margins rose to 55% from 49%. The SRAM business has benefited from increased demand from our customers that support high-performance AI chip development and manufacturing. We recently announced that we concluded our strategic review and determined that continuing to execute our standalone strategy is the best path forward for delivering long-term shareholder value. The stronger SRAM business and a strengthened balance sheet, along with non-dilutive R&D funding, are providing the resources to support our go-forward plan. With this financial foundation in place, we are now seeing real progress with Gemini II and PLATO. Over the past several months, we have reached a point where we are seeing both technical validation and early program-level engagement of Gemini II, including the Sentinel drone surveillance POC, the U.S. Army SBIR award, and a new Phase One smart city project I will discuss in a minute. On the technical side, in a bake-off for the Sentinel POC, Gemini II’s performance contributed to winning the contract award by achieving a time to first token of roughly three seconds at 30 watts of system power on Gemma 312B multimodal workloads at the edge. In this use case, time to first token is a critical metric for drone surveillance systems because it reflects how quickly the system can respond in real-world applications where response time directly affects critical decision making. We are working closely with the G2 Tech team on the Sentinel program. We have completed the software deliverables and continue to target a June demonstration of the Gemini II powered drone. This demonstration is planned for the Department of Defense and an international defense agency. In mid-April, we were notified that we had been awarded Phase One of a smart city project. The project leverages our work done for the drone-based surveillance POC and marks an important step forward towards commercial deployment. In this application, Gemini II will process inputs from distributed camera systems to provide near real-time detection of events such as fires and other public safety risks. This project demonstrates how our platform can scale across real-world infrastructure. We expect to share additional details on the smart city program around the time of a planned media event in late May hosted by the municipality. Currently, we are working on several projects in tandem. What matters most for GSI Technology, Inc. at this time is not just the number of early-stage trials and demonstrations we have, but also how these early-stage engagements are helping us identify where our APU architecture provides a clear advantage, particularly in delivering low-latency performance within a constrained power envelope. We are also leveraging our deployment work in two ways. First, we are applying what we have developed for the drone security application to a smart city application. While the end markets are different, the underlying development carries over, giving us a meaningful head start in a new use case rather than starting from scratch. Secondly, as we complete the Sentinel POC and Phase One of the smart city program, we can build on those results to pursue additional opportunities with new customers in those markets. We view this as a repeatable model where each engagement helps accelerate the next. What is exciting for us is that we see the end markets for low-latency, low-power AI at the edge expanding as AI workloads continue to move closer to where the data is generated. These applications favor the APU architecture that can deliver higher compute per watt. Gemini II is ideal for these power- and latency-constrained edge deployments, where real-time response and energy efficiency are critical. Where we are winning is where Gemini II is tested against conventional architectures requiring significantly higher system power for similar or slower responsiveness. We believe Gemini II best addresses this gap and positions us well to win as more AI loads shift towards distributed, power-constrained environments. Consistent with this, we are encouraged by our progress within defense agency programs, as evidenced by our recent U.S. Army SBIR progressing from Phase One into Phase Two. This project is about enabling real-time in-field AI deployment on small, low-power systems typically operating in challenging conditions. As part of this program, we will build and test a ruggedized node containing the Gemini II for real-world mission-critical environments. This SBIR positions us within a broader shift in defense spending, with approximately $13 billion proposed in fiscal 2026 budgeted for AI and autonomous systems, and creates a potential pathway to follow-on programs and future opportunities to supply Gemini II-based systems. So how do we move from where we are today to design wins and ultimately revenue? From a commercial standpoint, we are still in the early stages. Our focus is on advancing our current engagements and working closely with partners to integrate Gemini II into their systems, with the goal of moving into design-level discussions. Given the complexity of these deployments, we are focusing our resources on a small number of high-value opportunities where we believe we have a clear advantage. Although the number of engagements remains limited, we are seeing a meaningful increase in the depth of these engagements and our ability to leverage our prior Gemini II deployment work for new related applications. Looking ahead, our priorities are to advance current POCs and awarded programs and to leverage what we have learned from each of these engagements to drive additional design opportunities. At the edge, performance matters most when it can be delivered within real-world power and latency constraints. That is where we believe Gemini II’s advantage lies. With that, I would like to hand the call over to Doug. Go ahead, Doug. In the earnings release issued today after the close of the market, you will find a detailed summary of our financial results for the fourth quarter and full fiscal year 2026. Douglas M. Schirle: Rather than walking through the numbers again, I will focus my comments on the key drivers behind the results and provide more context and explanation to help you better understand the business. Let me start with the results for fiscal year 2026, ended 03/31/2026. As Didier mentioned, fiscal 2026 revenue increased 22.4% to $25.1 million, reflecting continued strength in our SRAM business, particularly with customers supporting chip design and simulation for AI applications. We experienced solid growth in this customer segment throughout fiscal year 2026. We do see variability in customer orders, and sales can fluctuate from quarter to quarter. However, barring any significant change in underlying AI chip demand that would affect SRAM orders from these customers, we expect this business to remain relatively stable in fiscal year 2027. The higher level of revenue and product mix helped to lift fiscal year 2026 gross margin to 54.5%, a notable gain from the prior year gross margin of 49.4%. Operating expenses in fiscal 2026 rose to $31.2 million compared to $21 million in fiscal 2025. Operating expenses increased year-over-year primarily driven by higher R&D spending on the PLATO chip design. It is also important to note that the prior year included a $5.8 million gain from the sale of assets, which makes year-over-year comparisons appear more pronounced. We also continue to offset a portion of our R&D expenses through non-dilutive funding, SBIR contract funds, and POC-related funding. The majority of our R&D is dedicated to APU. The R&D offset in fiscal 2026 and fiscal 2025 was $1 million and $1.2 million, respectively. Higher operating expenses increased the total operating loss for fiscal 2026 to $17.5 million compared to an operating loss of $10.8 million in the prior year. The fiscal 2026 net loss included interest and other income of $4.1 million, primarily from interest payments on the increased cash balance from the capital raise completed in October 2025, and $3.4 million of other income consisting of a $6.2 million non-cash gain from the change in the fair value of prefunded warrants, partially offset by $2.8 million in issuance costs associated with the registered direct offering in October 2025. Switching now to the fourth quarter. Revenue was $6.3 million with a gross margin of 52.4%. As we have seen in prior periods, quarterly gross margin can fluctuate with the product mix and revenue levels. The fourth quarter gross margin reflects slightly lower semiconductor sales sequentially compared with the prior-year quarter. From a customer perspective, we did see some variability across accounts during the quarter, including lower shipments to certain customers and higher shipments to others. At the same time, defense-related sales increased to approximately 46% of total shipments, reflecting continued demand in that segment. Again, you will find a full breakdown of sales in today’s earnings release. Operating expenses increased from the prior year primarily due to continued investment in our Gemini II and PLATO development programs. These investments align with our strategy to advance our APU roadmap while maintaining discipline in cost management. Last quarter, we expanded quarterly earnings disclosures to help investors better understand the company’s cash consumption and cash generation. This information will complement the condensed consolidated statement of cash flows included in our Forms 10-K and 10-Q. Cash flows for the quarter ended 03/31/2026 were as follows: cash and cash equivalents as of December 31 were $70.7 million; net cash used in operating activities in the quarter was $5.5 million; net cash used in investing activities was approximately $100,000; and net cash provided by financing activities was $2.1 million. Cash and cash equivalents as of 03/31/2026 were $6.2672 billion. From a cash flow standpoint, spending in the quarter continued to reflect our investment in Gemini II and PLATO development. We expect cash usage to remain elevated as we progress through this development phase. As a general reference point, we expect the cash usage to be approximately $4 million per quarter, or about $16 million annually, although this may vary depending on development timing and program activity. We ended the quarter with $67.2 million in cash and no debt. This is a notable improvement from the prior-year cash balance of $13.4 million and is associated with $46.9 million, net of fees, registered direct offering proceeds that closed in October 2025. The absence of debt and the improved cash balance provide us with the flexibility to continue investing in APU while maintaining a disciplined approach to capital allocation. We believe our current cash position provides sufficient runway to support the initial commercialization of Gemini II and the completion of the PLATO tape-out, both expected late fiscal 2027. Before I hand the call over to the operator for Q&A, I would like to provide the first quarter fiscal 2027 outlook. For the upcoming quarter, we expect net revenues in the range of $5.9 million to $6.7 million with gross margin of approximately 54% to 56%. Overall, our strong cash position and continued support from non-dilutive funding give us a runway to advance Gemini II into early commercialization and the PLATO chip design. Operator, at this point, we will open the call for questions. Operator: Thank you. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Once again, it is star 1 to ask a question. The first question is from Tony Brainard, retail investor. Analyst: Hello, gentlemen. How are you? Lee-Lean Shu: Good. Thank you. Analyst: Yes. Can you share some color on the size—like, if you do get the design wins—the size of the market we are looking at? Lee-Lean Shu: On which market? Analyst: On the Gemini II. Didier Lasserre: Okay. That is a pretty broad question. So the markets we are going after initially, you know, some of them are government, military-based, specifically these drone programs. And as we talked about, we are limited in detail now. We will give you more detail on the smart city at the end of May. But both of those markets are multibillion-dollar markets. Lee-Lean Shu: Okay. Analyst: Yep. Analyst: That is fair enough. And that is my only question for today. Thank you very much. Douglas M. Schirle: Alright. Thanks, Tony. Analyst: Thank you. Operator: The next question comes from Robert Christian, Private Investor. Robert Christian: Yes. I would like to know why the PLATO project has moved up from 2027 to late fiscal 2027. Didier Lasserre: Actually, it has not been pushed out. It might have been a mixture of calendars and fiscal quarters. When we had first talked about it, we were targeting the beginning of calendar 2027 to have the part taped out, and we are still on schedule for that. Tape-out means that the design will be done in the first quarter, and that would give us silicon because we have to make the mask sets that are used for the wafer fabs at TSMC. So we will see our first wafers in hand in summertime of calendar 2027, and I believe that has always been our schedule. Lee-Lean Shu: Yeah. I think we mentioned fiscal year 2027. That is the beginning of the 2027 calendar year. Didier Lasserre: That is a good point. So the end of fiscal 2027 is March of calendar 2027. Okay. That would be great. And the second question I have is, Gemini II taped out over two and a half years ago. Is it going to take that long to see expected sales, say, of PLATO? Didier Lasserre: So that is a great question. You have two components to sales. You have the hardware component, which is the chip and any kind of board, and you have the software side. The software side actually lagged the hardware on Gemini II. With PLATO, we are trying to align the two more closely. The good news is some of the software work that is being done for Gemini II can be used for PLATO, while with Gemini I it was a completely new effort. In that respect, we can leverage some of the work from Gemini II for PLATO, and then we are also lining up the resources to be able to bring in the software with PLATO. Robert Christian: Well, the chip is genius, and I wish you guys godspeed. Lee-Lean Shu: Thank you. Didier Lasserre: Thank you. Operator: At this time, we show no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Lee-Lean Shu for closing statements. Lee-Lean Shu: Thank you again for joining today’s call. As a reminder, Didier will be at the LD Micro Conference on May 19. Contact LD Micro if you would like to attend this presentation or take a one-on-one meeting. We are encouraged by the progress we are making with Gemini II, and we remain focused on successfully executing against the opportunities in front of us. We look forward to speaking with you again on our fiscal 2027 first quarter earnings call. Thank you. Operator: This concludes today’s conference. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the ams-OSRAM Conference Call on First Quarter 2026 Results. I'm Sergen, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Juergen Rebel, Head of Investor Relations. Please go ahead, sir. Juergen Rebel: Good morning, everyone. This is Juergen speaking. Welcome to today's call on first quarter 2026 results. Aldo, our CEO, will comment on business performance and our strategic progress. Rainer, our CFO, will then walk you through the financials. Please refer to the Q1 earnings call presentation that is available on our website. Aldo, how did we perform in the first quarter following the launch of our Digital Photonics strategic realignment? Aldo Kamper: Thank you, Juergen, and good morning, everyone. Turning to Slide 3 here. Overall, we delivered a very strong first quarter and made further tangible progress towards our ambition of becoming a focused Digital Photonics powerhouse. On a like-for-like basis, our semiconductor core portfolio grew by 9% year-on-year, clearly underlining that the strategic focus is the right one. Revenue came in well above the midpoint of our guidance range. Adjusted EBITDA reached the upper end. Design win momentum continues unabated across all end markets. From a Digital Photonics perspective, we achieved 2 important milestones in this quarter. First, we are in the process of extending our portfolio of optical components that are decided for the system performance of AI-enabled augmented reality smart glasses covering key functional building blocks. Second, in AI photonics, we signed a development agreement for highly parallel micro emitter array-based so-called slow and wide optical interconnects targeting hyperscaler AI data centers. In parallel, we advanced on execution topics. The simplified transformation program is well underway, and our balance sheet deleveraging plan progressed as planned. The sale of the Entertainment & Industrial lamps business to Ushio closed in early March and cash proceeds were received. The divestment of our non-optical sensor business to Infineon remains well on track with unchanged timing for mid-'26. Finally, we delivered positive free cash flow in Q1. As expected, divestment proceeds offset the seasonally high interest payments that typically occur in the first quarter. With that, let look at the details. Turning to Slide 4. Q1 performance came in stronger than initially expected. Group revenue came in with EUR 796 million, well within the upper half of the guidance spend. Adjusted EBITDA reached 16.5% at the upper end of the guidance, driven mainly by the OS division and a very strong automotive lamps performance. Year-on-year, revenues declined slightly, entirely due to the weaker U.S. dollar with a top line impact of roughly EUR 15 million. On a like-for-like basis, at constant currencies, the group would have grown by approximately 8%. Adjusted EBITDA recently declined modestly year-on-year solely due to the deconsolidation of the specialty lamp business despite the FX headwinds. Let's turn to segment performance on Slide 5. OS held up very well in a typically soft first quarter. Revenues were almost flat quarter-on-quarter. We experienced supply constraints in select product lines due to short-term order increases. Without those, even the sequential growth would have been possible. Margin declined sequentially due to higher gold prices, annual price downs effective January 1 and FX effects. However, it was 2 percentage points higher year-on-year, reflecting higher production volumes that are not fully visible in reported revenues due to the weaker U.S. dollar. CSA delivered a solid performance in the seasonally weakest quarter. Results were driven by continued strong demand for custom sensor products in consumer handheld and a recovery in Industrial & Medical. Revenues were slightly lower year-on-year solely due to declining contribution from exited noncore portfolio activities. Profitability follows typical revenue fall-through dynamics, however, was down year-on-year, which is due to higher R&D expenses to fund growth projects and FX headwinds on top. Lamps & Systems again delivered a very strong quarter. Aftermarket demand remained elevated, including short notice ordering following financial difficulties at a major competitor. Specialty Lamps contributed for only 2 months. Please keep that in mind. The deconsolidation explains why reported revenue did not increase year-on-year. Strong production loading in Q1 supported profitability. Overall, it was mostly a strong quarter across the portfolio. Turning to Slide 6. Adjusting for the weaker dollar and the exited noncore portfolio contribution, the clean core portfolio grew 9% year-on-year. The noncore portfolio is now largely wound down with only residual contribution in the order of magnitude of EUR 10 million. Looking at the markets, Automotive was broadly flat versus a typical seasonal slowdown. After a lackluster start early into the year, we saw a clear ordering uptick in February and March. Given the declining underlying vehicle production outlook, we interpret it as a partial restocking after a prolonged period of very limited inventories, combined with some level of precaution due to the turbulences in the Middle East. All regions performed sequentially better, except China, where end market demand remains softer and competitive intensity is elevated. Industrial & Medical showed a clear recovery. Horticulture had a seasonal low point, but professional lighting demand was solid. Order intake improved materially and order patterns at the end of the quarter point to a solid seasonal upswing into Q2. Consumer followed typical seasonal patterns sequentially. Year-on-year, the decline is explained by FX and the phaseout of noncore portfolio elements. Turning to Slide 7. Q1 is typically the weakest quarter for design win activity, yet momentum remains solid. Total design wins amounted to around EUR 850 million. Naturally design wins are geared towards automotive, but the other verticals also contributed well. In our classic semiconductor core business, automotive remains the backbone with triple-digit million euro contribution across the portfolio and strong momentum in forward lighting. Industrial showed very good traction, particularly professional lighting with customers in the U.S. and Europe, while horticulture performed materially better year-on-year. Consumer continued to see recurring sensor design wins in Android-based smartphones, particularly in display management. On the Digital Photonics side, progress was equally encouraging. EVIYOS continued to add platforms, taking the number of awarded platforms to well above 60. And interest for new designs remain strong, especially in China. Augmented reality, several of our existing components such as ambient light and spectral sensors are already designed into smart glass models available in the market. AI photonics, well, product development for micro-emitter arrays for highly parallel AI optical interconnects has started. And we are not doing this alone. We have signed a collaboration agreement with a strong AI infrastructure partner. We will now look at these Digital Photonics themes in more detail. Turning to Slide 8. Augmented reality, smart glasses are a key Digital Photonics growth theme. While the category is still at an early stage, adoption is accelerating even with today's limited functionality. AI is a game changer, making the glasses potentially in the midterm a replacement of our smartphones. Some of our sensors and LEDs are already designed into several commercially available smart glass models today. Our current and future portfolio covers key functional domains, health and well-being, sensors enabling measurement of parameters such as medicine levels via blue light, heart rate and UV exposure. Privacy and camera performance, spectral and flicker sensors as well as high-performance LEDs. Display engine, today, our LEDs eliminate LCOS displays. Going forward, micro LED arrays can enable sustainably higher brightness resolution and better power efficiency. World sensing compromise gesture and 3D Time-of-Flight sensing. HMI, today, we supply our proven proximity sensors. Tomorrow, we have super tiny optical for sensing buttons in store. And eye tracking can be done with our integrated optical sensing solutions. This illustrates our strategy of focusing on the size of system components built on our core technologies. Content estimates naturally vary depending on volumes, life cycle stage and computer -- customer implementation choices. For this, however, we see content potential between EUR 50 and EUR 100 per device, which underpins the triple-digit million annual revenue opportunities we outlined when launching our Digital Photonics strategy. On to the next highlight today, turning to Slide 9. Our progress in AI photonics is accelerating. I have 3 slides for you. First, where our products will sit in the data center; second, how do we fit in our structure; and third, which components are we targeting. We believe that the so-called slow and wide optical interconnect based on highly parallel micro-emitter arrays can play an important role in future AI data center architectures. And here, slow is relative as we're talking about 8 gigabit switching speed and hundreds of parallel channels. Initially, the focus is on short distance scale-out interconnects achieved between the racks, then scale-up connections within the rack, replacing copper over distances of up to several tens of meters. Over time, chip-to-chip connections, for example, between GPU and high-bandwidth memory could become addressable as well, a really great market potential for us. Turning to Slide 10. It's important to distinguish between integration content and the optical engine technology itself. On the integration side, today's solutions on the upper right rely on pluggable transceivers or active optical cables with energy consumption of up to 30 picojoules per bit. And these solutions, not only longer -- the long copper traces, but typically also signal shaping chips consume quite a lot of power. ToF sensor near port optics can reduce this to roughly 5 to 10 picojoules per bit. The optical engine moves much closer to the ASIC. Co-packaged optics shown on top left, promises further reductions towards 1 to 5 picojoules per bit over time. The optical engine moves as close as possible to the ASIC. Put simply, the closer the optical engine sits to the chip, the lower the electrical losses and the associated thermal load. The slide illustrates this distance comparisons. Independent of the integration approach, optical engines can be implemented either as fast and narrow or slow and wide. Fast and narrow is today's established technology based on indium phosphide lasers, often EMLs and silicon photonics integration concepts. We believe in future slow and wide architectures, highly parallel micro-emitter array-based optical engines that transmit light pulses at chip speed without need for power hungry serializers and deserializers. Key advantages include substantially higher bandwidth density, very low power consumption per bit and inherent redundancy through parallelism. If one micro-emitter fails, no problem, there are enough channels for backup, an important consideration for hyperscale customers. Turning to Slide 11. On the left, you see our prototype, which helped accelerate the signing of a development agreement with our ecosystem partner, a leading AI infrastructure supplier. The table in the center illustrates the simplified technology stack for highly parallel optical interconnects. In essence, you can think of the transmitter side, the receiver side and advanced packaging technology that glues everything together. Our current development focus is on the transmitting side, micro-lens and micro-emitter arrays. Given our CMOS and sensor capabilities, we're also evaluating opportunities on the receiver side. We'll keep you updated as development progresses. With that, let me hand over to Rainer for an update on selected financial aspects. Rainer Irle: Thank you, Aldo. Good morning, everyone. I'm on Slide 12. We generated EUR 37 million free cash flow in Q1, which includes EUR 90 million divestment proceeds. The cash inflow from the sale of the specialty lamps was received early March. Operating cash flow was a breakeven, reflecting the seasonally high interest payments on our senior notes. Higher than a year ago after the EUR 500 million tap we did last summer. CapEx remained disciplined and well below our full year guidance of 8% of revenue. With that, let us take a quick look at the Simplify program that we launched with Q4 announcement in February 10. Turning to Slide 13. Last quarter, we reported that the Re-establish the Base delivered savings 1 year early. The implementation of the remaining measures that had been identified continued. Re-establish the Base program delivered EUR 237 million savings, really a great success. Now in February, we launched a successor Simplify program, which is a broader transformation program aimed at reshaping our operating model and delivering another EUR 200 million of additional annual savings by '28. Happy to announce that all saving measures have been identified and at least 90% of those have already today a high maturity level. Cost, speed, agility are our guiding principle as we reshape our operating model. Implementation started immediately. And after just 1 quarter, the teams have already delivered EUR 5 million of savings, demonstrating disciplined execution continuity. Now, let's have a quick look at liquidity and capital structure on Page 14. In Q1, the interest payments for senior notes were due with the cash proceeds from the sale of the specialty lamps, free cash flow was positive such that our cash on hand position only reduced because we paid back EUR 200 million nominal of the convertible note. And the cash position now stands at EUR 1.3 billion at quarter end. With that, the available liquidity position closed accordingly at EUR 2 billion. It is backed by a diversified mix of instruments, cash revolver and bilateral lines. The sale and leaseback value moved up in line with currency swings and the quarterly interest accrual. And with that, let us zoom in on the coverage of the upcoming short-term maturities on the next slide, which is Page 15. Now we have EUR 1.3 billion cash on hand, and that will be enriched with EUR 570 million from the Infineon deal upon closing somewhere midyear. That gets us to a total of EUR 1.9 billion pro forma cash, and that completely recovers all the near-term maturities, and that is the remaining outstanding convertible bond, which as we paid EUR 200 million is now sitting at EUR 560 million. When we received the money from Infineon, we have 120 days to offer the amount related to the guarantor assets as part to noteholders approximately EUR 130 million. And second, there are some business needs for the transition effects in '26. Basically saying the cash flow will be negative. The EBITDA will be somewhat lower because we are selling business, and there will be some stranded costs that we will be cleaning up. And then there's quite a bit of transformation costs and talking cash flow, the cash outflows from the Simplify program. And then we will be repaying USD 100 million in customer prepayments, and we will reduce because we have so much cash, roughly [ USD 100 million ] in factoring. Now excluding the disposal proceeds, expect the cash flow to be something triple-digit million negative. However, and once we are through that in '27, the free cash flow will be substantially better. And if business remains strong as it is, we expect it to move to positive territory, excluding any additional disposal proceeds and even that we also next year, still have to repay a similar amount of customer prepayments. So excluding disposal proceeds, we expect that next year to be in positive territory. And third, what we will be paying from the existing cash on hand is the tendering of the Osram minority shares after the final verdict, there's no news, but we still have it -- assume that it will come this year. And that should then leave once everything is taken care of at least EUR 500 million cash on hand. And that is the very important point. All upcoming near-term maturities are fully covered. And that obviously then now that is covered, we now have started to focus conceptually on optimizing the cost and the maturity profile of our '29 senior notes, where, as you know, the interest rates are higher than I would love to, and we will keep you posted with what our plans are. And with that, let me hand back to Aldo for the summary and the outlook. Aldo Kamper: Thanks, Rainer. And let me summarize today's call. I'm on Slide 16. In Q1, we beat again our revenue and profitability guidance. The core semiconductor business grew 9% like-for-like. Free cash flow was positive at EUR 37 million. We completed Re-establish the Base with EUR 237 million savings a year early and started executing Simplify. In Digital Photonics, we continue to progress on the comprehensive component portfolio for AI-enabled smart glasses, giving us a content opportunity between EUR 50 and EUR 100 per smart glass. We initiated the product development of micro-emitter array-based AI optical interconnects together with the commercialization partner. We also progressed in balance sheet deleveraging the Specialty Lamp transaction closed and proceeds were received and the Infineon transaction remains on track. No changes to the indicated closing timeline of mid of this year. Now to the outlook for the second quarter. We expect revenues between EUR 725 million and EUR 825 million, with adjusted EBITDA around 15.5% plus/minus 1.5 percentage points based on euro-dollar of 1.17. The traditional auto lamps business will show the usual seasonal slowdown in view of the overall rate in the aftermarket. Remember, all non-automotive business was transferred to Ushio. We still have EUR 10 million revenue in Q1 and 0 in Q2, obviously. Semis will make a step forward in Q2 more than typical seasonality. We see strong order intake and book-to-bill higher than previous quarters. Our full year 2026 outlook remains unchanged at the moment. Group revenues modestly softer given the divestment and FX. Adjusted EBITDA of around 15.5%, plus/minus 1.5 percentage points, assuming euro-dollar of 1.17. Adjusted EBITDA will be negatively impacted by several one-offs, the divestments, stranded costs, precious metal prices and other factors. Free cash flow, we expect above EUR 300 million, including divestment proceeds. Into 2027, we see a path to positive free cash flow without any divestment proceeds even with repaying a similar amount of customer prepayments. And with that, we are through the presentation, and we're happy to take your questions. Operator: [Operator Instructions] And we have the first question coming from Harry Blaiklock from UBS. Harry Blaiklock: The first one is just on the micro LED optical networking opportunity. I think previously, you said it's kind of a 2030 plus revenue opportunity for you. But given the announcement today and then also kind of industry announcements about commercializing solutions as early as 2027. How are you thinking about the timelines on when you could see revenues? Aldo Kamper: Yes. Thanks, Harry. That's a very good question. The industry is hyper quick and really waiting for solutions here. We're working very hard on those solutions together with our partners. And I think timing-wise, we are definitely before 2030. Whether it's as early as 2027, I can't tell you yet, but we definitely see this as an opportunity in the next few years, not in the far future. Harry Blaiklock: Okay. Great. And just maybe a follow-up on that. It was good to see that you're addressing kind of multiple elements of the full solution. If you look at kind of the elements that you have in development and consideration, so the emitter, the lens and the diode array, how -- are you able to give kind of like a rough split of like what your -- like what percent -- so yes, the relative kind of content size for you of each of those? What would be the -- yes, what would be the biggest content for you? Aldo Kamper: Well, let me answer it this way. I think we have said that by 2030, we see this as a triple million dollar opportunity, and we continue to see that at least. And that was a statement based on just the micro-emitter array and the micro lens array on top. So if we actually add more to that, if we also do the photodiodes or the amplifier or the driver underneath the LED, that would be further revenue potential for the group. Harry Blaiklock: Super helpful. And then just maybe a quick one on the short term. The guide for Q2 of typical seasonal decline in the semiconductor business, given the portfolio changes over the years, it's kind of tough for us to know what exactly seasonal is. Wondering whether we could get a little bit of help on that. Aldo Kamper: I think automotive will do quite well in the second quarter. Also horticulture will start to pick up ahead of the season. So those are positives. And also with the little precaution that we also mentioned in the text before that at the moment, we are still a bit uncertain on how to interpret this good order intake at the moment. The number of cars, of course, are not going up, it's going down probably being built globally. Yes, content per vehicle is rising, but the order intake at the moment is quite strong. So we do think that it's part of restocking and not taking risk out of the supply chain given the global uncertainties. But at the moment, encouraging, and we hope it continues that way. Obviously, consumer goes down quarter-on-quarter, that is normal and then Q3, of course, being usually the strongest quarter for consumer. Professional lighting, pretty steady, I would say, and lamps, automotive lamps, in principle down. I mean the lighting season is over. Obviously, that is always Q4, Q1. So Q2 will be lower there. But here, we benefit from the financial troubles of our major competitor and also see here additional orders coming in that might limit the negativity of the normal seasonality in this. Operator: The next question comes from Sebastien Sztabowicz from Kepler Cheuvreux. Sébastien Sztabowicz: You mentioned in the press release some tough competition in the automotive business in China. At the same time, we are seeing capacity getting a bit tighter in many areas of the market and some peers raising prices. I'm just curious about how do you see prices trending at AMS for the coming months? And the second one is on the free cash flow. You mentioned for this year free cash flow to be significantly negative excluding divestments. Could you please help us quantify the kind of cash burn we can expect for this year? Do you have some building blocks to understand a little bit the magnitude of the range of negative free cash flow we can expect for 2026? Aldo Kamper: Yes. On the pricing side, I would say on the one hand, competitive pressure in China is increasing. Our customers are under a lot of pressure. Vehicle volumes are going down, so that puts them even more under pressure. And of course, they're looking to the supply chain as well to contribute. And that has somewhat limited our ability to pass on the cost increases that we also spoke about last quarter. At the moment, we see in the LED space, neither from us nor from others price increases, but we do see more limited price declines than we otherwise would have seen. So kind of an indirect effect that you see there. In the sensor business, actually, we are selectively raising prices like others as well. And also in the automotive lamp business, we are selectively raising prices for increased input costs. So that's kind of the overall pricing dynamic, I would say. Towards China, perhaps important. The remark I made before on the vials, I think that's really nice to see. Yes, of course, on the more standard parts, there is competitive pressure. However, China is also now really an innovation-driven market for us and our innovations like these high-pixelated headlamps are really designed in much more widely also in China now, and that gives us good hope that we will continue to see a strong market position for us in China. On top of that, by the way, we, of course, are also grabbing share, mainly from our international competitors. You probably know that the Samsung has exited the market. We've got quite a bit of share there. Also, other American competitors are struggling, and that helps us to expand our position. In that sense, we look with confidence in the future. But it's -- yes, at the same time, not an easy market. Rainer Irle: Yes. And Sebastien, on the cash flow. So maybe if you try to build a bridge compared to last year, first of all, I mean, the public funding will be significantly less. Last year, we got like 2 tranches. This year, we only get one. Number two, we're repaying customer prepayments, which is roughly $100 million or EUR 80 million. Number three, from the new Simplify savings program, where we want to achieve EUR 200 million of savings. I mean that also comes with a onetime cost of more than EUR 100 million. I mean trying to pay as much as possible of that this year, so to have as much as possible behind us. And finally, then the factoring, which I mean cost a lot of money also given the high cash position, we want to reduce that. Let's say the EUR 100 million, and that is obviously also then an element of the free cash flow. Then when it comes to the business, yes, the EBITDA will be down, and that also certainly then ends in a bit lower cash flow. That is from the divested businesses, right? We said that the divestment of those businesses plus the stranded cost would be on an annualized basis, something like around EUR 75 million. The stranded costs we are obviously working on. But then on the positive side, as Aldo pointed out, the business is certainly improving. I think the guidance for Q2 is quite optimistic if you compare it to the last year Q1 to Q2 bridge, right? So business is running well. We are getting NREs from customers. So there's also a lot of positives in there. But I mean, if you count it together, free cash flow will be significantly negative this year. Operator: The next question comes from Janardan Menon from Jefferies. Janardan Menon: I just have -- I have 2 questions, one on your AI-related photonics business and one on your AR glasses. On the AI side, on your press release, you -- on the front page, you had said that you have signed a development agreement with a leading AI data center infrastructure partner. And on the second page, you've said that you've signed it with a leading AI photonics industry partner. I'm just a bit confused because when I hear the word AI data center infrastructure partner, I sort of think of a hyperscaler. And when I think of an AI photonics partner, I think of someone like a Lumentum or maybe even [ CNM ] or someone like that. So can you give us some clarity on what exactly is the nature of this partner that you have got a development agreement with? And secondly, in a development agreement, is it that they pay you money and you do all the development? Or is it that you're sort of sitting in their premises as well or they're doing half the development, you're doing half the development. Just an understanding on how that works. And I have a follow-up on the AR glasses. Aldo Kamper: Yes. To start with the second part of your question. I mean all these systems are still so new that it requires development on both sides. I mean we have to optimize and design our part of the system and develop that to the right performance and reliability levels. At the same time, it needs to be well integrated into the larger solution to really be effective. So in that sense, both parties have to contribute here and be in close alignment. And that's why in these new fields, it's so important that you find lead customers that you can together design and optimize the systems with that just tremendously increases your likelihood of success and your ability to be fast. Much more detail on the kind of partner that we have, we cannot give. But obviously, it is about photonics. We are about photonics. It's clear that the data rates and the energy they require is a major topic. So anything we can do to optimize that, this is highly welcome, and we expect also then this technology to scale with other partners as well in the future. Janardan Menon: Yes. So you can't give a nudge on whether this partner is someone who builds the data center. Aldo Kamper: Sorry. Janardan Menon: Okay. And then on the AR glasses, you're saying that you already are shipping some of these components into the market right now. So I'm just wondering what needs to change when you are going to get that triple-digit million euro kind of revenue number? Is it that you need a big customer to start volume production with your components and today, you're selling to smaller customers? Or is it that you need the microLED array itself to start shipping because that might be a high-value component in contrast to LCOS trajectory or something like that? I mean what is the change that we're waiting for to get that triple-digit million euro? Aldo Kamper: Yes. Both factors will kick in. We will -- for the LCOS, we supply some high-power LEDs. That's nice, but it's not a major value driver yet. The move to microLED-based engines will be the major step-up for us. And of course, I mean, these glasses are now in being utilized more and more, and there will be a significant demand increase, we feel with next-generation smart glasses. They just are getting better and better from generation to generation, more and more attractive. So we expect the volumes to go up significantly. And at the moment, the majority of AI glasses is sold without a display. Now, our first simple displays with LCOS are being sold with the microLED, we think that the glasses will gain a lot of more momentum with picture quality being better, bigger field of use and so on, smarter designs. So we think this category will do quite well. And with the rising volumes and a higher content per phone, that will help. However, at the same time, I think also beyond that, there's interesting potential as we outlined. It is not only the light engine. Also other parts we feel we are quite well positioned in. And they, of course, will also then scale with more customers and higher volumes of the sales of the smart glasses in total. Janardan Menon: And again, any kind of time horizon for the triple digit? Is that -- is there a chance that, that could happen in '27? Or are we looking beyond that? Aldo Kamper: I can't really comment on that because as you can understand, our customers are always quite tight on timing of their launches. But it's going to be good this decade. Janardan Menon: It's definitely closer than the AI. Aldo Kamper: Yes. Operator: The next question comes from Craig Mcdowell from JPMorgan. Craig Mcdowell: My first one was just a reminder, please, on your smartphone exposure. It seems to be an end market that could be challenged in '26, maybe '27 as well. Just if you could give your revenue exposure to smartphone and then how that is trending? And then my second question, just on the Kulim-2 sale process and just any update there? It seems like the industry is scrambling for capacity, and this seems like it could be an interesting asset for a buyer. But if you're able to give any update on the process, that would be helpful. Aldo Kamper: Yes. If you -- on the smartphone side, we're probably talking EUR 600 million, EUR 700 million revenue that is tied to that space. We have to now at the moment, look very much of who is getting memory and who isn't. And you can imagine that the top cell phone makers that we often bet with are the ones that are getting the memory and the lower and midrange phones get less of it or struggle more with the prices that memory at the moment commands. So yes, I agree with you, there might be somewhat of an impact. But so far, we're not really seeing it given the positive customer mix in this aspect. On Kulim-2, yes, nothing really changed. We keep having inbounds. We keep having good discussions, but we also cannot say that the timing is around the corner. So yes, we'll inform you as soon as something gets more tangible. But yes, at the moment, no real change to versus what we've said last quarter. Craig Mcdowell: And can I just -- sorry, a brief follow-up, but just can I ask on the Q2 guidance, whether that includes any divestment from the Infineon disposal? Or is that only impacting Q3? Rainer Irle: Yes. Craig, the guidance assumes the closing of the transaction midyear. So the impact of the disposal would then be seen in Q3. The Q2 guidance, though includes the disposal of the traditional lamps business, right? So in a way, if you subtract the revenue that we are losing from the traditional business and you look at midpoint compared to Q1, you could say that it's more or less flat. Operator: The next question comes from Robert Sanders from Deutsche Bank. Robert Sanders: Maybe just a question on the AI opportunity. I mean, obviously, there's a lot of development happening on co-packaged optics at the moment. I would say most of those solutions are relatively mature, so probably a bit more insertion for you guys. Is the idea to -- in the CPO side to insert in a later version? Or is it more as we transition to optical IO that you're going to get sort of broad-based adoption? And then just secondarily, in terms of your thoughts about triple-digit million by 2030, is that based on a couple of hyperscalers that are clearly championing microLED? Or is it based on a portion of the indium phosphide market that you think you're going to penetrate? Aldo Kamper: Well, I think the overall AI opportunity is huge. And there's a lot of, I would say, sub applications or spaces where optical technology will be helpful in getting higher bandwidth at lower energy consumption. Obviously, CPO and indium phosphide lasers are the coming waves that are heavily being invested in. However, we feel that not all of the system -- not the whole system architecture can be optimally addressed with that. So there will be significant pockets that we feel this technology that we are developing will find a place besides or beyond fast and narrow. So it's -- the estimate of the revenue contribution really comes from us finding the right spots in this overall market. And the customer discussions show that clearly that they also see that indium phosphide is a good solution, but there are places where narrow and wide has a limit and where wide and fast actually can play out the advantages. And especially, I think in the longer term, the chip-to-chip communication, I think this is definitely a space where slow and wide can do a lot of good. Robert Sanders: And would you be open to a kind of strategic relationship like you had with your microLED relationship in the past on the consumer side? Or is this something you just want to sell lots of merchant LEDs to different players like Avicena and others that are creating the module? Aldo Kamper: No, we want -- we clearly want those relationships ourselves. Besides my private life, I'm very open for multiple relations. And here, we -- I think we'll see that different -- first of all, it's important that we find the right lead customer for the right type of application. In the AI space, I think we will see different parts of the application being potentially spearheaded by different people. So also in that case, even within AI, I can imagine that at the end of the day, we will have one with several partners to develop specific solutions for specific parts of the whole chain. Once we normally develop with our partners, then of course, we first want to fully support them and scale with them. But usually, we have a common interest to scale beyond that first partner because that brings overall volumes up and cost down, which is then good for everybody. So that's kind of the thought model that we have been using already in the early days in automotive, are now using it in the AR opportunities, and we'll do so also with the opportunities in AI in a similar fashion. Operator: There are no more questions at this time. I would now like to turn the conference back over to Juergen Rebel for any closing remarks. Juergen Rebel: Yes. Thank you, speaker. I'd like to thank everyone for dialing-in today. Thanks to the analysts for your questions. And as always, we are ready for follow-on questions from the Investor Relations team, just reach out to us. And with that, we wish you a great rest of the week and speaking to you soon or latest in the next quarter. Thank you, and goodbye. Operator: Ladies and gentlemen, the conference is now over. You may now disconnect your lines. Goodbye.
Operator: Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the 5N Plus Inc. First Quarter 2026 Results Conference Call. [Operator Instructions] I would like to turn the conference over to your speaker today, Richard Perron, President. Please go ahead, sir. Richard Perron: Good morning, everyone, and thank you for joining us for our Q1 2026 results conference call and webcast. We will begin with a short presentation, followed by a question period with financial analysts. Joining me this morning is Gervais Jacques, our CEO. We issued our financial results yesterday and posted a short presentation on the Investors section of our website. I would like to draw your attention to Slide 2 of this presentation. Information in this presentation and remarks made by the speakers today will contain statements about expected future events and financial results that are forward-looking and therefore, subject to risks and uncertainties. A detailed description of the risk factors that may affect future results is contained in our management's discussion and analysis of 2025 dated February 24, 2026, available on our website and in our public filings. In the analysis of our quarterly results, you will note that we use and discuss certain non-IFRS measures, which definitions may differ from those used by other companies. For information, please refer to our management's discussion and analysis. I would now turn the conference call over to Gervais. Gervais Jacques: Thank you, Richard. Good morning, everyone, and thank you for joining us today. Before we begin, I would like to say a few words. As you know, I'm transitioning to the role of Executive Chair. So this is my last earnings call as Chief Executive Officer of 5N Plus. It has been a privilege and an honor to serve as CEO, and I would like to thank our shareholders and the broader investment community for their continued support. I look forward to contributing in my new capacity to the company's strategic direction and long term development. I have great confidence in Richard as he steps into the CEO role. Richard has been instrumental in our success, and he is well positioned to continue executing on our strategy and take 5N Plus to the next level. Now turning to the quarter. Q1 2026 reflects a powerful start to the year with strong momentum across our core end markets above expectations. Performance was driven by sustained demand in Specialty Semiconductors, as well as favorable pricing conditions in Performance Materials. In Specialty Semiconductors, demand remained strong across our strategic sectors with backlog continuing to provide excellent visibility, supported by ongoing strength in terrestrial renewable energy and space solar power. Bookings are now extending even beyond 2028. Segment performance in the quarter was driven by demand in terrestrial renewable energy in large part, reflecting our expanded agreement with our strategic U.S.-based customer in this sector. As you will recall, under this agreement, volumes increased by 33% for the year of '25-'26 and will increase by a further 25% for the subsequent term through 2028. In Performance Materials, the favorable pricing conditions we benefited from in 2025 persisted longer than anticipated and contributed positively to results, once again, reflecting the agility of our global sourcing platform. Across the business, we remain focused on disciplined execution, productivity initiatives and capacity expansion plans. At our AZUR facility in Heilbronn, Germany, we initiated work on our latest and previously announced capacity expansion project. This follows the 30% increase in solar cell production capacity achieved in 2025. We have begun our work and are now progressing towards an additional 25% increase, which is expected to come online by the second half of 2026, in line with customer demand. As a reminder, this capacity expansion requires targeted investment because much of the equipment is already in place. Overall, our first quarter performance reflects disciplined strategy execution. We remain focused on the right value-added products in the right end markets, supported by agile operations and sourcing as well as strong customer relationships. At the same time, we are fully engaged to mitigate the best we can the pressure resulting from the uncertain economic environment. Before turning the call over, I would also like to mention that our new Chief Financial Officer, Alban Fournier, joined the company just a few days ago. We are very pleased to welcome him to the leadership team, and we look forward to introducing him to the investment community ahead of our next call. With that, I will now turn it over to Richard. Richard Perron: Thank you, Gervais, and good morning, everyone. Before turning to the financials, I too would like to acknowledge Gervais for his leadership and contributions to 5N Plus. Gervais and I established a strong working relationship over the years, and we will continue to cooperate closely in his capacity as Executive Chair. I look forward to building on the strategy we developed and deployed the success as a team. I also look forward to working closely with our new CFO, Alban, who is quite quickly setting up to speed on all aspects of the business and the rest of our leadership team. As we move into our next phase of growth, our focus remains on disciplined execution, scaling our position in high-growth end markets, thanks to our value-added expertise and driving operational efficiency. All of this is being pursued with a view to delivering long term sustainable value to our stakeholders. Turning now to our financial performance for the first quarter. Revenue for Q1 2026 was $117.9 million, an increase of 33% compared to $88.9 million in Q1 of last year, primarily driven by higher volumes in Specialty Semiconductors and stronger pricing in Performance Materials, all of which reflects a favorable product mix. Adjusted gross margin increased by 36% to $41.4 million, representing 35.1% of sales compared to 34.2% in the prior year, reflecting a favorable product mix and pricing above input costs. Adjusted EBITDA reached $29.2 million, up 41% year-over-year compared to Q1 last year. Net earnings were $17.8 million or $0.20 per share compared to $9.6 million or $0.11 per share in Q1 last year. In Specialty Semiconductors, revenue increased to $86.2 million, up 37% year-over-year, primarily driven by higher volumes in terrestrial renewable energy. Adjusted EBITDA increased by 42% to $25.1 million, reflecting higher demand in terrestrial renewable energy and improved unit costs from economies of scale. Adjusted gross margin remained strong at $34.4 million of sales compared to 35% in Q1 last year. The decrease reflects less favorable metal input costs, partially mitigated by economies of scale. Backlog remains effectively maxed out at 365 days, providing continued visibility into future demand. In Performance Materials, revenue increased to $31.7 million, up 21% year-over-year. Adjusted EBITDA increased by 67% to $10.1 million, supported by favorable pricing and product mix. Adjusted gross margin expanded to an impressive 37.8% of sales compared to 32.9% of sales in Q1 last year. The improvement also reflects favorable pricing and product mix, partly offset by less favorable metal input costs. Backlog represented 130 days of annualized revenue, reflecting contract timing and renewals. Cash used in operating activities was $13.5 million in Q1 compared to cash generated in the prior year, primarily reflecting higher working capital requirements to support increased volumes and sustained demand. Net debt stood at $74.7 million at March 31 during 2026 compared to $50.3 million at the end of '25, reflecting the working capital investment in the quarter. Despite this increase, our net debt-to-EBITDA ratio remains low at 0.71x, highlighting the strength of our financial position. Turning to the outlook. In Specialty Semiconductors, structural growth across our core end markets continues to support demand, particularly in terrestrial renewable energy and space solar power. Long-term customer agreements and FT backlog also provides strong visibility. In Performance Materials, favorable pricing conditions extended into the first quarter longer than we had anticipated. That said, we continue to expect a gradual normalization over the remainder of the year. More broadly, we continue to operate in a dynamic environment with anticipated cost volatility and inflationary pressures due to the current geopolitical context. While we delivered strong performance in the first quarter, we continue to expect higher input and operating costs to exert some pressure on margins over the course of the year. In this context, we remain focused on the elements within our control, disciplined execution, including on productivity initiatives and capacity expansion lans to support long term growth and drive economies of scale. Taking these factors into account, along with our strong first quarter performance, we're maintaining our full year adjusted EBITDA guidance of $100 million to $105 million. We expect a more balanced contribution across the year compared to our prior expectations. We also continue to actively evaluate external growth opportunities to further strengthen our leadership in Advanced Materials across our key markets. Overall, we are confident in the underlying growth fundamentals of our end markets, our competitive positioning within those markets and our ability to execute on our strategy to deliver sustained profitable growth. So that concludes our formal remarks. I will now turn the call back over to the operator for the Q&A with our financial analysts. Operator: [Operator Instructions] Your first question comes from Baltej Sidhu with National Bank of Canada. Baltej Sidhu: Congratulations once again, Gervais and Richard, on the transition. Just a few questions from me. So on the adjusted EBITDA margins in the SS segment, they reached a record high, partly driven by economies of scale. Just thinking looking forward, how sustainable are these margin levels going forward, just given the strong underlying demand? And is that a fair run rate assumption to consider going forward? Richard Perron: On a consolidated basis, yes. If we have any variations from a gross margin expressed as a percentage of sales, it's going to be quite limited. It's going to be quite reasonable, nothing drastic. The current margins we have is what we're expecting for the remainder of the year for the most part of the year. If anything -- if there's any variation from one quarter to another, it will be most likely due to the product mix rather than the fundamentals of our business. Baltej Sidhu: That's great. And then could you share an update on your pipeline in the Space segment? And are there any changes in the competitive landscape that you're seeing right now, whether that's capacity? And it seems like pricing has continued to stay above inflation. Just any commentary that you have around AZUR SPACE. Richard Perron: The market is essentially -- there's essentially no newcomers, and we have 2 competitors essentially and all 3 of us are all very busy. And like we often say in the, let's say, the history of the satellite industry for the actual products that we're supplying to that industry, the Space ourselves, we expect pricing to continue to be very extremely interesting and capacity to be maxed out. That's why we continue to -- again, earlier this year, we announced a further expansion of our production capacity. And going forward, we expect similar announcement will come as well. Baltej Sidhu: Perfect. And just one more here, just more on the terrestrial solar side. So in your CSR report last month, you highlighted Perovskite Precursors. Could you comment on the broader opportunity that you're seeing here and the path forward towards commerciality? Richard Perron: Sorry, I missed the beginning of your question. Baltej Sidhu: In the CSR report, you highlighted Perovskite Precursors for terrestrial solar. Just if you can comment on the broader opportunity and path towards commerciality. Gervais Jacques: Well, as you know, we've been working in our customers and the entire industry is working to develop Perovskite. Perovskite is quite promising, but this is something that still required the development in order to make sure that the efficiency could last with a long period of time. Then we know that Perovskite could produce energy for a short period of time, a few months, but could it last for 15 years? That remains to be seen. And this is why the different companies are working on that. Richard Perron: So it's still under a product development phase and then we'll follow qualification before full commercialization. Operator: Your next question comes from Nick Boychuk with ATB Cormark. Nicholas Boychuk: Coming back to Baltej's question on the consolidated gross margin profile, specifically for SS and your comments in the MD&A about the ongoing year's efficiency program. I'm curious how much of that is tied to either incremental capacity expansion within the existing 4 walls of terrestrial solar AZUR SPACE versus the optimization of margins and how much each could increase? If we are seeing your U.S. customer on the terrestrial solar side, expanding in the U.S. further, speaking about adding more capacity, would you be able to address that? Is that part of your ongoing program? Or is everything right now focused on margin enhancements? Richard Perron: Specific to the space industry, the combination of capacity expansion, the high demand, independent of the positions of our competitors from a margin perspective, we expect that it will continue to be good forward as the pressure on the actual -- on the volume that is required from a solar cell perspective continues to increase, and it seems to be the case for many years to come. Operator: Your next question comes from Michael Glen with Raymond James. Michael Glen: Yes, congrats, Gervais, on everything achieved during your tenure at 5N. And Richard, congratulations too, as you transition to your new role. Just Richard, you're talking about the metal input costs. Like can you give some insight into how those maybe trend in both segments through the rest of this year in both the Specialty Semiconductor and the Performance Materials? Richard Perron: We typically don't speculate on where the patients will go forward. But just in the last year, for all metals that we're using to make our products, there's been some substantial increase in the patients. Michael Glen: Would you be able to comment at all regarding how there would be some pricing mechanisms with your customers in the various segments? Richard Perron: Yes. Each segment and sectors within the segments that we serve, all contracts have their own behavior. But typically, within a certain range, it's a fixed price and after that comes a formula. In other contracts that are more long term, we have special clauses where adjustments are made in time based on the most recent notation. In other parts of our business, it's typically a formula that is applied -- a premium that is applied on top of the notation. So it varies from one product to another. We're always exposed but much, much less exposed than ever in the history of the company. But look, we're making products out of metal. So there's always a little exposure. But quite minimal today versus what we experienced in many years ago. The key is obviously the quality of the product portfolio today essentially being made of value-added products. So there could be a lag. So a lag could happen, but it will definitely not hurt our margins like in other industries, relying much less on the patients than in the past and other industries. Michael Glen: The sales gains you saw, you highlight the scale gains. Now does the scale gains that you expect from top line and revenue through the rest of the year, do you see that as being enough to offset the notation inflation that's been seeing? Richard Perron: That's what is foresees, yes. Michael Glen: Okay. And then just one clarification for me. So maybe I missed the first 4 minutes of the conference call. But in the MD&A, you talked about AZUR expanding by 30% of capacity. Is that a tick higher than the 25% that was... Richard Perron: Yes. The 30% is the capacity increase realized last year, out of which we'll get the benefits this year. And earlier this year, we made another announcement at 25%, out of which we'll get the benefit next year in '27. Operator: Your next question comes from Frederic with Desjardins. Frederic Tremblay: I just wanted to start with Performance Materials and the pricing there. You mentioned that it's been more favorable or favorable for longer than initially expected. Can you just remind us what's behind your view that this favorable pricing will eventually reverse? Richard Perron: It's essentially the continuation of last year where security of supply is the #1 priority these days on the current geopolitical context. And we're able to supply our clients with quality products on time without any interruption due to our footprint relations and processes in place. So that's what's behind. Essentially continuity of last year's theme, which is security of supply. Frederic Tremblay: Just on First Solar, they had good comments on U.S. bookings and manufacturing utilization in the Q1 results recently. Can you share anything about the volume trends that you're seeing there relative to the contracted volumes that you have with them? Are you -- in the past, you talked about selling spot volumes to them. Maybe general thoughts on the volumes that you're seeing now and expecting for the next couple of years with them? Richard Perron: The volume is essentially as per the contract, no changes to that. If anything, every volume of material that we're producing needs to be expedited to First Solar in the U.S. So the contract is essentially a take-or-pay commitment and there a desperate need for the products. So there's definitely no changes to the volume other than every volume produced needs to be expedited to First Solar rapidly. Operator: The next question comes from Nick Boychuk with ATB Cormark. Nicholas Boychuk: I was cut off on the question before. I just want to come back to that gross margin dynamic, specifically on the Specialty Semiconductor. I want to understand the new run rate that we're talking about here, the 34% plus. Does that factor in all of the efficiency improvements and gains that you're seeing from the improved economies of scale and cost per ton? Or could we actually see a further benefit into the year as things continue to progress? Richard Perron: The current margins that we are realizing is on the back of favorable market conditions and economies of scale. Going forward, we're applying ourselves to introduce various productivity initiatives and that on top of additional capacity and further economies of scale is going to bring additional benefits to the margins. That, to some extent, will obviously improve, but will mitigate any negative impact if any other factors were to increase in time due to inflation and else. Nicholas Boychuk: Then tying that into the unchanged guidance for the full year, what would have to happen over the next 3 quarters for either guidance not to be met or for things to be exceeded? Because on this new margin profile, assuming the top line persists and given the visibility you have there, it feels as if we're set up for a materially larger year. I'm curious if you can help me understand that. Richard Perron: Well, like we often bring -- I mean, in our business and many other businesses, you have typically 3 main risks. Commercially, as you know, a large portion of our business is under contract. So we have a pretty good idea of where it's going to land at year-end and the type of mix we're going to have both products and clients. What we don't know is the exact distribution per quarter. Technology-wise, this year, we're going to be essentially doing more of the same. So that's also well under control. So what we're left with is the operational risk, okay? Which -- to which will also include inflation and else. So look, if we have a stellar year in terms of energy, consumables, reliable equipment and else, yes, the likelihood to beat the guidance is very good. Otherwise, we still believe no matter what kind of headwinds we're going to have from those factors, we still believe the guidance we have on hand is a valid guidance. Nicholas Boychuk: Is there material energy exposure risk to some of your European assets? Richard Perron: Yes, mostly, mostly. But that -- I mean, obviously, we have different measures in place also to limit our risk, but we cannot control everything, as you can imagine, in today's complex environment. Operator: The next question comes from Yuri Lynk with Canaccord. Yuri Lynk: Yes. I want to come back to the guidance question, and maybe I'll attack it a different way. I mean, really strong start to the year. You're pointing to sustainable with some upside margins in Specialty Semiconductors. But to stay within the full year guidance, I mean, it's -- you're essentially downgrading the back half view versus what you might have had previously. So is that all within Performance Materials? Or am I misreading the implied guidance there? Just some detail on how your back half of 2026 outlook might have changed since we last spoke? Richard Perron: When -- before starting the year, what we anticipated was a stronger second half. Now we expect the whole -- the first 6 months and the last 6 months to be more and more aligned with similar level. So that's what we're seeing. The reason behind it is we expect some normalization of the margins under Performance Materials. Yuri Lynk: But that was the expectation previously, right? Would... Richard Perron: Yes, we expected that right from Q1. And as we've said, Q1 is a nice surprise from that standpoint. Yuri Lynk: Okay. So no real change to your Specialty Semiconductors... Richard Perron: Specialty Semi out of our 2 segments because we have long-term contracts, have a pretty good idea of the mix and the releases. No, it was originally -- and again, it was all essentially based on our expectations that Performance Materials will normalize earlier in the year, and we had an incredible Q1. But we continue to be prudent and believe that it will be normalized over the coming quarters. But it will still be an incredible superb business, obviously. Everything is relative here. Yuri Lynk: Yes, of course. I mean, we're more than a month into Q2. I mean, have you started to see that normalization? Or has those positive trends continued into Q2? Richard Perron: It's still positive. Yuri Lynk: So you'd say the outlook is fairly conservative for the year, the guidance? That's what it sounds like. Richard Perron: Yes. No, exactly. As I said, from an operational perspective, we remain prudent as to any inflation, operational challenges in the current complex environment and else. So we remain prudent. It's only 1 quarter out of 4. So years go by quickly, but at the same time, it's a little marathon that we have to go to. Operator: [Operator Instructions] Your next question comes from Michael Glen with Raymond James. Michael Glen: Just a follow-up on the working capital. You had the AR and the inventory build in the quarter. Maybe how should we think about those trending over the next few quarters? Richard Perron: As it is often the case, in the first half of the year, we typically carry a bit more net working cap than usual. But that being said, year-over-year because of the growth, the important growth under both, especially under renewable energy and space power, there will be an increase in the net working cap by year-end. But again, in the first half, a bit more pronounced than in the second half. But on a full year basis, you'll have a little increase in net working cap aligned with the growth. Michael Glen: Any notable updates that you guys can share with progress on M&A targets? Richard Perron: Nothing specific other than as we often say, we're highly motivated to complete the transaction. We're looking at many different files with an internal team dedicated to it and the help of external resources. So we're spending a fair bit of time looking at various files. So we're very serious about it. Operator: There are no further questions at this time. I will now turn the call over to Richard, for closing remarks. Richard Perron: Well, I would like to thank you all for joining us this morning, and we wish you all a good day. Thank you. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Arcutis Biotherapeutics, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions]Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Brian Schoelkopf, Head of Investor Relations. Please go ahead. Brian Schoelkopf: Thank you, Marvin. Good afternoon, everyone, and thank you for joining us today to review our first quarter 2026 financial results and business update. Slides for today's call are available on the Investors section of the Arcutis website. Joining me on the call today are Frank Watanabe, President and CEO of Arcutis; Todd Edwards, Chief Commercial Officer; Patrick Burnett, Chief Medical Officer; and Lasse Vairavan, Chief Financial Officer. I'd like to remind everyone that we will be making forward-looking statements during this call. These statements are subject to certain risks and uncertainties, and our actual results may differ. We encourage you to review all the company's filings with the Securities and Exchange Commission, including descriptions of our business and risk factors. With that, let me hand it over to Frank to begin today's call. Todd Watanabe: Thanks, Brian, and good afternoon, everyone. As always, we appreciate you guys making the time to join us. I want to start today's call with an overview of the latest developments at Arcutis and the progress we're making against our grow, expand, build strategy. I'll then turn things over to Todd for a commercial update, then Patrick for an R&D update; and finally, Latha for a review of the quarter's financial results as well as how we're thinking about investing in 2026 to drive ZORYVE inflection. So I'm starting on Slide 5. Hopefully, by now, you're all familiar with the grow, expand, build framework that we have adopted to define our strategy to sustain near- and long-term growth for both ZORYVE and the company overall. In a nutshell, our plan is to continue to grow our core ZORYVE business in our currently approved indications to expand ZORYVE into additional indications and to build our innovative pipeline beyond ZORYVE. So starting with the grow pillar for driving momentum in our core approved indications, we're very excited to have submitted a supplemental NDA for ZORYVE cream, 0.05% in atopic dermatitis patients aged 3 to 24 months in April. This is a segment of patients who are significantly impacted by AD and who are in dire need of safe and effective treatment options beyond the very small number of currently approved therapies. Patrick will comment on the opportunity more, but we see this as a very significant new opportunity for ZORYVE, and there's a lot of excitement amongst dermatology clinicians about our data and the possible approval. We also completed enrollment in a MUSE trial for ZORYVE foam, 0.3% in children with scalp and body psoriasis ages 2 to 11 years of age, and that should serve as the basis for submission for -- to extend the label to this age group, aligning it with the 0.3 cream. On the commercial front, we've successfully completed -- we've essentially completed, excuse me, the expansion of our dermatology sales force to enable deeper reach into the dermatology landscape. And I'm happy to report that our expanded derm sales force is in the field as of this week, but of course, we probably won't begin to see an impact on sales for a few months. We also began the build-out of our dedicated PCP and pediatric sales team, starting with the recent hiring of our Head of Primary Care franchise. This team will embark on a targeted effort to engage with those primary care and pediatric clinicians who are already using a fair bit of topical therapies in their practice. We also continue to make important progress against our expand pillar as we work to bring the unique benefits of ZORYVE to people impacted by chronic inflammatory skin conditions beyond our currently approved indications who are also in need of targeted innovative treatment solutions with a focus on diseases where we've already seen compelling potential of ZORYVE based on case reports and case series. And specifically, we're nearing full enrollment of our Phase II proof-of-concept trial in vitiligo, and we continue to enroll patients in our Phase II POC trial in hidradenitis suppurativa or HS. We're also evaluating additional Phase II proof-of-concept trials in indications beyond vitiligo and HS, and we'll obviously update you guys on our further decisions. And finally, we reached an important milestone in our pipeline building activities with the initiation of a Phase Ia, Phase Ib trial for ARQ-234. The investments we're making and the efforts we're taking to advance our initiatives across these 3 pillars are laying groundwork for further ZORYVE sales inflection and operating leverage expansion in 2027 and far beyond as well as positioning us to sustain growth for the long term and most importantly, expanding our impact on individuals living with chronic inflammatory dermatosis. Despite now having a successful commercial franchise in ZORYVE, we continue to be at our core, a biotechnology company championing meaningful innovation within medical dermatology. These investments in innovation and growth reflect that intent. And with that, I'll hand the call over to Todd to give you a Q1 commercial update. Todd Edwards: Great. Thank you, Frank, and good afternoon, everyone. Turning to Slide 7. We continue to see strong sales performance in the first quarter with net product revenues of $105.4 million, up 65% versus the first quarter of 2025. This healthy quarterly performance was achieved despite the customary first quarter seasonality impacting branded therapies driven by patient deductible resets, elevated co-pay utilization, annual insurance transitions and pull forward of refills into Q4. This typical pattern was further amplified this year by the impact of severe weather events we had across the country during the quarter. On an aggregate basis and in line with expectations, this resulted in a more significant sequential decline in product revenues from quarter 4 to quarter 1 compared to 2025, where seasonality was mitigated due to the initial launch of ZORYVE in atopic dermatitis. Importantly, we are through the impact of this typical seasonality and anticipate a return to robust quarter-on-quarter demand growth going forward. Our gross to net remained stable in the 50s. And as communicated on our last call, we anticipate it will remain in the same range for the remainder of 2026. Our first quarter gross to net rate improved compared to quarter 1 2025 due to our evolving payer contracting that benefited product revenues for the period. Looking ahead to the second quarter, we expect quarter-over-quarter net sales growth driven primarily by increasing patient demand as well as continued gross to net improvements as we progress from our current rate to the low 50s as the year progresses. Turning to Slide 8. After a typical December to January pullback in demand, weekly prescriptions on a rolling 4-week average based on IQVIA EXPONent data have returned to a healthy growth trend and reached approximately 21,000 prescriptions per week across all indications and formulations for ZORYVE. As is clear from this chart, ZORYVE continues to generate sustained Rx growth. For the remainder of 2026, we anticipate sustained demand growth will be the primary driver of ZORYVE's revenue expansion. The most important driver of this sustainable momentum will remain the conversion of topical corticosteroids to advanced targeted topical therapies as health care providers and patients' perceptions of the risk of chronic use of topical steroids evolves. In a few minutes, Patrick will comment on developments we are seeing on that front. Investments we have made to expand our dermatology sales force will also contribute to demand growth in the second half of the year, and our efforts in primary care and pediatric settings will start to have an impact later in 2026 and 2027. Next, I'll provide some additional detail on demand across topical therapeutics and dermatology in the first quarter. I'm on Slide 9. As demonstrated in the chart on Slide 9, prescription volumes were down across the board for topicals in the first quarter of 2026 compared to the fourth quarter of 2025. Of note, the impact was not only seen with branded products, but also with topical corticosteroids, antifungals, vitamin D analogs and topical calcleurin inhibitors. Products in these categories are primarily generic, making them less sensitive to the typical seasonality experienced by branded products in the first quarter. And yet this year, they still saw marked sequential declines quarter-on-quarter. We believe that this dynamic speaks to the fact that the severe weather events in the first quarter impacted dermatology prescription volume in general, a headwind that compounded typical seasonality and affected the entire topical segment. Of note, the prescription decline for ZORYVE in the quarter at 6% was meaningfully lower than the other branded non-steroidal topicals, which collectively were down 15% for the quarter. This relative outperformance is further evidence of the growing preference for ZORYVE by dermatology health care providers and patients. ZORYVE's relative strength in the period also drove further share expansion with ZORYVE's share of total branded non-steroidal topical prescriptions increasing to 48% in the first quarter, a 3 percentage point increase from the end of 2025. Moving to Slide 10. We are excited about the key investments we are making in 2026 to drive ZORYVE's continued momentum and set the foundation for its growth inflection in 2027 and beyond. We have completed our previously announced dermatology sales force expansion. As Frank noted earlier on the call, we're pleased to report that these new sales force members are out in the field as of this week. As is typical, these sales representatives require a couple of months to gain familiarity with their call points. So we anticipate seeing the impact on demand from these added boots on the ground beginning in the third quarter. We are also underway in the build of our primary care and pediatric team. We are thrilled to announce today that we have hired the head of this new franchise, Katie Swoss. Katie brings incredible breadth and depth of experience with dermatology therapeutic commercialization, having held various strategic and operational leadership positions, and she has already begun building out the rest of her team. As we described previously, we are adopting a high targeted approach with this sales team focused on high-volume, early adopter PCPs and pediatricians concentrated in major metropolitan areas, positioning this investment to be accretive from the outset. From there, we will evaluate additions to the sales team as we further refine our strategy and gain in-depth understanding of the space. We look forward to completing the initial build-out process next quarter with the launch into the field in Q3, initial impact to demand beginning in the fourth quarter. Rounding out focused commercial investments, our Free to Be Me direct-to-consumer patient awareness campaign featuring Tori Spelling, her daughter, Stella McDermott and professional golfer, Max Hona has driven strong meaningful patient engagement. Their shared collective experiences are helping to drive awareness for ZORYVE across all indications and are resonating with a broad range of patient demographics. We look forward to the continued progress of this important direct-to-consumer effort to ensure we are capturing and reflecting the patient voice and patient experiences as they live and manage their chronic inflammatory skin conditions and the impact ZORYVE has on their lives. With that, I'll now turn the call over to Patrick. Patrick Burnett: Thank you, Todd. Good afternoon, everyone. In the first quarter, we continue to make significant progress in our efforts to support young children and infants suffering from plaque psoriasis and atopic dermatitis. Starting first with atopic dermatitis, children under the age of 2 are the most vulnerable patients in a population that desperately needs alternative therapeutic options to the handful of currently available treatments. As a dermatologist, I can tell you firsthand how challenging it is to sufficiently address these diseases in this age group given the very limited set of approved therapies and how eager the parents and caregivers are for effective, safe and well-tolerated treatments to bring comfort to their kids. Safe, well-tolerated treatments are especially important in this age group when the immune system and the skin barrier are still developing. We take their plea very seriously, and we believe the clinical profile and formulation of ZORYVE are well suited to the needs of this young patient population. On our March call, we highlighted the positive top line data from the INTEGUMENT infant Phase II trial of ZORYVE cream 0.05% in infants aged 3 to less than 24 months with mild to moderate atopic dermatitis. Expanding on what we shared in March, we were honored to have our abstract selected for a prestigious late-breaker session and presented by Dr. Lawrence Eichenfield at the American Academy of Dermatology Annual Meeting at the end of March, select portions of which we have here on Slide 12. Over 1/3 of study participants who completed 4 weeks of treatment achieved a validated investigator global assessment for atopic dermatitis that's a VIGA-AD success. that's defined as a score of 0, which is clear, or 1, which is almost clear with at least a 2-grade improvement. Close to half of infants achieved a VIGA-AD score of clear or almost clear, that's a 0 or 1 at week 4 and 24% already at week 2. Now for those infants with at least mild scalp involvement at baseline, more than 2/3 achieved VIGA scalp success at week 4. And as previously highlighted, 58.3% of infants achieved at least a 75% reduction in their eczema area and severity index that's an EASI-75 at week 4 and 3/4 of infants already at week 2. Now to the right, we see a representative patient. This is a 23-month old boy who had previously been treated with topical corticosteroids with an IGA of 3 or moderate severity at baseline, and he's showing significant improvement at week 4 with an IGA of 1 or almost clear. I think these photos really represent the meaningful impact that our 0.05% cream delivered to patients in this study and why we're so excited to already have these data submitted to the FDA. Collectively, the findings from the INTEGUMENT infant study add important clinical evidence on the promise of investigational ZORYVE cream 0.05% in infants 3 to 24 months with rapid and robust efficacy across multiple clinical endpoints, coupled with excellent tolerability and a clean safety profile. Now moving on to Slide 13. I want to highlight one particularly notable result that we shared from INTEGUMENT infant at the AAD, namely the rapid impact that ZORYVE had on itch for these patients as reported by their caregiver. Itch is one of the most disruptive symptoms of atopic dermatitis in patients of all ages and the rapidity with which a therapy can alleviate itch is an important aspect of a drug's therapeutic profile. We've known since early clinical development that ZORYVE has a rapid impact on itch. The chart on the left-hand side of Slide 13 shows itch improvement over time in our registrational INTEGUMENT-1 and 2 trials in atopic dermatitis as measured by WI-NRS or worst itch numeric rating scale. As you can see, we saw itch reduction as early as 24 hours after first application, and that was the first time point measured in these trials. However, through our clinical trial experience and feedback from clinicians in the field, we appreciated that the speed with which ZORYVE impacts itch is exceptional. And with that in mind, in it taking an infant, we chose to measure impact on itch using the dynamic pruritus score, or DPS, with measurements as early as 10 minutes after application. The results from that analysis are demonstrated in the chart on the right-hand side of this slide. Nearly 50% of patients experienced a 25% improvement in itch as measured by their caregivers within just 10 minutes of application of ZORYVE and 2/3 of patients experienced relief within 4 hours. These results not only reinforce our conviction that ZORYVE will be an important therapeutic option for infant patients, but this demonstrated speed of onset has also prompted us to further study the impact of ZORYVE on itch. To that end, we recently initiated a study INTEGUMENT-Ich, to assess descriptive classification of pruritus over time with ZORYVE 0.15% cream in patients with atopic dermatitis. This 40-patient trial will begin enrolling shortly. We believe that the further validation of ZORYVE's rapid impact on itch that this trial is intended to demonstrate, particularly within the first 24 hours after initiating therapy is an important step in better understanding and articulating ZORYVE's profile in atopic dermatitis. INTEGUMENT itch is an example of our strategy to generate additional clinical data for our current indications to further bolster the data set behind ZORYVE. -- an important component of our growth strategy pillar. I look forward to sharing subsequent updates on other clinical activities we're pursuing along the same vein. Next, I'll provide an update on our label expansion efforts to support pediatric patient populations. As Frank mentioned in the opening, we submitted a supplemental NDA to the FDA in April for ZORYVE cream 0.05% to expand the indication to infants 3 to 24 months. We're thrilled to have taken this critical step to potentially bring a new safe, well-tolerated and effective therapeutic option to this patient population. It's notable that we were able to submit our application in just 3 months after having read out the top line results from our INTEGUMENT infant trial. This reflects the speed with which our team at Arcutis is moving on behalf of patients and our response to the high level of urgency shared by those HCPs who care for these youngest AD patients. Turning next to our pediatric expansion efforts for plaque psoriasis. We recently completed enrollment of a MUSE trial or maximum MUSE trial for ZORYVE foam 0.3% for children ages 2 to 11 years old with scalp and body psoriasis. The trial is intended to serve as the basis of an sNDA submission to extend the indication to this age group and to align the psoriasis indication of the 0.3% cream and foam. If approved, ZORYVE foam could offer a truly unique therapeutic option for caregivers helping their young children manage this disease that has historically been difficult to treat when presenting in hair-bearing areas. In addition, as previously announced, our supplemental NDA for ZORYVE cream 0.3% for psoriasis patients down to the age of 2 years is under review by the FDA and the PDUFA action date of June 29 is quickly approaching. I'll note that the rationale for extending our label to the infant population for atopic dermatitis does not apply to plaque psoriasis or seborrheic dermatitis. Onset of diseases in these patient populations is common in atopic dermatitis, while it's not in the other 2 diseases. Our current label in seborrheic dermatitis positions us to effectively serve the addressable patient population and potentially securing a label expansion to the pediatric age range in plaque psoriasis will similarly equip us to serve the addressable patient population. As demonstrated in the table on Slide 14, these latest developments in expanding our indications to additional pediatric and infant populations build on a consistent focus we've maintained over the years to broaden the availability of ZORYVE. We're driven by the need of these younger children for effective, safe and well-tolerated therapeutic alternatives to topical corticosteroids. We also anticipate that when health care providers see how effectively ZORYVE alleviates inflammatory skin disease in their most fragile and vulnerable patients, they'll be more inclined and appreciate the potential benefit from ZORYVE for their adult and adolescent patients with the same diseases. Now turning to Slide 15 and the pipeline. This is the build pillar of our strategy. We've now initiated the Phase I trial of ARQ-234, our novel biologic targeting CD200R in healthy volunteers and adults with moderate to severe atopic dermatitis. There's a clear and distinct need for a systemic therapy for patients with atopic dermatitis who have relapsed on or who are refractory to IL-4, IL-13 drugs. Many in the drug industry and many clinicians had until recently hoped that agents targeting OX40 would meet that need. However, after a series of disappointing clinical data sets and growing safety concerns for these programs targeting OX40 already leading to program discontinuations, that hope has dissipated, leaving a white space for novel new treatment pathways. It's our belief that the CD200 axis targeted by ARQ-234 could bring an important new tool for providers and an important new option for patients. The CD200 axis plays a central role in both innate and adaptive immunity with CD200 signaling reducing immune activation for T cells, type 2 innate lymphoid or ILC2 cells and myeloid cells and decreasing secretion of pro-inflammatory cytokines. Given the impact of this access, there's a solid basis for optimism about the role of CD200R agonist programs may play in treating inflammatory diseases. The Phase I trial for ARQ-234 is comprised of a single ascending dose or SAD component in healthy volunteers, which is currently ongoing and a multiple ascending dose or MAD component followed by a proof-of-concept cohort, both in patients with moderate to severe atopic dermatitis. While we will not share the results from the trial until completed, we will keep you apprised of our progress through these different components. Now moving on to Slide 16. As you can see, we've already delivered on several meaningful clinical milestones in 2026 and look forward to continuing clinical progress throughout the year. Of note, we continue to enroll our Phase II proof-of-concept trials in vitiligo and hidradenitis suppurativa or HS. We're nearing full enrollment for our vitiligo trial and remain on track to provide a readout of trial results and an update on our clinical development plan in Q4 of this year. And a similar readout for our HS program in Q1 of 2027 also remains on track. And Todd alluded earlier to the continued shift from topical steroids to advanced targeted topical therapies like ZORYVE. As we've mentioned on prior calls, we're seeing a steadily growing consensus within the dermatology specialty around the clinical needs for that shift, and we saw further evidence of this since the start of the year. On Slide 17, I highlight just a few of the recent discussions on this topic. I would call your attention in particular to one of the conclusions of the recently published expert consensus statement on advanced nonsteroidal topical therapies for atopic dermatitis, which came out in March in the Journal of Drugs in Dermatology. As you can see, some of the most distinguished experts in the field agree that advanced nonsteroidal topicals should be preferred over topical corticosteroids for long-term management of atopic dermatitis due to their cleaner safety profiles. This is typical of what we continue to hear from the leaders in dermatology, and this growing consensus will propel the conversion to the newer agents, of which ZORYVE is the leading treatment. With that, I'll turn the call over to Latha to further detail our Q1 financial results. Latha Vairavan: Thank you, Patrick. I'm on Slide 19. We generated net product revenues in the quarter of $105.4 million, which is up 65% from Q1 of 2025. This year-over-year increase was driven primarily by increased patient demand. We also had lower gross to net in the first quarter of 2026 versus a year earlier, contributing to higher net product revenues. As Todd mentioned earlier, this improvement in gross to net was primarily driven by the evolution of our payer contracting. And while our gross to net rate is lower to begin the year, we still anticipate our gross to net to be in the 50s throughout 2026, ending in the low 50s. Cost of sales in the first quarter were $9.8 million compared to $8.8 million in the first quarter of 2025, primarily due to increasing ZORYVE sales volume. For the first quarter of 2026, our R&D expenses were $30.6 million versus $17.5 million for the corresponding period in 2025. This year-over-year increase was primarily due to the $10 million milestone obligation to Ducentis shareholders triggered by the dosing of the first subject in the ARQ-234 Phase I trial, which occurred in the quarter. SG&A expenses were $74.1 million for the first quarter of 2026 compared to $64 million in the same period last year, up 16% as we continue to invest in our commercialization efforts for ZORYVE. We anticipate a modest increase to the SG&A expense in the back half of the year, driven by headcount-related costs for the dermatology sales force expansion and the build-out of our primary care and pediatric sales team. we are maintaining our revenue guidance in the range of $480 million to $495 million for the full year 2026. Moving to Slide 20. You can see that we had cash and marketable securities of $224.3 million on our balance sheet as of March 31, 2026. Importantly, we maintained positive cash flow in the quarter with $2.2 million of net cash provided by operating activities. We will continue to be disciplined in our investments in the business to maintain positive cash flow throughout the rest of the year. We have total debt of $101.5 million and have the right to withdraw another $50 million in whole or in part at our discretion through the middle of '26. I am now on Slide 21. With the continued broad adoption of ZORYVE and sustainable sales momentum that the franchise has demonstrated, we have reached the rare milestone amongst biotechnology companies of achieving positive cash flow at Arcutis. We first achieved sustainable positive cash flow in the fourth quarter of last year and have communicated that through diligent expense management, we anticipate maintaining positive cash flows on a quarterly basis throughout 2026. This -- the core ZORYVE business is strong and the shift from topical steroids to branded nonsteroidal topicals will continue to offer immense growth opportunity for many years to come. Concurrently, we are reinvesting capital generated from our ZORYVE franchise back into our business in order to inflect growth in 2027 and beyond. ZORYVE's growth is driven by both of these factors. You've heard about several of these initiatives today, including our sales force expansions in both derm and primary care, DTC efforts, clinical investments to support current and potential additional indications for ZORYVE and progress on our innovative pipeline. There are additional initiatives for which we are making disciplined investments that we look forward to detailing throughout the year. These investments lay the foundation for both near- and long-term growth for Arcutis. They will help to further catalyze the continued growth of ZORYVE and inflect its trajectory. ZORYVE is a profitable franchise. And if we were not pursuing these impactful accretive investments, we would commence operating leverage expansion in 2026. As we look ahead to 2027, we expect a moderation in the need for increased investment in our current business compared to this year. Coupled with the anticipated continued sales growth of ZORYVE, we expect that we will see meaningful increase in our operating leverage and cash flow generation in 2027 and beyond. With that, I will now turn the call back to Frank for closing remarks. Todd Watanabe: Thanks, Latha, and thanks again to all of you for joining us today and for your continued interest in Arcutis. I'm immensely grateful to our team and very proud of their hard work, their dedication to building shareholder value and their commitment to the patients we are serving. And with that, I'll open up the call to Q&A. Operator: [Operator Instructions] Our first question comes from the line of Andrew Tsai of Jefferies. Lin Tsai: So it sounds like gross to net performed better than compared to last year, Q1 of last year. Can you guys maybe qualitatively describe what drove that better percentage? Was it something within your control? And what kind of positive impact could that have for the rest of the year? I know you kind of guided gross to net for the rest of the year. Is it fair to assume blended gross to net for this year could be better than the blended gross to net for 2025? Todd Watanabe: Sure. Yes. Todd, do you want to take that one? Todd Edwards: Yes. I think I'll take that call, Andrew. Thank you for the question. So yes, as mentioned, we did have price improvement in the first quarter of this year relative to Q1 2025. This year-on-year improvement was primarily driven by improvements in formulary status with more preferred versus nonpreferred position with some of our commercial plans. What this means is that for a patient, for a preferred status, it's a lower co-pay versus nonpreferred position. So with the preferred status and lower co-pay for the patients, that leads to lower co-pay expenses and lower co-pay buy-down for Arcutis give us the pricing upside. Now while our rate is lower than the prior year, we continue to anticipate that we'll be stable in the 50s without a doubt throughout the year. And as mentioned, we'll be working down from the higher 50s at the beginning of the year, transitioning to the lower 50s at the end of the year as patients continue to buy down the deductibles and we have lower co-pay expenses. Now as we look forward, I think it's a bit too early to anticipate how all these factors will carry forward to future years. But I remain very confident that we'll continue to have a very strong gross to net, and we'll maintain our gross to net within the 50s going forward. Thank you for the question. Operator: Our next question comes from the line of Tyler Van Buren of TD Cowen. Tyler Van Buren: Just to help quantify the quarter-over-quarter impact in the Q1 seasonality, as we compare to Q4, can you help us understand how much of that was the gross to net impact versus volume impacts from weather or Q4 pull forward? And the second part or follow-up is, I understand that you're saying that Q2 sales will be above the first quarter, but do you believe it's likely that Q2 sales could significantly exceed the sales that were posted in Q4? Todd Watanabe: Tyler, yes, Todd, do you want to take that one, too? Todd Edwards: Yes, absolutely. Thank you, Tyler. So in reference to the quarter-on-quarter impact of seasonality and the differential between gross to net and demand, as we've highlighted, there was an upside on gross to net due to the which that has changed from nonpreferred to preferred with the -- as mentioned, the demand saying relative to the 6% on that. And if you think about it, with the seasonality, which is typical because of the pull forward of the refills into Q4, we got employers that are often change in insurance from employees that's effective January 1 of the year. That transitions impacts relative to ZORYVE and then, of course, the higher deductible reset that impacts it. And then as noted, this was compounded relative to the weather impact. And I will just mention that this whole weather impact and demand impact was not just limited to the topical products. When you look at the systemics, they were also impacted as well. For example, Otezla was down 11%, Rinvoq 3% Dupixent 2%. This is on volume due to this seasonality with this and being amplified by the impact of the weather. Relative to Q2 sales and how we think about them going forward, I will mention that Q2 quarter-to-date through April 24, ZORYVE has 13% growth versus Q1 within the same time period. So we're off to a very strong start within Q2 here, and I have high confidence that we'll continue to build on this demand trend and have robust growth quarter-over-quarter as we go forward. Operator: Our next question comes from the line of Seamus Fernandez of Guggenheim Securities. Colleen Garvey: This is Colleen on for Seamus. When thinking about this year's sales guidance, what are the assumptions driving the lower end of the guide? By our math and just based on the current prescription trajectory, we're starting to struggle to land within the upper end of the guide and consensus looks to already be above. So just trying to understand the pushes and pulls to maintain the current guide. Todd Watanabe: Colleen, Look, I would say that we just updated the guidance in February. so not that long ago, we don't intend to update our guidance at least for the moment every quarter. So we'll continue to evaluate the trend as the year progresses. And if we feel that it's appropriate to update the guidance, we will. But we felt that at this point, early in the year, particularly with a slightly anomalous Q1, we felt that it was prudent just to hold fast. Latha, Todd, I don't know if there's anything else you want to add to that. Todd Edwards: Nothing else, Frank. Latha Vairavan: Calling out, I would say that the -- we issued the guide after the end of the year. And as Frank said, we don't see the need so early in Q1 to take it up. So as the year progresses, then as the guide rate changes, then you'll be able to align more to where the demand trajectory is headed. But for now, I think you can lean into the upper end and stay there. Operator: Our next question comes from the line of Judah Frommer of Morgan Stanley. Judah Frommer: We appreciate kind of the updated trends on total scripts and the share being taken there. Anything you're noticing in NRx new scripts and any trends that are indicative of where TRx could move going forward? Todd Watanabe: You're talking absolute volume share? Judah Frommer: Yes. Todd Watanabe: I would say... Share of new scripts, how that's trending, if anything has changed, has that formulary position maybe impacted what new scripts are doing? Okay. Sure. Todd, do you want to take that one? Todd Edwards: Yes, I'll take that one. When we look at the Q1 for ZORYVE and you look at the new-to-brand Rx for the branded nonsteroidal topicals, you look at that basket for Q1, ZORYVE drove 48% of the new-to-brand Rxs for the branded non-steroidal topicals. And we're very encouraged by this. I mean, I'll just reference this as comparison. If you look at like Opzelura, it was 28%. I think what's more is that you look at for ZORYVE and the NBRx decline quarter-over-quarter, we were basically flat. I think -- which is another strong signal. The other is when you look at our refills, Look at our total volume prescription, of that, our refills are about 45%, which is once again very encouraging for us, not only on the NBRx, but also on the refills that are contributing to our TRx and our overall growth. If I look within Q2 and I look at approximately the last 3 to 4 weeks, we've had very impressive NRx growth with ZORYVE, which once again is a great leading indicator of what's to come as far as TRx growth as we roll forward into the quarter. Operator: Our next question comes from the line of Uy Ear of Mizhuo. Uy Ear: I have 2, if I may. The first question is, could you maybe just help us understand or quantify the opportunity from the infant atopic dermatitis conditions. I think, Frank, you mentioned it was a significant opportunity. And how -- and maybe just help us understand how you'll capture that opportunity? Is it primarily through the derm sales force that you currently have or from building out the primary care pediatric sales force? That's the first question. Todd Watanabe: Go ahead. Did you have another one Uy Ear: Yes, I do. The second question is maybe, Lata, the SG&A was lower than what I think we or the consensus expected something like by $4 million. Now that you have the full sales force expansion, do you expect an uptick in the second quarter? Because I thought, if I heard correctly, I don't know what the starting point is, but you indicated that you were expecting a modest SG&A uptake in the back half of the year. So maybe just help us understand the cadence of spending for the year. Todd Watanabe: Okay. Thanks. So Patrick, maybe why don't we start, if you wouldn't mind sharing maybe a dermatologist perspective on the 3- to 24-month opportunity and the unmet need. And then, Todd, maybe you can address how we're going to get at that commercially. And then Latha, if you could address his question around OpEx. Patrick Burnett: Sounds good, Frank. Yes. So I think this 3 to 24 months group, and I'll let someone else kind of comment on the kind of absolute size of that group. But I think they are uniquely reflecting a patient population that has -- we're talking about essentially crisaborol approved there and then maybe 5 or 6 topical corticosteroids. So I think this really is a group that as we've been out kind of talking to pediatric dermatologists, and these patients are not just managed by pediatric dermatologists. The they're managed by a lot of dermatologists, dermatology, PAs and NPs as well, that this is one where people really do struggle to be able to get these patients under control. Obviously, it's not a group that you want to jump to a systemic right away. They tend to have a higher body surface area. Their disease tends to evolve kind of quickly over time into a pretty high percent of involved skin. And kind of as we alluded to in the call, there's a really high sensitivity to exposure to corticosteroids right out of the gate. I mean these are very, very young patients and the developmental milestones are at the top of mind for caregivers. So really kind of finding something that fits into that mindset, I think the ZORYVE profile fits beautifully into that. And I think we kind of alluded to the fact that this is a way to really win the hearts and minds of prescribers because if you could solve this problem for them, I think it really helps with the overall lift for the brand and what it means for the field. So I think that's the derm perspective. And as far as the overall size of the opportunity, I think I'll turn it over to you, Todd, to talk about that. Todd Edwards: Yes. Thank you, Patrick. And I'll just reemphasize, as Patrick mentioned, this patient population is tremendously underserved. If you think about it, it's really just EcrIA, which burns in the one application is available and then topical steroids, which, of course, brings great concerns to a caregiver, you say relative to steroid exposure. How we're going to drive this opportunity as we go forward once we get the approval will be across both the dermatology sales force as well as the PCP and pediatric sales force. Dermatology sales force because we do have pediatric dermatologists as well as other dermatologists to see this population and that we're conveying there's a real value proposition for this population. And then, of course, with our primary care and pediatric team, they'll be calling on pediatricians to make certain they create that awareness for the patient. And then in -- in addition to that, saying, we'll be doing a lot of direct-to-consumer campaign. And when I say consumer, it's a caregiver. We'll be making certain that we're reaching out and we're driving brand awareness of ZORYVE for this population to that caregiver to make certain that we know that it's available. And then in reference to the approximate side, it's about $2 million to $2.5 million as far as the patients, the opportunity that sits here within this age group in atopic dermatitis. Todd Watanabe: And Latha, can you address Uwe's question about the OpEx? Latha Vairavan: Yes. I would say SG&A for Q1 was slightly below consensus, but not we don't see a dramatic decline. So nothing to concern yourself there. The field force should have started in Q2. You'll see a portion of that hitting Q2 actual. So some normalization of that. The expansion for the primary care field force that will happen in the second half is what the comment modest increase references. And some of the initiatives that Todd talked about, you'll see some of that expense also play out for the course of the year. So that's our feedback on SG&A being higher year-over-year. Operator: Our next question comes from the line of Serge Belanger of Needham. Serge Belanger: The first one, just regarding coverage for ZORYVE. Do you expect to make any headways on what is remaining for Medicaid and Medicare coverage? Or is that more of a 2027 event? Just curious maybe if you can pull it forward to 2026. And then with the sales force expansion, you're going to be going to lower deciles prescribers. Just curious how they differ from the higher decile. Obviously, volumes are lower, but do they tend to prescribe less topical products than the higher decile ones? Todd Watanabe: Yes. Todd, sorry to worry you out, but could -- you want to take those 2? Todd Edwards: Yes. No, I'm happy to. Great question. So thank you. First one in reference to the coverage question and making headway relative to Medicaid and Medicare. We will continue to make headway in Medicaid. We can do that within 2026 as we continue to contract with these individual states relative to the fee-for-service Medicaid. We're currently in negotiations and conversations with some of those states where we don't have ZORYVE on formulary. Relative to Medicare, it's a longer process. We have to contract with each independent Part D plan. And typically, they do those formulary updates at the first of the year. So it is -- I'm saying likely going to be January 1, 2027, but there is opportunity with the Part D plans to be able to pull that forward into 2026. And so as previously communicated, ZORYVE has access in approximately 1/3 of the Part D plans. And it's our ambition to continue to accelerate that as we go forward, and we'll make every effort to pull that forward into 2026. And then the other is in reference to the sales force expansion, yes, you are correct. The ambition here is to be able to have a higher frequency, a higher level of engagement with the med decile providers by not diluting that frequency on the higher decile providers. And what mainly differentiates between high decile and medium decile is the opportunity to prescribe, meaning that they have a higher -- the higher deciles have a higher patient base, higher patient load. They typically do tend to be more rapid adopters of branded products. But with this median decile providers, there's ample opportunity for us here to continue to expand ZORYVE and believe that, that frequency will lead to higher adoption of ZORYVE. Operator: Our next question comes from the line of Richard Law of Goldman Sachs. Unknown Analyst: This is Tan on for Rich. The first one on the primary and pediatric care setting. Curious if you could speak more to what you're doing differently than CALA in those settings. What areas were they not doing well that you think you can improve on? And then I have a follow-up. Todd Edwards: Yes. No, it's a great question. Thank you. I'm sorry, Frank. I just jumped in. Thank you. So what we're doing differently is we are -- I mean, what -- I wouldn't reference it as what we're doing differently as it is what we're going to do to make certain that we set this primary care team up for success and that we can drive utilization of ZORYVE within these specialties is that, as mentioned, as we build this team at launch, we're going to be highly focused. We're looking and we've been able to build out the target list to make sure that we're going to be engaging the highest opportunistic primary care and pediatricians. And what I mean by highest opportunistic is this will be the PCPMPs that have the highest patient loads within the 3 indications in which ZORYVE is approved, not only that, but that these providers have demonstrated their willingness to adopt branded products. And these will sit within the major metropolitan areas. Also, we'll make certain that within each of these representative territories that we'll have a defined number of targets where we can make certain that, that representative can have the right frequency on each target to be able to drive trial and adoption of ZORYVE. Once again, setting this up for success. And then as we deliver success, we'll continue to scale from that point going forward. Unknown Analyst: Okay. Got it. And the second one on the foam in vitiligo and HS. What efficacy benchmarks would you say would be sufficient to give you confidence in continuing development in those 2 indications? Todd Watanabe: Sure. Todd, you got to pass. Patrick, do you want to take that one? Patrick Burnett: Thanks. Yes. So as we're looking at vitiligo and HS, keeping in mind that these are smaller open-label trials -- what we're really trying to understand is what does the ZORYVE profile look like relative to current standard of care treatments. And so for vitiligo, we're really kind of looking at the responsiveness timing relative to Opzelura. We know that one of the big challenges for patients with vitiligo is how quickly that they're seeing a response in the skin because that can really drive compliance. So once you get the patient onto the treatment, if they're not seeing the response that they want to, sometimes they'll fall off of their treatment. And I think that's where the mechanism of ZORYVE with PDE4 kind of working both on the inflammatory component, but also we've seen some evidence, as we outlined earlier, some impact potentially on the actual kind of melanocyte protection and pigment production is our hypothesis. So for why it is that we might see an earlier response rate. So we're kind of looking at what that profile is. Now when we look at HS or hidradenitis suppurativa, one of the things that we really want to be able to see is where are we moving these patients in the earlier stage of disease and how would that treatment, given that there isn't a really effective topical that's out there being used right now for patients with HS, where does that fit within the treatment paradigm that has emerged, where many of those patients are pretty quickly being moved to systemics even if they might have disease that might be able to be managed by an effective topical. So there, I think we see a little bit more blue sky for that. And what we're going to try and outline as we get into Q4 for vitiligo is a pretty clear understanding of both what we are seeing from the response profile, but also where we see the commercial opportunity and how we would see that profile fitting into the landscape. Todd Watanabe: Yes. And maybe I could just add one additional thought to Patrick's comments. And I think specifically in the HS case, and we saw this again with the APOLLO data today, the systemic therapies are not particularly effective in this disease. So even patients on systemic therapy are often going to need adjunctive treatment. And ZORYVE is really unique in the topical space that it can be safely used in combination with systemic therapies. And the disease is often occurring in intertriginous areas, the growing arm pits where doctors are much more reluctant about using topical steroids as well. So I think both early-stage disease, but also adjunctive to systemic therapy as we're seeing in psoriasis and atopic dermatitis. I think ZORYVE has a uniquely compelling profile for that use case as well. Operator: I'm showing no further questions at this time. I'll now turn it back to Frank for closing remarks. Todd Watanabe: Okay. Well, I will just thank everyone again for making time. I know it's a busy time of the year for you guys. So I appreciate you calling in and look forward to talking to you all in another quarter. Thanks. Bye-bye. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Thank you for joining us, and welcome to DXP Enterprises, Inc. first quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. I will now hand the conference over to David Little, CEO. David? Please go ahead. Kent Yee: Yep. Actually, Samantha, this is Kent Yee, Chief Financial Officer. I will walk through a few comments, and then we will hand it over to David Little, our CEO and Chairman. Before we get started, I want to remind you that today's call is being webcast and recorded and includes forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis are contained in our SEC filings. DXP Enterprises, Inc. assumes no obligation to update that information because of new information or future events. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our earnings press release. The press release and an accompanying investor presentation are now available on our website at ir.dxpe.com. I will now turn the call over to David Little, our Chairman and CEO, to provide his thoughts and a summary of our first quarter performance and financial results. David? David Little: Good afternoon. Thanks for joining us today on DXP Enterprises, Inc.'s fiscal 2026 first quarter conference call. Well, we delivered a slow start to 2026, especially sales in January, which improved in February and improved to a greater extent in March. We are not sure why sales in January were so soft, but we are glad to see the growth in the other two months and the growth in bookings during the quarter plus continuing in April. We also maintained gross margin discipline and generated meaningful free cash flow that gives us confidence in the quarters ahead. From an earnings standpoint, the quarter included increased interest expense amortization and a few discrete items in SG&A, like health care, legal, and audit-related costs tied to our acquisition activity, which we view as timing-related and will normalize and are not reflective of our underlying earning power. Our strategy remains simple and consistent: be customer-driven experts, execute operationally, grow where we have competitive advantage, and allocate capital in a disciplined way. This quarter reflects steady execution across our diversified platforms. We grew sales nearly 10%, expanded gross profit margins, delivered EBITDA margins above 11%, all the while generating strong cash flow. On behalf of the 3,497 DXP Enterprises, Inc. people you can trust, I want to thank our customers, suppliers, and shareholders for their continued trust and support. Our team continues to execute with consistency. We remain focused on profitable growth and cash generation. Consolidated performance in the first quarter: sales were $521.7 million, up 9.5% year over year. Sales per business day increased to $8.28 million from $7.57 million. Gross profit margins expanded to 32.3%, nearly 80 basis points higher. Adjusted EBITDA was $57.8 million, or an 11.1% margin. Operating income totaled $42.5 million. Adjusted diluted earnings per share was $1.26. Free cash flow was $26.3 million. These results are driven by a combination of organic growth, favorable mix, operating execution, and contributions from accretive acquisitions. Margin performance reflects pricing discipline, cost controls, and an ongoing shift towards higher-value products, engineered solutions, and services. SG&A was higher year over year due to several unique and some nonrecurring items, including health care claims volatility, and legal and audit costs tied to acquisitions, and other one-time expenses. We expect those to normalize as the year progresses, and we remain focused on managing SG&A while continuing to invest in growth initiatives that generate acceptable returns. From a growth standpoint, we continue to lean into markets where demand is durable and where DXP Enterprises, Inc.'s capabilities matter. Water and wastewater, energy infrastructure, general industry, and selected technology-driven markets like data centers and air compression continue to provide attractive long-term demand drivers. Across DXP Enterprises, Inc., growth is coming from several consistent things: expanding technical and engineered solutions; broadening solutions around pumps, automation, filtration, and process equipment; leveraging our decentralized model to pursue local growth opportunities; and cross-selling across platforms and integrating acquisitions more effectively. We are not chasing volume for volume’s sake. Growth is targeted at areas where we can maintain margins, generate cash, and deepen our customer relationships. Thank you, DXP Enterprises, Inc. sales and operational professionals, for teaming up together and winning for our customers and stakeholders. Thank you to our corporate support for their efforts to support both internal and external customers. Segment performance: Innovative Pumping Solutions continues to deliver engineering solutions that matter. Sales increased 37.7% to $111.7 million. Growth was driven by energy-related and water and wastewater activity, along with contributions from recent acquisitions. Bookings and backlog in energy infrastructure remain above long-term averages, and we are encouraged by the traction we are seeing early in fiscal 2026. Many of these engineered solutions are large, multi-quarter in nature, which support revenue visibility and backlog conversion moving forward. We also continue to build scale in water and wastewater markets within IPS, where municipal infrastructure investments and regulatory requirements create long-cycle demand for pumps and treatment solutions. Service Centers produced 3.3% total sales growth. This segment continues to benefit from its diversification across end markets and its multi-product MRO-focused model. Growth is coming from technical products such as automation, vacuum pumps, filtration, and newer pump brands serving water and industrial applications. We are also seeing demand improvements in markets like air compression and data centers where customers need reliable systems for pumping, cooling, power, and filtration—areas where DXP Enterprises, Inc. can provide bundled solutions rather than just individual components. Supply Chain Services grew 2.7% year over year and 6.2% sequentially. This business continues to onboard new customers. As we have discussed before, implementation timing and facility-level ramp-up can create temporary variability, but demand for SCS’s technology that enables integrated supply solutions continues to build. The sales pipeline remains encouraging, and we expect performance to improve gradually as onboarding matures and program volume scales. Cash flow, capital discipline, and balance sheet: cash generation remains a core focus for DXP Enterprises, Inc. In the first quarter, we generated $29.6 million in operating cash flow and $26.3 million of free cash flow, even while investing in working capital to support growth, particularly in IPS and our water-focused business. Our balance sheet remains strong with ample liquidity to fund organic growth initiatives, integrate recent acquisitions, pursue disciplined accretive M&A, and maintain financial flexibility through different macro environments. We continue to emphasize cash conversion, working capital discipline, and return on invested capital when making growth and acquisition decisions. As we move through fiscal 2026, our priorities remain clear: drive organic growth in attractive end markets, maintain margin discipline and operational execution, execute strategic accretive acquisitions, and generate cash and allocate capital thoughtfully. We like the current setup in our markets: water, general industry, and energy-related infrastructure. Bookings are trending higher, backlog remains healthy to higher, and based on current visibility, we are encouraged about the second quarter and the remainder of the year. DXP Enterprises, Inc.'s diversified model, improving demand indicators, and consistent operating discipline give us confidence in our ability to execute through fiscal 2026. In closing, I want to thank our DXP Enterprises, Inc. people for their execution, teamwork, and commitment. They continue to differentiate DXP Enterprises, Inc. in the markets we serve and create value for our customers and shareholders. With that, I will turn it over to Kent to walk you through the financial details. Kent Yee: Thank you, David. And thank you to everyone for joining us for our review of our 2026 financial results. Q1 shows that we carried momentum from last year into fiscal 2026, but started off slower than anticipated. That said, at this time last year, we experienced a similar trend and finished 2025 strong. Likewise, we anticipate 2026 to be another strong year. Specifically for Q1, we had strength in sales during the months of February and March, strong gross margin performance, and good free cash flow generation. To summarize the quarter, Q1 key takeaways are as follows: 9.5% sales growth, with sales per business day showing 28% growth between January and March; strong gross margin performance, with gross margin improvement sequentially and year over year; and great quarterly free cash flow generation. In terms of our detailed results, total sales for the first quarter increased 9.5% year over year to $521.7 million. Acquisitions that have been with DXP Enterprises, Inc. for less than a year contributed $40.7 million in sales during the quarter. Average daily sales for the first quarter were $8.3 million per day versus $7.6 million per day in 2025. Adjusting for acquisitions, average daily sales were $7.6 million per day for 2026 versus $7.1 million per day during 2025. As is typical, sales accelerated through the quarter, with average daily sales increasing from $7.2 million per day in January to $9.2 million per day in March, reflecting a normal quarter-end push but highlighting strong acceleration coming into quarter end. In terms of our business segments and on a year-over-year basis, Innovative Pumping Solutions grew 37.7%, followed by Service Centers growing 3.3% and Supply Chain Services growing 2.7% year over year. In our Service Centers, sales grew 3.3% year over year and declined 5.1% sequentially. Regions that experienced sequential as well as year-over-year sales growth include our South Central, South Rockies, and South Atlantic regions. From a product perspective, our Metalworking division also experienced sequential and year-over-year sales growth. From a segment operating income perspective, we have had four consecutive quarters of around 14% or greater, and we look for this to continue as we still believe there are regions that can enhance or become more consistent in their operating income margins. In terms of Innovative Pumping Solutions, we continue to experience strong backlogs in both our energy and water and wastewater businesses. Our Q1 2026 energy-related average backlog increased 2.1% sequentially, stemming the declines we saw in Q3 and Q4 of last year. As David mentioned and as we have been discussing on previous earnings calls, we have booked a few large engineered projects in both energy and water that we recognized some revenue on in 2025 and will continue into 2026. The conclusion remains that we are trending meaningfully above all notable sales levels based upon where our backlog stands today. Our DXP Enterprises, Inc. Water platform experienced our fourteenth consecutive quarter of sequential sales growth, and we look for this to continue as we move through 2026. That said, we are seeing project and product delivery timelines stretch in our already long-cycle business. We also see strength in our IPS water backlog as it continues to grow due to a combination of our organic and acquisition additions. It is worth noting that DXP Enterprises, Inc. Water was 66% of IPS sales in Q1. Supply Chain Services performance primarily reflects a 6.2% increase sequentially as well as 2.7% growth year over year. As we discussed during Q3 and Q4 of last year, we experienced an uptick in Supply Chain Services performance, which we are seeing again in Q1. Interest in and demand for SCS services is increasing because of the proven technology and the efficiencies they provide for industrial customers, and we expect a stronger 2026 as we onboard new customers. Turning to our gross margins, DXP Enterprises, Inc.'s total gross margins were 32.3%, a 79 basis point improvement over 2025. This improvement is attributed to increased margins year over year across all three business segments and the contribution from acquisitions at a higher overall relative gross margin versus our base DXP Enterprises, Inc. business. That said, from a segment mix standpoint in Q1, Service Centers contributed 65%, Innovative Pumping Solutions was 23%, and Supply Chain Services was 12% of sales. With our mix increasing more towards Innovative Pumping Solutions, this continues to elevate DXP Enterprises, Inc.'s gross margins. In terms of operating income, combined, all three business segments increased 105 basis points year-over-year in business segment operating income margins. This was driven by improvements in operating income margins across all three segments year over year and sequentially. Total DXP Enterprises, Inc. operating income was $42.5 million in 2026. Our SG&A for the quarter increased $16.1 million from 2025 and $6.2 million sequentially to $126.1 million. The increase reflects normal seasonal amounts in terms of payroll taxes, insurance, and other administrative items, as well as the growth in the business and associated incentive compensation. Additionally, as David mentioned in his comments, the quarter included some unique and discrete one-time items, including elevated health care costs, excess legal and consulting costs, as well as one-time equipment and fleet costs. SG&A as a percentage of sales increased 115 and 144 basis points year over year and sequentially to 24.2% of sales. Turning to EBITDA, Q1 2026 adjusted EBITDA was $57.8 million. Adjusted EBITDA margins were 11.1%. It is worth noting that our adjusted EBITDA margins remain above 11% amidst our normal financial seasonality associated with higher payroll taxes, insurance, and associated items. We continue to expect to benefit from the fixed-cost SG&A leverage we experience as we grow sales and anticipate there is further operating leverage as we move through fiscal 2026. In terms of EPS, with a Q1 net income of $20.0 million, our earnings per diluted share for Q1 2026 was $1.22 per share versus $1.39 per share for 2025. We would point out that in the fall, we repriced and raised an incremental $205 million in debt; interest expense increased by $1.8 million compared to the first quarter of last year. Conservatively adjusting for some of the one-time acquisition and excess expense items, adjusted earnings per diluted share for 2026 was $1.26 per share. Turning to the balance sheet and cash flow: in terms of working capital, our working capital increased $17.9 million from December to $379.6 million. As a percentage of sales, this amounted to 18.4%. As mentioned during Q4, we will continue to grow into the working capital as a percentage of sales, specifically the impact from recent acquisitions. We do anticipate further acquisitions, however, which could cause us to move up, albeit we are focused on managing working capital as efficiently as possible as we scale and grow. In terms of cash, we had $213.4 million in cash on the balance sheet as of March 31. This is a decrease of $90.4 million compared to the end of Q4, and this primarily reflects the acquisition of Mid Atlantic Storage Systems, Premier Flow, and Ambiente H2O. In terms of CapEx, CapEx in the first quarter was $3.3 million, essentially flat compared to 2025, and a decrease of $16.6 million compared to 2025. As we have discussed, we were making investments in the business as we grow, and this began to taper during the second half of last year. We see our current levels at less than 1% of sales as more of what we would expect in terms of maintenance capital expenditures. Turning to free cash flow, cash flow from operations was $29.8 million in Q1 of this year versus $3.0 million in Q1 of last year. As a reminder, during 2025, we included tax payments which were deferred from Q2 of last year due to storms that were paid in 2025. That said, we continue investing in projects and experienced an uptick in receivable days during Q1. As we move through 2026, this should balance out, and we should see a decrease in receivable days. We continue to focus tightly on managing projects from a cash flow perspective and look to align billings with the investments. Return on invested capital, or ROIC, at the end of the first quarter was 34.1% and is consistent with DXP Enterprises, Inc. driving margins, operating leverage, and improving our run-rate EBITDA. As of March 31, our fixed charge coverage ratio was 2.5 to 1 and our secured leverage ratio was 2.6 to 1, with a covenant EBITDA for the last twelve months of $243.9 million. Total debt outstanding on March 31 was $844.7 million. In terms of liquidity, as of the first quarter, we were undrawn on our ABL with $31.7 million in letters of credit, or $153.3 million in availability, and liquidity of $366.7 million, which includes $213.4 million in cash. DXP Enterprises, Inc. is poised to execute our acquisition strategy and we anticipate closing another one to two acquisitions before the second quarter ends. In terms of acquisitions, we closed three during the quarter: Mid Atlantic Storage Systems, Premier Flow, and Ambiente H2O. DXP Enterprises, Inc.'s acquisition pipeline continues to remain active, and the market continues to present compelling opportunities. As we discussed during the Q4 earnings call, we anticipated closing one to three acquisitions before midyear, and we have closed three deals year to date. We have another three under letter of intent and another two close to coming under letter of intent. That said, we are stressing sustainable performance with our acquisitions and remain comfortable with our ability to execute on our pipeline. Heading into 2026, we refreshed our balance sheet, which has allowed us to continue to invest in the business both organically and through acquisitions while also returning capital to shareholders. We are excited about the future. We are excited because there is still substantial value embedded in DXP Enterprises, Inc. We look forward with great confidence to a future of sustained growth and market outperformance. Our resilient and critical MRO and supply chain solutions combined with our engineered solution capabilities and exposure to secular trends, including water and wastewater, will continue to drive our future sales and profitability. We are excited about the future. We will now open the call for questions. Operator: We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Your first question comes from the line of Zach Marriott with Stephens. Zach, line is open. Please go ahead. Zachary Ryan Marriott: Good afternoon, and thank you for taking my questions. I heard you give the January and March daily sales numbers thus far. Could you please fill us in for February and then Q2? And is there anything that should drive a meaningful margin difference, whether up or down, when comparing Q2 to Q1? And then just one more if I could: corporate expenses have fluctuated over the last year from as low as $20 million to up to $28 million this last quarter. Should we use the $28 million as the best proxy for Q2 and beyond, or should this number vary significantly over the balance of the year? Kent Yee: Absolutely. I will go from the beginning of the year. January was $7.2 million per day. February was $8.4 million per day. March was $9.2 million per day. And then April was $9.0 million per day. On margins, there is SG&A leverage, which we discussed in our comments. January was a light month, and we came in around 11.1% EBITDA margins, which is where we have been the last three quarters or so. That said, we feel good going into Q2. We do not provide direct formal guidance, but we believe there is more leverage in the business and margins could be higher. If sales keep trending as they have—by the way, on a monthly year-over-year basis, that April number is up 15% year over year compared to April last year—that is going to drive incremental margin to the bottom line as we move forward. On corporate expenses, we pointed out in our comments that there were some discrete, unique one-time items, including consulting fees and fleet costs that we normally would not incur. There are also costs like health care claims that we do not fully control, and as we grow and add people, that category naturally increases. From an absolute dollar perspective, I would not say it would be $20 million, but it could be a blend between the $20 to $28 million range in the short to medium term. As we grow through acquisitions and add people, you are going to have increased health care claims in particular—we are self-insured as a company. We hope for a healthy employee base, but the reality is costs scale with headcount, and we have grown significantly through acquisitions recently, so some costs have gone up correspondingly. Operator: Your next question comes from the line of Diletta Sayobayeva. Diletta, your line is open. Please go ahead. Diletta Sayobayeva: Yep. Hello? Can you hear me? Kent Yee: Yes, we can hear you. Diletta Sayobayeva: Hello, everyone. Are you seeing any changes in pricing dynamics across your key end markets, particularly in energy? And how is that impacting margins and demand? And then you recently participated in DICE, the investment conference. Did you identify any meaningful opportunities, either from a commercial or acquisition standpoint? David Little: I believe the question was about pricing and demand in oil and gas. Our oil and gas business is doing well, and it is growing. As we have said in the past, we have booked some really large orders, and we have booked some very nice orders recently. It can be competitive, but we also do remanufacturing of pumps, and when we are able to sell those types of products, they are based on delivery. We can produce pumps faster than anybody else can. When speed to delivery matters, our margin goes up. We have some very nice margins in that area. In general, demand is up, but it is twofold. Oil companies are not going crazy just because oil prices are $100 or above. They feel like the war and things like that will be resolved at some point, so they cannot count on those prices and expect them to come down some, so they are not going crazy. On the other hand, they have a lot of cash flow, and they are spending it. So demand is up, but it is not booming—that is how I would answer that. Kent Yee: On DICE and opportunities, from an acquisition standpoint, we are always out there as a business—both in the field and here at corporate. As I mentioned in my comments, we have three letters of intent in place today that we are working through due diligence, and we have another two that are close to being under letter of intent. We are still in acquisition mode. There are compelling opportunities out there. Our recent focus has been on the water and wastewater side, and we are still finding opportunities in that space. As we always say, DXP Enterprises, Inc. is in the business of buying businesses, and we spend a lot of time finding the right fit. Operator: We have reached the end of the Q&A session. I will now turn the call back to David Little for closing remarks. David Little: I would reiterate that January was surprisingly slow. I do not have a clue as to why—it was across the board: water, oil and gas, and general industry. I do not have anything to point to, and that threw us off stride a bit, and we did not produce great results. With that said, bookings in January ticked up, higher in February, and higher in March. We feel good about what we are doing going forward. Sorry about January, but we feel good about the year. We are looking forward to a great year, and appreciate everybody hanging in there. Thanks. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Runway Growth Finance Corp. First Quarter 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Quinlan Abel, Assistant Vice President, Investor Relations. Please go ahead. Quinlan Abel: Thank you, Operator. Good evening, and welcome to the Runway Growth Finance Corp. conference call for the first quarter ended 03/31/2026. Joining us on the call today from Runway Growth Finance Corp. are David Spreng, chief executive officer and chief investment officer of Runway Growth Capital LLC, our investment adviser, Thomas B. Raterman, chief financial officer and chief operating officer, and Carmela Thompson, our senior vice president, finance and accounting. Runway Growth Finance Corp.'s first quarter 2026 financial results were released just after today's market close and can be accessed from Runway Growth Finance Corp.'s investor relations website at investors.runwaygrowth.com. We have arranged for a replay of the call to be available on the Runway Growth Finance Corp. web page. During this call, I want to remind you that we may make forward-looking statements based on current expectations. The statements on this call that are not purely historical are forward-looking statements. These forward-looking statements are not a guarantee of future performance and are subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward-looking statements, including, without limitation, market conditions caused by uncertainties surrounding interest rates, changing economic conditions, and other factors we identify in our filings with the SEC. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions can prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions can be incorrect. You should not place undue reliance on these forward-looking statements. The forward-looking statements contained on this call are made as of the date hereof, and Runway Growth Finance Corp. assumes no obligation to update the forward-looking statements or events. To obtain copies of SEC-related filings, please visit our website. With that, I will turn the call over to David. David Spreng: Thank you, Quinlan, and thank you, everyone, for joining us this evening to discuss our first quarter 2026 results. Today, I will highlight notable developments from the quarter, provide an update on recent leadership appointments, and offer additional color on our approach to software investments. Then Thomas will take a deeper dive into our financial performance and portfolio metrics. I want to start by saying I am truly excited about the closing of the SWK transaction last month. It is a milestone moment for our investors and our team. In tandem with the closing of the deal, we are pleased to welcome JD Thomas as a managing director of health care and life sciences investing, where he will leverage his extensive expertise to further strengthen our investment platform. This acquisition has already strengthened our position in health care and further diversified our portfolio. JD's appointment is both a logical progression and a great opportunity as we further optimize our portfolio in the coming quarters. I would also like to congratulate Avisha Kubani on her promotion to chief credit officer of our investment adviser Runway Growth Capital. Since joining Runway in 2018, she has held a range of roles across portfolio monitoring and management analytics and valuation, bringing a deep understanding of our portfolio and credit discipline to this position. In addition, we are announcing today that Thomas B. Raterman, our CFO and COO, who joined me shortly after I started the firm, will become vice chairman of Runway Growth Capital effective 06/30/2026. He will be stepping back from his day-to-day roles at the BDC, including as CFO and COO, to focus on strategic initiatives that include portfolio optimization, platform-level M&A, capital market transactions, and capital formation. Thomas will continue to play an integral role for the BDC serving on our investment committee and assisting with special situation assets. In tandem with this news, we are very pleased to share that Carmela Thompson, our SVP finance and accounting, will become CFO at that time. Carmela joined our firm in June 2021 from KPMG and played an integral role in our IPO later that year. Since then, Carmela has contributed meaningfully to our financial reporting processes and capital raising efforts and has managed important aspects of portfolio accounting and operations. Carmela's experience and expertise give her a strong understanding of Runway's financial strategy, capital structure, and portfolio construction as we enter our next phase. Lastly, I am energized to be returning to the role of chief investment officer of our adviser. Our efforts since joining the BC Partners Credit platform have put the right pieces on the chessboard, and now we are going to work with this refreshed team to maximize returns for our shareholders. To that end, I would like to thank Greg Greifeld for his dedication over the years at Runway and wish him well in his future endeavors. We are confident in this experienced leadership team and the contributions JD, Avisha, and Carmela will make strengthening our origination and investment capabilities and financial operations and supporting our ability to deliver superior risk-adjusted returns. Turning to our portfolio activity for the quarter, it is important to note that as we worked to close the SWK transaction, we temporarily slowed our evaluation of new opportunities in the pipeline to focus on integrating the SWK portfolio and post-transaction balance sheet. With the transaction now behind us, we are positioned to be very selective in capitalizing on a robust pipeline moving forward. We are even more confident in our ability to source high-quality investments across our core sectors: technology, health care, and select consumer products and services. In the first quarter, Runway delivered total investment income of $29.5 million and net investment income of $10.6 million. During the quarter, we completed four investments in new and existing portfolio companies representing $17.6 million in funded investments. We also completed an additional debt commitment of $46.3 million, which will be partially funded during 2026. These investments included the following: First, the completion of a new $7.5 million investment to HR Pharmaceuticals, a founder-owned medical products platform specializing in the development, manufacturing, and supply of branded consumable products serving the acute and home care markets. We funded $5.5 million at close along with $2 million of preferred equity financing. Second, we completed an additional debt commitment of $46.3 million to [inaudible], a digitally native fragrance brand, which we expect will be partially funded during 2026. Finally, we completed three follow-on investments with an aggregate amount of $10.1 million to three existing portfolio companies. Subsequent to the first quarter, we continue to evaluate compelling opportunities that meet our high standards while strategically increasing our exposure to innovative health care and life science companies with durable long-term business models. We look forward to updating you on these opportunities in further detail as appropriate. Turning to the ongoing market dynamics facing the sector, as discussed during our fourth quarter 2025 earnings call, the recent debate around software and AI disruption has contributed to increased scrutiny of private credit and has been further compounded by headlines around elevated redemptions in evergreen funds. While media coverage has leaned into this narrative, it has failed to recognize the resilience of actual credit performance despite macro and rate headwinds over the last few years. Underlying fundamentals remain solid with default rates at manageable levels and broader credit metrics showing stability rather than stress. In terms of the venture market specifically, PitchBook/NVCA finds that activity remains modest overall and robust at the top end of the market with record levels of capital deployed. The data also points to resilience in early-stage investing and sustained interest in high-growth areas like AI. This suggests that while the market is selective, there are clear pockets of strength and opportunity underpinning venture activity. Overall, we believe we are well positioned for strong long-term performance despite the current sentiment, supported by our rigorous investment approach and our seasoned leadership team which brings decades of venture capital experience. Our confidence is supported by our expanded platform which is supported by the expertise of BC Partners Credit and further enhanced by the acquisition of SWK Holdings. With the closing of the SWK acquisition, we have meaningfully reconstructed our portfolio with attractive diversification in key sectors like health care, with stronger future earnings power. Today, we have a more diversified, balanced, and enhanced portfolio with the health care and life sciences sector comprising 32% of the portfolio at fair value. This transformation is an important context as we discuss the quarter's results. With respect to our software portfolio and approach to software investing, we maintain our long-term thesis on software and technology, our diligent approach to portfolio construction, and emphasis on risk mitigation. Across multiple economic cycles and market dislocations, our focus on high-quality late-stage companies with proven fundamentals has contributed to the resilience of our portfolio over time. We remain confident in our existing software positions and continue to evaluate compelling opportunities in the sector. Our software investments are high-quality, late-stage businesses characterized by mission-critical functions, long diligence and implementation cycles, and strong competitive moats, which include deep domain expertise, high switching costs, and diversified customer bases. We believe these attributes position our portfolio companies to not only coexist with AI but to leverage it to optimize operations and accelerate market penetration. We apply the same exceptional level of diligence and rigor in underwriting our software investments that we do to our portfolio at large. We remain confident in our pipeline and optimistic about the year as we realize the benefits of integrating the SWK portfolio and drive stronger outcomes for both our borrowers and our shareholders. Now, Thomas, over to you. Thomas B. Raterman: Thank you, David. In the first quarter, we generated total investment income of $29.5 million and net investment income of $10.6 million, a decrease compared to $30 million and $11.6 million in 2025. Our weighted average portfolio risk rating increased to 2.67 in 2026 compared to 2.45 in 2025. Our weighted average risk rating changed primarily as a result of moving two loans, Marley Spoon and BlueShift, to category five in nonaccrual status. Our weighted average risk rating calculated without these two specific loans moved from 2.67 to 2.37. Our rating system is based on a scale of one to five where one represents the most favorable credit rating. Our total investment portfolio had a fair value of $886.3 million, a decrease of 4.4% from $927.4 million in 2025. As of 03/31/2026, Runway Growth Finance Corp. had net assets of $438.2 million, decreasing from $485 million in 2025. NAV per share was $12.13, a decrease of 9.6% compared to $13.42 as of 12/31/2025. The NAV per share disclosed subsequent to quarter end in connection with the SWK closing of $11.93 primarily reflected estimated transaction costs of $7.7 million. In discussing our NAV for the quarter, it is important to contextualize our go-forward portfolio and the financial benefits of the SWK acquisition. On a pro forma basis, our portfolio is $1.1 billion, more than offsetting the impact of repayments in the Runway portfolio during 2025. It also drives diversification in terms of both industry exposure and the reduction of average loan size by 11%. Health care and life sciences will now account for 32% of our portfolio and 30% of our debt portfolio compared to [inaudible], respectively, at the end of the first quarter, and we expect to see a positive contribution to the portfolio's return profile over the balance of the year. Beyond financial contributions, our strengthened origination capabilities enhance our ability to source high-quality investments and selectively upsize existing commitments. Moving back to the quarter, we delivered $0.29 per share of net investment income and a base dividend of $0.33 per share. At quarter end, we had spillover income of approximately $0.65 per share. Net investment income this quarter was impacted by the acceleration of one-time deferred debt costs as well as a smaller average portfolio size due to elevated prepayments in 2025, the effects of which were further compounded by slower originations ahead of the deal close as we described earlier. Looking ahead to next quarter, we expect contributions from the fully integrated SWK portfolio and a lag in associated management fees to benefit NII by approximately $0.03 per share. However, we expect this benefit will be more than offset by the impact of Marley Spoon and BlueShift being placed on nonaccrual late in Q1. The full-quarter earnings impact of these new nonaccruals of $0.06 per share will be reflected in Q2. We are actively working with the management teams at Marley Spoon, BlueShift, and Mingle Healthcare and seek to achieve optimal outcomes for the portfolio. These situations are dynamic, and in the case of Marley Spoon, very complex, and as we have seen in the past, can take time to fully resolve. We do not see any thematic drivers to these recent credit downgrades. These are situations we have been monitoring and decided this was the prudent course of action to take at this time. Although our team puts maximum effort into avoiding these situations, some level of defaults are unavoidable, and we are working diligently to resolve them. With respect to the dividend, we believe that it is currently set at an appropriate level. We are committed to delivering for our shareholders, and our Board continues to evaluate future distributions with the goal of maintaining consistency while maximizing returns. Our debt portfolio generated a dollar-weighted average annualized yield of 14.2% for 2026, consistent with 14.2% in 2025 and declining from 15.4% in the same period last year. Moving on to expenses, total operating expenses were $18.8 million, an increase from $18.4 million in 2025. We recorded a net realized gain on investments of $1.3 million during 2026 compared to a realized loss on investments of $380,000 during 2025. During the first quarter, we experienced one full repayment and one partial repayment totaling $15 million, scheduled amortization of $1.9 million, and $2.5 million in equity proceeds. We remain focused on maximizing value over both the short and long term and continue to monitor the portfolio closely. Overall, we believe that downside risk is manageable and that our portfolio is well positioned to deliver stable results. Our confidence in the portfolio is supported by several key metrics which support a more balanced and right-sized mix of investments. Prior to the closing of the SWK transaction, our top 10 investments accounted for 54% of the portfolio and now account for only 43%. Looking at the breakdown of verticals within the portfolio, they are now more balanced across technology, financials, health care, and select consumer products and services, and over half of our portfolio companies are cash flow positive, underscoring the strong fundamentals our portfolio is built on. Within our software portfolio specifically, 62% of the companies are cash flow positive, 100% of our loans have financial covenants, and the weighted average fair value as a percent of cost, excluding nonaccruals, was 97%, and 94% of the loans in our software portfolio are sponsored. Each position in our portfolio undergoes a comprehensive evaluation process internally on a quarterly basis and periodically by a third party. For perspective, every material software investment in our portfolio was reviewed by a third-party valuation specialist in Q1. The portfolio was constructed intentionally with 98% first-lien exposure and well-diversified exposure across end markets. These results underscore the strength of our software portfolio and the diligence we apply to loans in the space. Please refer to our earnings presentation for additional detail on our software. As of 03/31/2026, our leverage ratio and asset coverage ratio were 0.98 and 2.02, respectively, compared to 0.90 and 2.11, respectively, at the end of 2025. Our total available liquidity was $372.3 million, including unrestricted cash and equivalents. We have borrowing capacity of $370 million under our KeyBank credit facility. On a pro forma basis, immediately following the SWK transaction close, our leverage ratio, asset coverage ratio, and total available liquidity were approximately 1.20, 1.84, and $231.8 million, respectively. As of 03/31/2026, we had a total of $179.2 million in unfunded commitments, which was comprised of $156.3 million to provide debt financing to our portfolio companies and $22.8 million to provide equity financing through our JV with Canma. Approximately $23.3 million of our unfunded debt commitments are eligible to be drawn based on achieved milestones. On 05/05/2026, our Board declared a regular distribution for 2026 of $0.33 per share. While there may be some variability in earnings on a quarter-to-quarter basis, we are confident in the long-term trajectory of our return profile and the strength of our combined portfolio. Finally, today, we are announcing a new share repurchase program for $15 million which will expire on 05/07/2027. Thoughtful capital allocation remains a priority, and at current levels, we believe Runway Growth Finance Corp.'s common shares present a highly attractive opportunity. We expect repurchases to be partly funded by proceeds from loan repayments in the coming quarters. With that, Operator, we will now open the call for questions. Operator: Thank you. As a reminder, to ask a question, you will need to press 1-1 on your telephone. To remove yourself from the queue, you may press 1-1 again. Again, that is 1-1 on your telephone to ask a question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Erik Zwick of Lucid Capital Markets. Your question please, Erik. Erik Edward Zwick: Thanks. Good afternoon, everyone. First, David, you mentioned a lot of personnel changes and promotions, and I know Thomas is on the line. So, Thomas, congratulations on your next position, and congrats to any of those else listening online. One, I wanted to start maybe with a question for Thomas. Just trying to potentially understand the kind of one-time expenses that may have been recorded in the quarter related to both the SWK acquisition and also, I think you mentioned, some accelerated debt expense as well. Just trying to drill down to maybe what a more kind of core run rate might have been. Thomas B. Raterman: Yes. There was about $0.02 or $0.03 related to the early redemption of our baby bonds. If you recall, in January–February, we did a new baby bond offering, and we redeemed our 8% notes. So that is the number there. There were no SWK expenses directly. Most all of those would be capitalized into the transaction. There could be some modest amount just in terms of allocation of personnel that caused our allocations to the BDC to change a little bit, but it would be a rounding error. Erik Edward Zwick: Got it. That is helpful. Thanks. Thomas B. Raterman: Thanks for the congrats. Erik Edward Zwick: You are welcome. The other one I wanted to ask, just along the lines of the new share repurchase authorization, given BlueShift Labs and Marley Spoon moving to nonaccrual and creating a little bit of earnings headwind, just how do you weigh, in your mind, how you evaluate the use of capital in terms of investing into new portfolio companies that would generate income versus buying back shares? Thomas B. Raterman: Yes, it is always a tough balancing act between those two because purchasing shares at this level, at this percent of NAV, is immediately accretive. What really guides that is our excess borrowing base, if you will, and our leverage ratio that we calculate. We want to keep those two in check. We want to make sure we maintain adequate dry powder. We will be biased towards the deals that come in for those that have the best risk-return trade-off, choose the higher-yielding ones, probably the smaller-size transactions, all within our stated risk parameters. Erik Edward Zwick: Great. Thanks for taking my questions. Operator: Thank you. Once again, to ask a question, you will need to press 1-1 on your telephone. To remove yourself from the queue, you may press 1-1 again. Our next question comes from the line of Christopher Nolan of Ladenburg Thalmann. Your line is open, Christopher. Christopher Nolan: Hi, and echo congratulations, Thomas, on your next move, and congratulations to everyone who got the step. What was the driver for the unrealized depreciation charges again? I think you addressed it in the comments, but I missed it. Thomas B. Raterman: So the changes in fair value of the impact on NAV were really related primarily to two buckets. About a third, or just under a third, was related to declines in the market multiples. But the majority of it was related to the watch list names, primarily BlueShift and Marley Spoon. Christopher Nolan: Great. And I think you mentioned that the drag on earnings from those two would be roughly $0.06 a quarter. Thomas B. Raterman: That is correct. And our watch list is about six names. A number of them are marked at that 50% range, and we think those are very fair marks. Those workouts will take varying times to sort through. They have different levels of complexity, and so it will take a little bit of time to replace those with earning assets. But there is a game plan for each of them that is being fully adjudicated. Christopher Nolan: Okay. And then turning to SWK, I know you mentioned earlier that it would be accretive to earnings. Do you have any sort of time frame when you expect it to be accretive to EPS? Thomas B. Raterman: It should begin to be accretive to EPS in Q2, and then fully accretive in Q3. And the reason I say partially accretive is because it closed on April 6 as opposed to March 31. Christopher Nolan: Great. Thank you. Operator: I would now like to turn the call back over to David Spreng for closing remarks. Sir? David Spreng: Thank you, Operator. And thank you all for joining us today. We look forward to updating you on our second quarter financial results in August. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Eastman Kodak Company Q1 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I would like to hand over the conference to our first speaker today, Denise Goldbark. Denise Goldbard: Thank you, and good afternoon, everyone. I am Denise Goldbard, Eastman Kodak Company’s chief marketing officer. Welcome to Eastman Kodak Company’s first quarter 2026 earnings call. At 04:15 this afternoon, Eastman Kodak Company filed its Form 10-Q and issued its release on financial results for 2026. You may access the presentation and webcast for today's call on our Investor Center at investor.codec.com. During today's conference call, we will be making certain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. We intend for these forward-looking statements to be covered by the Safe Harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Investors are cautioned not to unduly rely on forward-looking statements and such statements should not be read or understood as a guarantee of future performance or results. All forward-looking statements are based on Eastman Kodak Company’s expectations and various assumptions. Future events or results may differ from those anticipated or expressed in the forward-looking statements. Important factors that could cause actual events or results to differ materially from these forward-looking statements include, among others, the risks, uncertainties, and other factors described in more detail in Eastman Kodak Company’s filings with the U.S. Securities and Exchange Commission from time to time. All forward-looking statements attributable to Eastman Kodak Company or persons acting on its behalf only apply as of the date of this presentation and are expressly qualified in their entirety by the cautionary statements included or referenced in this presentation. Eastman Kodak Company undertakes no obligation to update or revise forward-looking statements to reflect events or circumstances that may arise after the date made or to reflect the occurrence of unanticipated events. In addition, the release just issued and the presentation provided contain certain measures that are deemed non-GAAP measures. Reconciliations to the most directly comparable GAAP measures have been provided with the release on our website in our Investor Center at investor.codec.com. Speakers on today's call are James V. Continenza, Eastman Kodak Company’s Executive Chairman and Chief Executive Officer, and David Edward Bullwinkle, Eastman Kodak Company’s chief financial officer and senior vice president. We will not be holding a formal Q&A during today's call. As always, the Investor Relations team is available for follow-up. I will now turn the call over to James V. Continenza. Thank you, and have a great day. James V. Continenza: Welcome, everyone, and thank you for joining the first quarter 2026 investor call for Eastman Kodak Company. The story of the first quarter is a story of consistency, stability, and growth. This reflects our transformation over the last seven years and our focus on execution and our continued investment in the business. I am pleased to see strong year-over-year performance over the last three consecutive quarters. Let me give you some highlights from the first quarter. Consolidated revenue was up 7% to $265 million compared with $247 million for the first quarter 2025. Revenue increased in both our key businesses, Print and AM and C. We had a gross profit percentage of 22%. That is three percentage points, or 16%, higher than the first quarter 2025. Operational EBITDA was $15 million compared with $2 million for the first quarter 2025, up $13 million. Moving on to Advanced Materials and Chemicals, we saw AM and C revenue grow by $2 million, or 3%, which was driven by a $3 million increase in film and chemicals, partially offset by $1 million lower in inks and consumables. Let us talk about our still films. We have invested heavily back into film, and we are starting to see great results from that. An example in still film: we recently launched a professional film sold directly to distributors. Our objective is to stabilize the market and continue to meet demand. I am really proud to see Motion Picture continue to increase. We launched a new film called Virita 200D, which was used in Euphoria season three. A lot is going on. Many Oscar-winning movies, including One Battle After Another and Sinners, were shot on Eastman Kodak Company film, and the long-anticipated Christopher Nolan’s The Odyssey is also shot on Eastman Kodak Company film. We remain committed to film and maintaining supply for our customers. A quick update on our pharma business. Our new CGMP pharmaceutical manufacturing facility is up and running. I am really proud to say we recently opened the Eastman Kodak Company Advanced Electrophysiology Lab in partnership with SUNY Geneseo. The lab will enhance our research capabilities and support future product development. We continue to work towards obtaining Class II certification to manufacture more complex, high-margin products in the United States. Moving on to some highlights from our commercial print business, we continue to provide a full range of print solutions to our customers. Our revenue increased by 9%, even in the difficult times we are going through. There are some supply issues on aluminum. There are issues on delivery and logistics. A lot is going on. Prices have increased greatly on raw materials such as aluminum, but yet we are still able to maintain our revenue and supply our customers. As our commitment to print continues and we continue to invest in innovation, I am pleased to announce we recently launched the Sonora Ultra XR Plate in Europe, which will expand our Sonora Ultra portfolio. As I stated last quarter, I will state it again: as we continue to fix the balance sheet, invest in the infrastructure of the business, and focus on key products, our next steps are growth. We must continue to grow our business. We have built a stable, growing Eastman Kodak Company by consistently executing our long-term plan. We stay on track regardless of all the events happening around us. We are leveraging our core strengths. We are strengthening our balance sheet. We are investing in growth products. As we continue to invest in operational excellence and execution, we continue to diversify our portfolio by using the different technologies and skill sets we have in the business. As we stated before, our goal is to continue to work on the balance sheet. I am proud to say today, we are net debt positive. But one of the most important aspects is meeting our customers’ needs, and the only way we can do that is by continuing to focus on operational excellence. We have to be better than everyone else, and we are going to continue to keep investing and getting better every single year. Now I am going to turn it over to David Edward Bullwinkle to discuss our first quarter financial results. Dave? David Edward Bullwinkle: Thanks, James V. Continenza, and welcome to the call, everybody. Thanks for joining us today. This afternoon, the company filed its Form 10-Q for the quarter ended 03/31/2026 with the SEC. As I do on each and every call, I encourage you to read the filing in its entirety as there is a plethora of information contained in the materials we have provided publicly. As a reminder, references made during my remarks are included in the company’s earnings press release and Form 10-Q filed today. Let us begin with the key financial highlights for 2026. We delivered strong financial performance despite sharp commodity swings and persistent inflationary pressure. The results reflect substantial year-over-year improvement in revenue, gross profit, and operational EBITDA, underscoring our disciplined execution and progress against our long-term goals. In fact, this is the third consecutive quarter of year-over-year growth for these measures. Revenue was $265 million, an increase of $18 million, or 7% year over year, with increases in Print and Advanced Materials and Chemicals. On a constant currency basis, revenue grew $11 million, or 4%. Gross profit was $57 million, which is up $11 million, or 24%, year over year. Our gross profit percentage increased to 22% compared to 19% in the prior-year quarter, reflecting our operational execution. Operational EBITDA for the quarter was $15 million, an increase of $13 million compared to the prior-year quarter, primarily driven by improved pricing, partially offset by higher manufacturing costs and higher silver and aluminum prices. For the quarter, we reported a GAAP net loss of $16 million compared with a GAAP net loss of $7 million in the prior-year quarter, an increase of $9 million. Let me walk you through the main factors behind this result and share with you some additional helpful information. $12 million of the loss was driven by a change in the fair value of an embedded derivative related to our Series B preferred stock. This accounting impact resulted from a previously announced amendment to the Series B agreement, and the change in fair value was primarily caused by the increase in our stock price during the quarter. This is fully disclosed in our Form 10-Q. $5 million of the loss relates to stock-based compensation expense, which is a non-cash expense and does not impact our liquidity. We also recognized $4 million of non-cash pension income this quarter. This reflects an $18 million decrease compared to the prior-year quarter. This is driven by the termination of the CREP pension plan, which we completed in 2025. As a result of the plan termination, we expect pension income to be lower year over year in each quarter of 2026, so we will see this reoccur every quarter this year. Partially offsetting these items, GAAP net loss benefited from an $8 million year-over-year reduction in interest expense, mainly due to term loan repayments resulting from the pension plan termination and reversion. While these items affect comparability, they reflect deliberate actions we took to strengthen our balance sheet, reduce debt, and build long-term value. Now that I have explained some of the key drivers of the year-over-year change in our net loss, I have also included a simple reconciliation in today’s materials to explain how the GAAP net loss translates to operational EBITDA. We have received feedback from investors and questions about this, so we are covering it here. EBITDA measures the profitability of our business by excluding its components of interest, taxes, and non-cash charges like depreciation and amortization—as you know, EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. To arrive at operational EBITDA from net loss, we start by adding back those standard items of interest expense, tax expense, and depreciation and amortization expense. In addition, to arrive at operational EBITDA for Eastman Kodak Company, we remove those non-operational items shown on the waterfall slide. Number one, nonrecurring and other items. This category primarily contains the $12 million expense we booked in the quarter for the fair value change in the preferred stock derivatives. This derivative is the value of the conversion option for our stock. We expect to fair value this every quarter, and the changes will be recognized in our income statement. The second category is non-cash items of expense or income. In this case, it is a net expense item. This represents an adjustment to remove stock-based compensation expense, which we talked about earlier, and it is almost fully offset by the corporate component of pension income, which we also discussed earlier in my remarks. As I have said, these adjustments remove the impact of items that can cause GAAP volatility but do not reflect day-to-day operations. Therefore, we consider them nonoperational. The resulting operational EBITDA provides a clear view of how our underlying business is performing. We have consistently used this metric as our segment measure as well, which is disclosed in all of our earnings releases and fully reconciled in that material. I hope this provides helpful context of the company’s performance and financial statements. If you have further questions, please do not hesitate to contact us. Moving on to our cash performance for the first quarter, we ended the quarter with $299 million of unrestricted cash, a decrease of $38 million from 12/31/2025. Let me briefly walk through the key drivers of our quarter-end cash position. First, as expected, we received $46 million in cash proceeds from the redemption of hedge fund investments related to the CREP pension reversion during the quarter. Second, working capital was impacted by a $38 million increase in inventory, with $35 million of this increase occurring within our AM and C segment. This was largely driven by average commodity cost of silver more than doubling from year-end and increases in the volume of silver we carry on the balance sheet due to supply terms. Inventory in AM and C also increased as we built ahead of our planned second-quarter plant shutdown for maintenance. Partially offsetting these impacts within working capital, accounts payable increased by $9 million and accounts receivable decreased by $9 million, both helping to partially counter the inventory increases. Last, as required under the term loan amendment, we made a $50 million principal payment on our higher-rate term loans in March. This was funded primarily by [inaudible]. The company’s net debt positive position increased from $128 million at 12/31/2025 to $139 million at 03/31/2026. This is an $11 million improvement in the quarter. This reflects further strengthening of our financial position. As I conclude, I want to leave you with a few clear takeaways from our first quarter results. Number one, financial results were strong. We delivered solid year-over-year growth in revenue, gross profit, and operational EBITDA, and this is for the third consecutive quarter. We did this despite economic headwinds in commodity pricing and inflationary impacts as well. Most notably, our operational EBITDA increased sharply even as the business managed through those impacts. Again, as I talked about earlier, we fully reconciled for you; operational EBITDA is our key internal measure of profitability. It is how we measure and disclose the results of our segments in our public filings as well. Finally, I am proud to say that our balance sheet is stronger than it has been in many, many years, as we continue to see the benefit of the decisions we have made to reinforce our foundation. With $299 million of unrestricted cash, we are in a net debt positive position relative to our short- and long-term debt, and this is for the second consecutive quarter. We have also continued to delever the balance sheet, paying down $50 million of higher-rate interest debt in the quarter. Thank you for your time and attention. I will now return it back to James V. Continenza. James V. Continenza: Thank you, David Edward Bullwinkle. In summary, we have built a strong, stable Eastman Kodak Company over the last several years by consistent execution of our long-term plan and making the appropriate changes as the environment changes around us. We have delivered three consecutive strong quarters year over year. We continue to invest in AM and C and Print and grow those products. We focus on operations, but more importantly, three key areas that we always focus on: manufacturing, selling, and service. Everyone in the company is geared around focusing on those three areas. The goal is to deliver long-term value to our shareholders, our customers, and our employees. With that, I want to thank everyone for their time and for listening to the Eastman Kodak Company first quarter 2026 investor call. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Tandem Diabetes Care, Inc. First Quarter 2026 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. 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 speaker today, Susan Morrison, Executive Vice President and Chief Administrative Officer. Ma’am, please go ahead. Susan M. Morrison: Hello, and welcome to Tandem Diabetes Care, Inc.’s First Quarter 2026 Earnings Call. Today’s discussion will include forward-looking statements. These statements reflect management’s expectations about future events, our product pipeline, development timelines, financial performance, and operating plans, and speak only as of today’s date. There are risks and uncertainties that could cause actual results to differ materially from those anticipated or projected in our forward-looking statements, which are described in our press release issued earlier today and under the Risk Factors portion of our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q. Today’s discussion will also include references to both GAAP and non-GAAP financial measures. Unless otherwise noted, the financial metrics discussed today will be on a non-GAAP basis. Please refer to our earnings release issued earlier today and available on the Investor Center portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measures and other information regarding our use of non-GAAP financial measures. John F. Sheridan, Tandem Diabetes Care, Inc.’s President and CEO, will be leading today’s call, and he will be joined by Leigh A. Vosseller, Executive Vice President and Chief Financial Officer. Following their prepared remarks, the operator will open up the call for questions. Thanks in advance for limiting yourself to one question before getting back into the queue. With that, I will hand the call over to John. John F. Sheridan: Thanks, Susan, and welcome, everyone. In the first quarter of 2026, we delivered strong financial and operational performance, setting the stage for another successful year. This momentum reflects the dedication of our team and our commitment to our strategic objectives. Building on these results, we actively advanced several key initiatives that position Tandem Diabetes Care, Inc. for both immediate impact and long-term growth. By modernizing our commercial operations, reshaping our business model, and introducing new technologies, we are not only achieving notable short-term gains, but also laying the foundation for sustained growth, profitability, and innovation. I will now walk you through updates on each of these initiatives, beginning with the modernization of our commercial organization. Globally, we have assembled a talented and impressive team. The group is deeply committed to bringing the benefits of our technology to people living with diabetes, and we are working to further support them by strengthening our systems, infrastructure, and processes. For example, in the United States, we continue upgrading our sales and customer management infrastructure as part of our multiyear system investment to optimize sales efficiency, enhance effectiveness, and drive deeper customer insights. Internationally, a key first-quarter highlight was our launch of direct commercial operations in the UK, Switzerland, and Austria. By doing so, we are better positioned to serve our customers, strengthen HCP relationships, and drive continued growth. The transition has been progressing smoothly, and we plan to continue expanding our direct operations later in 2026 and again in 2027. This approach deepens our engagement with the diabetes community while providing Tandem Diabetes Care, Inc. greater ASP and improved margins. The second key initiative I will be discussing today is reshaping our U.S. business model through our transition to a multichannel strategy. On our last call, we discussed how adopting pay-as-you-go, or PayGo, in the pharmacy channel provides us the opportunity to bring significant advantages to customers, health care providers, and payers, while delivering favorable economics to Tandem Diabetes Care, Inc. Throughout March, we began executing contracts adapted for PayGo, covering both t:slim and Mobi pump supplies, and continued to expand access with an increase to approximately 40% formulary coverage today. It is an important leading indicator for how quickly we can transition our business. Operationalizing PayGo in the pharmacy channel is an end-to-end change in the way health care providers prescribe our technology, the way we service customers, and the way we process and fill orders. We knew this transition would take time. It is still early in the process, and we are working to improve our efficiency and customer satisfaction by enhancing the pharmacy experience. Our early introduction of PayGo through the pharmacy reinforces our conviction in the meaningful opportunity this transition presents for our business and for our customers. Finally, I will provide an update on our new technology across our portfolio. In March, we were excited to announce that Tandem Mobi, the world’s smallest durable automated insulin delivery system, is fully available for use with Android smartphones in the U.S. By expanding to Android, we are bringing the benefits of Tandem Mobi to even more people living with diabetes, underscoring our commitment to delivering choice in diabetes technology. In the second quarter, we are on track to deliver on a number of exciting new offerings. In April, we received FDA clearance for use of Control-IQ+ in pregnant women with type 1. This is significant, as it makes the t:slim X2 and Mobi the first and only commercially available AID systems cleared for use during pregnancy in the U.S. We are also awaiting CE Mark for this indication in Europe. Pregnancy requires a much tighter glycemic range, and we have demonstrated that Control-IQ+ is designed to effectively support the unique therapy needs of pregnant women, in addition to women considering pregnancy. We will be hosting a product theater highlighting pregnancy management with Control-IQ+ at the upcoming American Diabetes Association meeting in June. We are also preparing for the international launch of Abbott’s FreeStyle Libre 3+ integration with the t:slim, starting in select European countries in Q2 and scaling to additional countries throughout the year. This integration with Abbott’s latest-generation sensor will allow even more CGM users to access the life-changing benefits of our Control-IQ technology. Additionally, in Q2, we will begin the commercial rollout of Tandem Mobi outside the United States. This brings together the best-in-class outcomes users have come to expect with Control-IQ+ and the benefits of Mobi’s form factor. Rounding out our Q2 launches, we will be upgrading both t:slim and Mobi for compatibility with Dexcom’s G7 15-day sensor, ensuring we continue to provide our customers with the latest-generation technologies. It is also exciting because this software update will enable Tandem pumps to provide CGM data directly to our Sugarmate app, with future plans to add insulin data. This provides visibility to sensor information across our device platforms for users and their loved ones. These launches are designed to be global and deployable to all markets where the relevant system combinations are available, which represents an important accomplishment by our team. While progressing these new offerings to commercial availability, we also made great strides with our pipeline products. We are particularly excited about Mobi Tubeless, our novel infusion-site option for the existing Mobi pumps that transforms it into a tubeless AID system, allowing for interchangeability between tubed and tubeless wear with one platform. This will be Tandem’s first tubeless pump offering and the world’s first with extended wear technology. We plan to file our 510(k) submission for the Mobi Tubeless in the second quarter. Finally, we continue to make good progress preparing our pivotal study for Tandem’s first fully closed-loop system and remain on track to start it this year. As you can see, we continue to make meaningful progress across the business while demonstrating strong financial results, which Leigh will now discuss. Leigh A. Vosseller: Thanks, John. As a reminder, unless otherwise noted, the financial metrics discussed today will be on a non-GAAP basis. In this quarter’s performance, we continued the momentum from last year by achieving new first-quarter records for pump shipments and sales, as well as robust margin improvement and solid cash generation. We are reaffirming our annual 2026 guidance as we continue to execute on our bold business model transformation in both the U.S. and international markets. We set new first-quarter records with more than 29,000 pump shipments worldwide and $247 million in sales. Our U.S. performance drove this achievement, where we shipped more than 19,000 pumps, representing approximately 10% year-over-year growth. Renewals continue to account for more than 50% of our shipments, and new starts were predominantly MDI patients, representing roughly two-thirds of new customers. As John discussed, a key milestone in the quarter was our March launch of PayGo in the pharmacy channel. Throughout the month, we successfully increased our formulary access outside of the traditional cycles for PBMs and payers. Adoption was within our range of assumptions in these first few weeks. Fewer than 5% of customers ordered a pump through their pharmacy benefit. Similarly, less than 5% of our installed base purchased their supplies through this channel. Our transition and pricing assumptions for the full year of 2026 remain unchanged. U.S. sales were $161 million, growing 7% year over year, also representing our highest first-quarter U.S. sales. This reflects the headwind of approximately $1 million from the adoption of PayGo, as well as slight pressure in infusion set sales due to a key supplier’s shortages. Overall, pharmacy sales represented 6% of sales in the U.S., which was significant based on our volume. Looking ahead to the second quarter, we are confident in our ability to deliver pump shipment growth with a seasonal curve similar to 2025, and expect U.S. sales of approximately $175 million. This factors in an increasing PayGo headwind, the magnitude of which will depend on our pace of execution. Turning to our international performance, we shipped more than 10,000 pumps and are executing well on our go-direct strategy. International sales totaled $86 million, representing 3% growth year over year. Direct channel sales increased to approximately 11% of total international sales from less than 5% historically. This is the highest international sales quarter in our history, due in part to favorable currency dynamics. Also, as a reminder, the first quarter of 2025 included a $5 million benefit from timing of distributor orders, creating a tougher point of comparison. Our international business had a few puts and takes during the quarter compared to our original assumptions, including a delay in timing of expected headwinds from going direct, a one-time benefit in Switzerland related to the buyout of existing customer rental contracts from our former distributor, and the same infusion set shortage I referenced in the U.S. In the second quarter, we expect that international sales will be approximately $80 million. This steps down from the first quarter due in part to the delayed impact of $3 million to $4 million headwinds associated with our go-direct transition. This also incorporates expected order phasing tied to Mobi availability as we scale launch, with some distributor demand shifting into the third quarter. Turning to margins, gross margin for the quarter exceeded expectations at 55%, an improvement of nearly five percentage points year over year and the highest first-quarter gross margin in the company’s history. Notably, we started the year higher than our full year 2025 average, reflecting continued execution on our key drivers, including pricing discipline and product cost improvements. Both operating and adjusted EBITDA margin reflect a meaningful improvement year over year due largely to $75 million IPR&D costs in the prior year. Beyond that charge, we demonstrated leverage as operating expenses of $154 million remained essentially flat year over year. This included a slight reduction in R&D spending that offset increased commercial investments in support of global growth initiatives. As a result, adjusted EBITDA was approximately 1% of sales, an improvement of 32 percentage points based on the IPR&D charge alone and an additional three points of operating leverage. Operating margin improved even more substantially by 40 points to negative 7% of sales. This was due largely to a reduction of stock-based compensation expense from 11% of sales in 2025 to 6% this quarter. With our focus on cost discipline and achieving our profitability goals, we generated $5 million in free cash flow this quarter. We also completed a convertible debt financing in February, yielding net proceeds of $276 million with 0% interest, to further strengthen our balance sheet and provide flexibility as we execute against our strategic priorities. As a result, we ended the quarter with $570 million in total cash and investments. Overall, we remain confident in our ability to deliver on our goals for 2026 and are reaffirming our 2026 financial guidance. Worldwide sales are expected to be in the range of $1.065 billion to $1.085 billion. This includes U.S. sales in the range of $730 million to $745 million and international sales in the range of $335 million to $340 million. For the second quarter, worldwide sales are expected to be approximately $255 million. We expect gross margins of 56% to 57% and adjusted EBITDA of 5% to 6% for the year. Second-quarter margins are expected to remain consistent with the first quarter. Further details on our guidance and assumptions for the year can be found in the earnings call slide deck posted in the Investor Center portion of our website. With that, I will turn the call back to you, John. John F. Sheridan: Thanks, Leigh. Before I wrap up our prepared remarks, I would like to extend my thanks to the full Tandem team. Your unwavering dedication, commitment to innovation, and teamwork have been the driving force behind our achievements. I also appreciate your resolve as we continue to navigate challenges from our infusion set supplier. While they may only impact a small percentage of our customers, the impact on them and the health care providers is significant. I appreciate the extra care and service that you are providing during this time. Thank you, everyone, for all you do. In conclusion, we are encouraged by the start to the year and are confident in the strategic direction that we have set. Our operational and commercial goals are firmly in focus, and we are committed to providing best-in-class technology to our customers in a more efficient and cost-effective way while advancing our global business model and driving meaningful long-term value for our shareholders. Thank you again for joining us today. We are excited about our opportunities ahead and look forward to sharing our progress in the upcoming quarters. Operator: Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. In fairness to all, we ask that you please limit yourself to one question. If you have additional questions, please reenter the queue, and we will answer as many questions as time allows. One moment for our first question. Our first question is going to come from the line of Matthew Stephan Miksic with Barclays. Your line is open. Please go ahead. Matthew Stephan Miksic: Great. Thanks so much, and congrats on a really solid quarter here. Appreciate all the color and exciting to see you turn the corner here into PayGo. So I had one question on just the, as you, I am sure you noticed, one of the other companies in the space talked a little bit about the market, some tone or seasonal, I do not know what it was exactly, but maybe sounded like some temporary slowness. So great to get your perspective on that, what you have seen, and then also any way that you would characterize the major drivers of the growth in the quarter, whether it is uptake in type 2, whether it is uptake through pharmacy, whether it is new sensor and the integration. I hate the “all of the above” answer, but anything you can do to give us a sense of the major drivers for the quarter? John F. Sheridan: Matt, I will just start off and talk a little bit about the market and whether it is growing or not. I think you know it is still large and very underpenetrated. It is great to have type 2 as part of the market for us now. We are excited about the fact that we are bringing a great deal of new technology and business model changes that we believe will really help us grow new starts from MDI. If you look back in 2025, there are a number of pump companies in the market and I think they all did pretty well. I would say it definitely appears to us that the market is growing. We are very excited about this year in particular because we have so much technology and business model modifications that are really going to position us for growth this year and beyond. I will let Leigh answer some of the questions about seasonality. Leigh A. Vosseller: Sure. I will just say that we did not see anything unusual or different from what we typically see in the DME space starting off the year. Our pump shipments came in line with where we expected, which was about a 30% sequential decline in the U.S. from the fourth quarter. Nothing really to note there. Unfortunately or fortunately, the answer to your question about the major drivers is it really is a little bit of all of the above. We have a lot of things, as John suggested, working in our favor this year with our new product launches and our business model transformations. As we start to gain traction, everything is coming together to drive us towards a very successful and strong growth year altogether. Matthew Stephan Miksic: Thanks, guys. Operator: Thank you. One moment for our next question. Our next question will come from the line of Christopher Thomas Pasquale with Nephron Research. Your line is open. Please go ahead. Christopher Thomas Pasquale: Thanks. I was hoping you could dig in a little bit on the international business. International pump revenue was up despite pump shipments in that segment being down. You talked about a couple of one-time items. So were those two things related? And could you maybe unpack some of the one-timers that you had this quarter, just so we can think about the go-forward run rate? Leigh A. Vosseller: Sure. You are right. There were a lot of moving parts internationally, and the answer varies depending on if you are comparing to last year or to expectations. I will touch on a few of those. Year over year, a significant part of the growth was coming from currency fluctuation, so there was favorability in the environment that helped that growth. Looking at last year’s first quarter versus second quarter, it is a tougher comparison for us because last year there was a shift in timing of sales that was more favorable by about $5 million in the first quarter versus second quarter. As we go into Q2, it will be an easier comparison for us. Within the quarter, compared to when we set our guidance expectations, there were also a few moving parts. One was that we had estimated a headwind of approximately $5 million for going direct in certain international markets, and we are seeing a bit of a timing difference there. We realized about $1 million of that, and we expect $3 million to $4 million to push into the second quarter. Also, we did have some favorability in our Swiss market—a one-time accounting benefit—which was largely offset by some of the infusion set noise as we managed through shortages in the quarter. Overall, we are very excited about the international operations. We still see strong demand in the market for our products, and in the markets where we have gone direct, we are already hearing a very positive reception as we are closer now to the physicians and the patients. Christopher Thomas Pasquale: Okay. Thank you. Operator: Thank you. One moment for our next question. Our next question will come from the line of Matthew O’Brien with Piper Sandler. Your line is open. Please go ahead. Matthew O’Brien: Good afternoon. Thanks for taking my question. On Mobi Tubeless, I know filing here in Q2, still nothing expected for revenue in 2026. If you do get the approval late this year, is it fair to think you do not want to disrupt the typically stronger DME part of the year, so more of a bigger launch next year and in 2027, so no real disruption from launching Mobi Tubeless or as people are expecting it? I just do not want an air pocket in any of the quarters as people are waiting for that system. Thank you. John F. Sheridan: Thanks, Matt. When it comes to our submission, we are on track to submit this quarter. We also plan on getting clearance in the second half. There is some uncertainty with the FDA, but they have been doing a really nice job lately in getting things done quickly. As you know, when it comes to guidance, we typically do not include new products until they are actually in the market. If we get clearance in the second half, we have a phased commercialization process where we observe the product in small groups first, then increase the size of the group, and ultimately get to full commercial launch once we are confident there is nothing we need to address. This is a practice we have used from the beginning. While we do an excellent job of testing, you cannot find everything until you use it over time with larger groups. We will go through that process. If we can get it to the market before the fourth quarter starts, I think we would want to do that, but we will have to wait and see when clearance occurs. Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Michael Holden Kratky with Leerink Partners. Your line is open. Please go ahead. Michael Holden Kratky: Hi, everyone. Thanks for taking our questions, and congrats on a great quarter. It looked like U.S. sales through the pharmacy maybe ticked down slightly from 7% in the fourth quarter to 6% in the first quarter. Can you talk about how that lined up with your expectations, what factors contributed to that, and what you have seen so far this quarter to support your confidence in the 15% for the year? Leigh A. Vosseller: Great question. Most importantly, you really cannot compare our pharmacy experience this year in 2026 to what we saw in 2025. It is a whole different world with the change in the business model. Last year, our pharmacy contracts included reimbursement for the pump that was a premium to even what we received in DME, so it is a very different environment. In the first quarter, we had two major workstreams. One is building up coverage, and we are pleased to report that we are already at approximately 40% formulary coverage. We expect to increase that across the year. The other piece is operational—implementing an end-to-end change in our workflows. It changed how physicians prescribe, how we engage with patients, and how we process and fulfill orders. That execution really started late in the first quarter, in the last few weeks, so we are at the very early stages. So far, we are excited about the opportunity. Nothing has changed our conviction in our ability to grow and scale that across the year. We look forward to future quarters when we can report the headwinds that are coming from the volumes we are bringing through. Michael Holden Kratky: Understood. Thanks, Leigh. Operator: Thank you. One moment for our next question. Our next question will come from the line of David Harrison Roman with Goldman Sachs. Your line is open. Please go ahead. David Harrison Roman: Great. This is Phil on for David. Thanks for taking our questions. I think maybe touch on pricing. I saw on the slides that it was reiterated, and I think I heard in your comments as well, Leigh. We heard from a competitor yesterday that so far it sounds like everybody is acting rationally or fairly. Can you talk about how negotiations around pricing have gone so far and what is baked into that $3.50 number for the year? What level of conservatism is in there? Thanks. Leigh A. Vosseller: Sure. I would agree that we are all behaving rationally when it comes to pricing. We are excited to be in this market and take advantage of the pricing opportunity that was already set in the pharmacy channel for insulin pump products. When we set expectations for the year, I would call them modeling assumptions because it is new for us and it is an early experience. We said to expect about $3.50 per month per patient as they order supplies. What is factored into that is an array of contracts with varying rebate structures. At this point, we do not have enough experience to say what that mix will look like on a sustainable basis. That is the baseline we have set for now. It is still the right way to think about it, and as we start delivering more volumes and gain more traction and experience, we will update those assumptions. David Harrison Roman: That is great. Thanks. Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Richard Samuel Newitter with Truist Securities. Your line is open. Please go ahead. Richard Samuel Newitter: Hi. It is Ravi on for Rich. Thank you for taking the questions. Two for me, and I will ask them both upfront. First, on the infusion set shortage, would you mind quantifying that and suggesting what the impact might be in Q2? It looks like you are guiding a little bit below consensus for Q2 but reiterating the full-year guide, so curious if there is any impact there. Second, on the salesforce expansion, this seems to be a theme running across your peers and now Tandem Diabetes Care, Inc. as well. Can you talk about what the opportunity is that the salesforce is going after and what patient population they can unlock? John F. Sheridan: I will talk about the infusion sets and Leigh can address guidance. It is unfortunate. Our supplier has had some capacity challenges that began in the fourth quarter and continued to pressure us in the first quarter, both in the U.S. and internationally. We have been working very closely with them—practically daily calls with the operational and executive teams—and it is a top priority for us. It is a small number of SKUs that are really subject to the capacity shortages, but for those people who are impacted and the HCPs who support them, it is significant. We are doing everything we can to be creative—options in terms of lengths, colors, and other details—to provide intermediate solutions until this is resolved. We are also managing inventory to provide as broad coverage as possible. Unfortunately, this is something that probably will not be resolved for a quarter or two. We expect to see some progress in the second half of the year, but that is what we are dealing with right now, and we are taking it very seriously. Leigh A. Vosseller: From the perspective of the impact, all we are sharing is that it was a modest impact in the quarter, both U.S. and internationally, and we factored that same level of impact into our expectations for the second quarter. As John said, we are managing it closely. We see a line of sight to the end of this in the longer term. Operator: Thank you. One moment for our next question. Our next question will come from the line of Jeffrey D. Johnson with Baird. Your line is open. Please go ahead. Jeffrey D. Johnson: Hey, guys. Good afternoon. Leigh, I will follow up on the comment you made on the infusion set impact. I know you are not quantifying it, but let me go after it this way. Supplies missed our model by about $11 million this quarter. It could be we are just bad modelers. If our model missed by $11 million, does a lot of that get attributed to the shortfall, and is it also that you are assuming a similar shortfall in Q2 even though you are trying to move patients over to other infusion sets? I am trying to understand: does the year-over-year impact stay the same in Q2 as it was in Q1, and am I anywhere near the ballpark based on my model points? Thank you. Leigh A. Vosseller: Thanks for the question, Jeff. I would say that is on the high side for the impact. We would put it as more modest than that. There are a couple of ways to think about the size. There are backorder situations, but as John noted, some of the ways we are helping solve the problem for patients involve offering alternatives. Just because we had some backorders does not mean that we have not recovered sales in other ways to satisfy patient needs. It is not near that big. We expect it to be a bit disruptive again in the second quarter, but it is something we can work through. We can continue to talk more about modeling assumptions in supply sales—price or other pieces that might not be working there. Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Matthew Charles Taylor with Jefferies. Your line is open. Please go ahead. Matthew Charles Taylor: Hi, good afternoon. Thanks for taking our question. This is Matt on for Matt Taylor. I wanted to ask on product expansion. First, on your clearance for type 1 pregnant women—can you help us frame the size of that opportunity and how incremental that could be? And second, on adding Android capability, is there any analog we can look at for thinking how that adds incremental growth in your coming quarters? John F. Sheridan: We are very excited to have received pregnancy clearance just a few days ago. It was based on data from the CRISTAL trial that was published in JAMA recently. We are the first and only AID system approved for pregnancy in the U.S. for both Mobi and t:slim using Control-IQ. We also expect CE Mark this quarter. In the clinical data, the Control-IQ group experienced a 12.5% improvement in time in a tighter range of 63 to 140 mg/dL, which is about three more hours per day, sustained for the length of the pregnancy—really substantial improvement. When it comes to the size, it is pregnant women and also women considering pregnancy. It is not a really large group, and I cannot put a number on it at this point, but it is a meaningful and important group, and we are very happy to have this. We are kicking off training and events for HCPs, including a symposium at ADA. Relative to Android, roughly 60% of our mobile app users for t:slim are on iOS, so Android represents a big opportunity. Many users have been waiting for Android availability. It is another meaningful opportunity to drive MDI growth in 2026 and beyond. Operator: Thank you. As a reminder, please limit yourself to one question before reentering the queue. Our next question will come from the line of Joanne Karen Wuensch with Citi. Your line is open. Please go ahead. Joanne Karen Wuensch: Thank you so much. Sticking with the one-question rule, with Mobi Tubeless being submitted to the FDA in the second quarter and on track for second-half approval, and assuming there is nothing in your guidance for it, how do we think about kicking off 2027 launching that product, and how are you preparing for it? Thank you. John F. Sheridan: For launching the product, as I mentioned, we have a phased commercial process. We are hoping to get it on the market this year, but timing will dictate. When you think about the market today, there really is a tubed market and a tubeless market. The tubed market is growing low single digits, whereas the tubeless market is growing in the ~20% range. That is a significant opportunity. Looking at competition, we are in the pharmacy now, we will have a tubeless device, and we believe we have a better algorithm. There is a big opportunity for us to drive MDI conversions to our device and also competitive conversions. It is a big opportunity, we recognize that, and we are really excited about it. Operator: Thank you. One moment for our next question. Our next question will come from the line of Suraj Kalia with Oppenheimer. Your line is open. Please go ahead. Suraj Kalia: Sorry about that. John, can you hear me alright? John F. Sheridan: We can. Yes. Suraj Kalia: Perfect. John, I am going to cheat and sneak in a two-parter if I could. To Joanne’s question, how would you define the low-hanging fruit for seven-day Mobi Tubeless? Would there be a price differential? Leigh, if I could quickly, U.S. sales were up 5%, pump units up roughly 12%, and then there is a 6% PBM contribution. Can you help us thread the needle here? Thank you. John F. Sheridan: I think the financial benefit, Suraj, is that the infusion patch lasts seven days, whereas an infusion set lasts three today. There is a margin benefit from extended wear. It is also a substantial customer-experience improvement, as they do not have to change as frequently. All of this adds up. We are doing everything we can to get gross margin up, and this certainly helps. The real benefit is customer experience, and that is our focus. Leigh A. Vosseller: To your question on the first quarter in the U.S., on a rounded basis the actual growth rate in pump shipments was 10%. The spread between the shipment growth and sales growth is not as substantial as it might seem. It really is pricing that is the differential. Operator: Thank you. One moment for our next question. Our next question will come from the line of Lawrence H. Biegelsen with Wells Fargo. Your line is open. Please go ahead. Lawrence H. Biegelsen: Thanks for taking the question. Leigh, I will ask the new-start question. By my math, it looks like new starts were down slightly year over year in Q1 and down modestly sequentially. Is that right, and do you still expect new starts in the U.S. to grow in 2026? Leigh A. Vosseller: Thanks, Larry. Yes, your math is accurate year over year, and they were down sequentially, mostly due to the regular seasonal impact we see. This is how we structured the year in our modeling assumptions: a slight decline in the first quarter with a return to growth as we look ahead. We are very convicted in the ability to return to growth because we have been seeing improvement over the last few quarters from our low in the middle of last year. It is the traction we are seeing on our new product launches. We look forward to pharmacy making a real difference now that we have removed the upfront cost barrier so more people can move to pump therapy without worrying about upfront cost. As we build on pharmacy and drive these launches, we expect a return to growth this year. Operator: Thank you. One moment for our next question. Our next question will come from the line of Michael Polark with Wolfe Research. Your line is open. Please go ahead. Michael Polark: Hey, good afternoon. I am interested in learning about the process to convert someone in the base to pick up supplies at pharmacy. I get the incentive for a new user with no upfront, but for that compliant, happy user through DME, how do you get them to the pharmacy? What does the outreach from you to them look like? What is the outreach from you to a physician? And on the financial incentive, how different is patient out-of-pocket for supplies only in DME versus pharmacy? Thank you. Leigh A. Vosseller: Glad you asked. There is work involved. First, when a customer comes in to place their order, which is usually quarterly, we check their benefits to see if we have on-formulary coverage. We then share out-of-pocket benefits. That is the true motivator—out of pocket is typically lower, or with copay assistance can be lower. Once they are ready to move forward, it requires a new prescription, which requires reaching out to the physician. Getting their attention and time can be a factor since many want to focus on customers who have not yet moved to pump therapy. It is a process and one of the key drivers as we look ahead to maximize the pharmacy opportunity. It is not only bringing more patients to Tandem Diabetes Care, Inc., but also converting the existing base. If you think about moving potentially 300,000 people and getting that price benefit, that makes a significant difference on our revenue growth and margins. It is a major focus area for us. Operator: Thank you. One moment for our next question. Our next question will come from the line of Analyst with UBS. Your line is open. Please go ahead. Analyst: Hey, thanks so much for the question. Really nice to see the cash flow generation in the quarter. Q1 has typically been a heavy cash burn quarter for you. Would love to hear about what changed this quarter and how sustainable this level of cash generation is going forward. Thanks so much. Leigh A. Vosseller: Thanks. A lot of this comes from our cost discipline. While we are focused on growing revenue, we are equally focused on driving improved margins. This year, we demonstrated a 1% positive EBITDA in the first quarter, and I believe that is the first time we have done that since 2022. Q1 is a tougher quarter because of seasonal dynamics in our business, so it is meaningful that we showed positive EBITDA and cash flow generation. We appreciate you noticed that. Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Elaine Cui with Raymond James & Associates, on behalf of Jayson Tyler Bedford. Your line is open. Please go ahead. Elaine Cui: Hi, this is Elaine on for Jason. Thanks for taking my question. I had a question on the gross margin and how you are thinking about the cadence for the year. You gave us guidance for Q2 and Q4, and we can get to an implied Q3. Why would it stay relatively flat for the first three quarters, according to my math? And when we think about the year-over-year expansion, how much of it is driven by Mobi scaling versus the pharmacy transition? Thank you. Leigh A. Vosseller: Great question. First, Q1 to Q2 being relatively flat is really product mix. From Q1 to Q2, both U.S. and internationally, more of the step-up is coming from supplies. Globally, supplies still have a lower gross margin than pumps today, even though supplies will eventually have a better gross margin in the U.S. with our new pharmacy reimbursement model. That mix drives relative flatness into Q2. It should then start to step up from there, scaling toward about 60% in the fourth quarter. The step-up will come from pricing benefits both with our direct operations outside the U.S. continuing to build and with the pharmacy benefit as we convert more customers’ supplies to pharmacy in the U.S. Price will be a very prominent driver of gross margin this year. We are also continuing to see benefit from Mobi as it scales. For pumps, we started seeing that in 2025. For supplies, we will really start to see that difference this year, contributing to gross margin improvement across the year. Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Jonathan Block with Stifel. Your line is open. Please go ahead. Jonathan Block: Great, guys. Thanks. Maybe I will follow up on an earlier international question. When I look at international pump ASP, the ASP seemed to step up nicely from recent quarters. Leigh, any color on how much is FX, how much is the direct transition? Does this trend higher from the current 1Q result as the percent of business that is direct continues to increase? Maybe most importantly, any way to think about an exit-’26 pump ASP as we head into the following year? Leigh A. Vosseller: The assumption we have made in guidance for the year is that pump ASPs outside the U.S., with changes from going direct, should land somewhere in the $2,800 to $2,900 range. We did see extra benefit in the first quarter because of a one-time accounting benefit in Switzerland. We were able to recognize a higher level of revenue there because of the acquisition of certain existing customer rental contracts from our distributor. This one-time benefit is what really drove the incremental pump ASP in the first quarter. Otherwise, it should settle into that $2,800 to $2,900 range for the rest of the year. Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Anthony Charles Petrone with Mizuho Financial Group. Your line is open. Please go ahead. Anthony Charles Petrone: Thanks. Good afternoon, everyone. Maybe on the U.S. side, a competitor had a recall announcement and the FDA came out in April reporting more adverse events on one of the primary competitors. What is the chatter out there? Is that creating any opportunities for share capture, certainly as you look to Mobi or otherwise? A little bit on the competitive dynamics in the quarter. And then a follow-up on spend as you get ready for the Mobi Tubeless launch—thinking about DTC— is there a big DTC campaign planned around Mobi Tubeless? Thanks. John F. Sheridan: Regarding recalls, it is unfortunate, but that is one of the things that happens in this marketplace. The intent of a recall is to ensure the diabetes community is aware of safety issues that might impact product use. It happens to everybody. When it happens to us, we do our best to assure patients are safe and understand the risks. I do not think that gives us any benefit. You do not like to see it happen, but you recognize it as part of dealing in a market with life-saving technology. On competition generally, it is a large and expanding underpenetrated market with new entrants. Q1 was consistent with our expectations. It is highly competitive, but nothing specific to point to that changed. We are very confident in our ability to deliver new technology. The team has done an amazing job in the last several quarters. Moving to the pharmacy benefit, where out of pocket is substantially lower, will also be a big benefit. We feel very good about where we are heading competitively. Specifically to the marketplace today, it is very competitive, and nothing has really changed. Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Mathew Blackman with TD Cowen. Your line is open. Please go ahead. Mathew Blackman: Good afternoon, everybody. Can you hear me okay? John F. Sheridan: We can. Mathew Blackman: Great. Thanks for taking my question. Leigh, I think I heard you say 40% formulary coverage to date. I am trying to figure out the proper context. That feels like a lot of progress for being a quarter or quarter and a half into the year, but I do not know how to frame it relative to where you need to be at the end of the year to hit your goals. Could you frame that relative to expectations? Is the next step—say from 40% to 60%—a heavier lift? Any framework to think about where you are to date and where you need to be by year-end to hit pharmacy mix goals? Thank you. Leigh A. Vosseller: Happy to add context. Typically, new formulary additions happen on a January 1 or July 1 cycle. We are very excited that we have been able to add coverage across the quarter—off-cycle—which shows the receptivity to us moving to PayGo and the acceptance of our products in the channel. The team is not stopping. I regularly see announcements of new formulary additions, some bigger and some smaller. We are working to drive that up across the year. In order to achieve our pharmacy goals this year, we are right on pace with where we need to be. I am not going to share a specific coverage target, but we are very well positioned to drive pharmacy access to hit the targets we have set. Operator: Thank you. One moment for our next question. Our next question will come from the line of William John Plovanic with Canaccord Genuity. Your line is open. Please go ahead. William John Plovanic: Hi. It is Zachary on for Bill. Thank you for taking the question. As for the type 2 ramp, can you give more context as to how that is going? You have talked about in the past difficulties you have with the C-peptide testing requirements. Can you give us an update on what is happening there? John F. Sheridan: First of all, we are really excited about type 2. It is a big opportunity, even less penetrated than the type 1 market in the U.S. and internationally. Our focus is on market development at this point. I am not going to talk specifically about numbers today. We want to see sustained trends before reporting numbers. It is early for us. There are many positive sources of growth happening now and in the near future. We expect tailwinds from FreeStyle Libre 3, from Mobi Android, Mobi Tubeless, pharmacy—those are all great. We anticipate positive news from Medicare access, and we think they are going to get rid of the C-peptide requirement, but we will have to wait and see. As a company, we are focused on creating awareness clinically and on product benefits. Big market, underpenetrated, with a lot of positive dynamics. We anticipate seeing growth in type 2 MDI starts this year. Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Travis Lee Steed with Bank of America. Your line is open. Please go ahead. Travis Lee Steed: Hey, thanks for the question. Maybe focus on March 2026 where you are moving PayGo into the pharmacy. Help us understand how that went. Are you seeing an increasing ability to ramp into April and May? And the 40% coverage that you have, how much of that is tier 1 at this stage? John F. Sheridan: I will answer the first part. Our early experience reinforces our conviction that this is a great opportunity for the business and for our customers. We are moving forward aggressively—it is our top priority. Operationalizing pharmacy involves a lot of change: physician processes, how we service our customers, and how we process and fulfill orders. We are working to improve the experience. There is behavioral change, a learning curve, and efficiency opportunities. We are very focused on these, and we have a strong team making good progress. It starts off slow and will gradually increase as we get through the year. This will be a meaningful part of our business by the end of this year and as we move into 2027. Leigh A. Vosseller: On tiering, we have a variety of contracts across different tiers. The difference to us is the amount of rebate we pay in various tiers and the influence on out of pocket and the amount of copay assistance we might have to use. We are not sharing any breakdown of individual contracts. We are on tier 1 in some, tier 2 in some, and tier 3 in some. It varies across the board. Travis Lee Steed: Okay. Thanks a lot. Operator: Thank you. One moment for our next question. Our next question comes from the line of Shagun Singh Chadha with RBC Capital Markets. Your line is open. Please go ahead. Shagun Singh Chadha: Great. Thank you so much. I just had a quick one on Mobi Tubeless, and I apologize if it has been asked. Can you talk about how you think about the mix between the products you will be selling with Mobi Tubeless coming on board, how we should think about pricing, how you expect to compete with the current patch form factor—more from MDI conversions or competitive share gains—and anything you can share on the go-to-market strategy that you have not already discussed? Thank you. John F. Sheridan: The first important point is that we already have about 325,000 customers in the U.S. A significant portion of those use the pump today already, and this is an infusion set option for them to choose. We think there will be pretty good conversion among those people. Many will try both ways and see what they like. For new starts, now that we will have a tubeless product in the market, we expect to benefit because tubeless is very important to people as a form factor. We expect to see a lot of progress there. Leigh A. Vosseller: To your question on pricing, because it is the Mobi pump, it is the same pump hardware regardless of which infusion set they choose. Pricing for the pump is the same. On supplies, you can think about pricing as being similar to other lease supplies. It is a supply pricing discussion, not a pump pricing change. Operator: Thank you. This will conclude today’s question-and-answer session. Ladies and gentlemen, this will also conclude today’s conference call. Thank you for participating, and you may now disconnect. Everyone have a great day.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Honest Company's First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference call over to Chris Mandeville, Interim Head of Investor Relations at the Honest Company. Please go ahead. Chris Mandeville: Good afternoon, and thank you for joining our first quarter 2026 conference call. With me today are Carla Vernon, our Chief Executive Officer; and Curtiss Bruce, our Chief Financial Officer. Before we begin, I will remind you that our remarks today include forward-looking statements subject to risks and uncertainties. We do not undertake any obligation to update these statements, and actual results may differ materially. For a detailed discussion of these factors, please refer to our safe harbor statements in today's earnings materials and our recent SEC filings. We will also discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in our earnings release and accompanying presentation, which are available at investors.honest.com. Finally, please note that all consumption data included in our discussion today, unless otherwise noted, will reflect Circana MULO+ measured channel data for the 13 weeks ended March 29, 2026, as compared to the prior year. With that, I'll turn it over to Carla. Carla Vernon: Thank you, Chris, and hello to everyone joining us. Today, I will provide a high-level look at our first quarter performance and offer insights into how we are successfully executing our strategy to profitably scale the Honest brand. Following my remarks, Curtiss will provide greater detail on our Q1 financial results and discuss our reaffirmed full-year outlook. We are pleased with our start to 2026 as our recent actions to optimize our portfolio are bearing fruit. Our Q1 results demonstrate that Powering Honest Growth is leading to an enterprise that is more strategically focused, growth-driven and structurally profitable. Let me begin with our first quarter results. By bringing a sharpened focus to our right to win categories and channels, we delivered organic revenue growth of 3.9% Delivering this growth on top of double-digit growth in the prior year underscores the momentum across our portfolio. As we continue to increase the availability of Honest products, we are also expanding our business across a broader set of households. Over the last 3 years, we've been disciplined in our focus on driving shareholder value through top line scale and bottom line expansion, and in Q1, we did exactly that. In addition to delivering organic revenue growth, our adjusted gross margin of 43.5% was the strongest in our history. This year-over-year gross margin expansion of 480 basis points demonstrates the impact of our Powering Honest Growth initiative. By streamlining the focus to our right to win categories, we have ignited a virtuous cycle that allows our teams to successfully execute against our 3 strategic pillars of brand maximization, margin enhancement and operating discipline. In Q1, our brand maximization strategy of growing revenue scale and consumer strength of the Honest brand was evident. We delivered 8.3% consumption growth significantly ahead of our comparative category average growth of 2.6% and a notable acceleration from the 3.4% we delivered in Q4 2025. Best of all, our momentum continued to be volume-led with unit consumption up 20%. As I shared last quarter, the Honest brand benefits from 2 powerful dynamics. The first and most foundational is the growing consumer interest in cleanly formulated and effective products for people with sensitive skin. The second dynamic is the unique competitive advantage of the Honest brand, which drives our commitment to upholding the highest standards in everything we do. This gives us the ability to build deep consumer trust and loyalty across a diverse range of households. This spans families with babies and toddlers to those with big kids and teenagers and even households with no kids at all. In the United States, 89% of U.S. households do not have any children under the age of 6, while 75% of U.S. households have no children at all. This is why we are purposeful in designing a growth strategy that provides a broad range of products developed with a wide range of ages in mind. As a reminder, according to Numerator, over half of Honest's current buyers are for no kid households. Across all household types, the love for our cleanly formulated and sustainably designed personal care products continues to grow. At Honest, every product must meet our industry-leading Honest standard, which is a set of guiding principles that includes a list of over 3,500 ingredients we do not use and that shapes every step of product innovation and development to ensure our high expectations for safety, efficacy and design. This appeal is evident in our growth. In Q1, our total household penetration reached a new all-time high of 8.1%, up 50 basis points from year-end. We're proud to have welcomed 1.6 million new households over the past year. As we look at the opportunity in household penetration, we still have significant runway ahead. For example, in Baby Personal care, key branded competitors hold household penetration anywhere from 2x to 6x greater than ours. In all purpose wipes, larger brands have as much as 5x to 7x the household penetration of Honest. This considerable market opportunity presents a clear line of sight to our next phase of growth with a focus on transitioning existing category buyers to Honest and welcoming entirely new households into these categories. Now allow me to share more on each of these portfolios, beginning with wipes. In Q1, our total wipes portfolio delivered consumption growth of nearly 25%. With a wide and growing array of formats, Honest wipes are expanding throughout the store and across household types with products ranging from adult flushable wipes and hand sanitizing wipes to toddler flushable wipes and all-purpose baby wipes. The consumption of our all-purpose baby wipes grew 14% this quarter, reflecting just how much our community loves having a stylish pop of design on their changing table, countertop or in their bag for those everyday cleanup moments. This quarter was the national rollout of our updated more shopper-friendly packaging for our all-purpose wipes. With this new bolder, more shoppable package design, it is much easier for people to discover these wipes on store shelves. We introduced our largest packaging format to-date, a mega pack that allows parents to maximize value and stay fully stocked on our wonderful sensitive skin safe wipes. Our Honest flushable wipes are a clear standout in our portfolio, delivering Q1 consumption growth of more than 200% off of a still emerging base. These plush moist and plumbing safe flushable wipes have now grown at more than 10x the category rate for 3 consecutive quarters. As a result, we are now the #4 flushable wipe brand in the category, up from the #5 spot in Q4 2025. This momentum illustrates how our growing Honest community loves the unique combination of fashion, function and flushability we bring to the category, and we're just getting started. A few weeks ago, we adopted a very stylish and thoroughly modern new approach to our marketing of flushable wipes. We kicked things off with a high-profile social media campaign in March, partnering with mega influencers specifically chosen to resonate across our target households. Whether you love an intimate conversation with Tia Mowry, a besty moment with Kat Stickler or a freestyle wrap by Hannah Berner, we had something for you. The response from followers was immediate and the algorithm did its thing. In fact, 1 post amassed 1.5 million views across Instagram and TikTok in just its first 12 hours. Building on that incredible digital engagement, we launched a national campaign in April across a broad media landscape of video, social, out-of-home, festivals and more. The ads, posts and videos put the spotlight on the moments when even the most stylish and glamorous women get honest about why they love our flushable wipes. We didn't stop there. This quarter, we also refreshed our collection of hand sanitizing wipes. In Q1, we relaunched our Lavender and Grapefruit scent in updated counterworthy packaging and rolled out our pocket packs in those 2 fresh scents. For the quarter, we saw a consumption increase of more than 60% on our hand sanitizing wipes, maintaining our position as the #2 brand in the category. Now shifting to Personal Care. Our Personal Care collection delivered consumption growth of 16% in Q1. Our shampoo, body wash, bubble bath and lotion have long been a trusted choice in the 11% of U.S. households with children under the age of 6. In fact, with consumption growing 7x faster than the category, Honest has officially become the #2 brand across total baby personal care, jumping from the #4 position last year. Now to build on that momentum, we are expanding our reach. We are pleased to have introduced our new Pixar Toy Story collection, bringing the Honest standard to the 89% of U.S. households with big kids and kids at heart. Initially, we launched the collection, both in-store and online at Walmart. As of a few weeks ago, I'm excited to announce that we added the collection to Amazon, which will meaningfully expand our reach just in time for the Toy Story 5 movie release next month. Speaking of going to Infinity and Beyond, our brand literally reached new heights recently. During the live stream of the NASA Artemis II mission in April, astronaut Christina Koch radio Houston to ask Mission Control for help in tracking down the Honest lotion the crew had packed on board. It was incredible. It was an organic moment that highlights just how essential our products are to our community even in orbit. Not only was this an incredible affirmation that Honest products are for everyone, but because my own mother was a NASA hidden figure, this was a full circle moment in more ways than one. Finally, let me share an update on our diaper portfolio, where we have seen progress on our performance. Our consumption declines in diapers were nearly cut in half, moderating to negative 9.6% in Q1 from 18.3% in Q4 2025 as we lapped the distribution losses of gender-specific prints at a key retailer late in the quarter. However, our outlook for the broader diaper category remains cautious. We are navigating a highly competitive and promotional environment that we expect will continue to pressure the category. While diapers remain an important option for families looking for the Honest standard of clean, we will prioritize our growth in households with babies and families with little kids through our higher growth, higher-margin wipes and personal care platforms. Despite these localized category pressures, the broad strength of our portfolio is shining through. Our positive Q1 results show that we are financially stronger and on the right path with great possibilities ahead. With that, I will now turn the call over to Curtiss to provide more detail on our Q1 financial results and walk through our reaffirmed full-year 2026 outlook. Curtiss Bruce: Thank you, Carla, and good afternoon, everyone. As Carla mentioned, our first quarter results are a clear indication that the structural improvements we made to our business last year through Powering Honest Growth initiative are driving our growth and profitability today. We are pleased with our start to the year. Before diving into the financial results, I want to provide a brief update on this transformation. We are seeing the immediate accelerated benefits of a highly favorable margin mix, driven by our sharpened focus on our right to win categories alongside the positive impact of our rightsized SG&A. As we look to the balance of the year, we remain firmly on track to realize our expected supply chain efficiencies in the second half of 2026. As a reminder, we expect Powering Honest Growth to deliver between $10 million to $15 million in annualized savings, serving as a powerful catalyst to further fortify our bottom line health and generate the fuel needed to reinvest in our growth. Now turning to our first quarter performance. Revenue was $78.1 million compared to $97.3 million in the prior year period, primarily reflecting the impact of our strategic Powering Honest Growth category and channel exits. On an organic basis, revenue grew 3.9% to $78.1 million. This growth is particularly notable as it was achieved over a difficult prior year comparison, which was bolstered by retailer inventory buildup ahead of the 2025 tariffs. Our performance this quarter reflects strong momentum behind our higher growth, higher-margin wipes and personal care platforms, partially offset by moderating diaper sales declines. These diaper results were driven by the initial lapping of previously disclosed headwinds related to a key retailers transition to gender-neutral prints. Q1 reported gross margin came in at 42.6%, a 390 basis point improvement compared to the prior year period. On an adjusted basis, our gross margin of 43.5% was historically strong, reflecting favorable freight costs as well as mix from our higher growth, higher-margin wipes and personal care platforms, which was accelerated by Powering Honest Growth. These items were partially offset by tariffs. Total operating expenses decreased $1.2 million year-over-year, including a modest restructuring charge related to Powering Honest Growth. Excluding this transitional cost, our adjusted operating expenses declined by $1.8 million. This reduction was driven by our structural SG&A improvements, which more than offset our plan to drive double-digit increases in marketing investments directed specifically toward our higher growth, higher-margin wipes and personal care platforms. Coupling these structural cost savings with our meaningful adjusted gross margin expansion creates a powerful financial engine, underscoring our capacity to strategically reinvest in our brand while rightsizing our SG&A at the same time. Looking at our bottom line, we reported a net loss of less than $0.1 million for the quarter. Q1 adjusted EBITDA was $4 million, representing an adjusted EBITDA margin of 5.1%, down from $6.9 million and a 7.1% margin in the prior year period, largely due to lower reported revenue. Regarding our balance sheet and cash flow, we continue to be in an exceptionally strong position. We ended the quarter with $90.4 million in cash and cash equivalents and 0 debt, while Q1 free cash flow was $3.8 million, a substantial improvement compared to the negative $3 million in the prior year period. This year-over-year increase was primarily driven by continued working capital improvements stemming from Powering Honest Growth and our rigorous focus on operating discipline. During the quarter, we utilized $3 million of our newly authorized $25 million share repurchase program with an additional $8.3 million deployed subsequent to quarter end. In total, these repurchases were executed at an average price of $3.26 per share. These actions reflect our confidence in the structural improvements we have made to our business, the significant financial flexibility generated by our asset-light operating model and our commitment to balancing aggressive reinvestment in our growth initiatives with returning meaningful value to our shareholders. Moving to our outlook. While we are encouraged by our start to 2026, we are also mindful that it is still early in the year, and we are navigating an environment where several macroeconomic uncertainties remain. That said, the actions we've taken to optimize our portfolio have created a much stronger foundation for profitable growth. We have effectively shifted our resources toward the categories where Honest has the clearest competitive advantage, and our 2026 framework reflects both the early returns of that discipline and our prudent approach to the balance of the year. With that context, we are reaffirming our full-year 2026 outlook. We continue to expect the following: reported revenue declines of 18% to 16% due to our strategic exits, organic revenue growth of 4% to 6%, in line with our long-term algorithm, adjusted gross margins in the low 40s and adjusted EBITDA of $20 million to $23 million. As I wrap up, I want to emphasize how pleased we are with our start to the year. We believe our first quarter results clearly demonstrate that sharpening our focus on our right to win categories has built a resilient financial foundation. We are executing with strict operational discipline and maintaining a clear line of sight towards sustainable, profitable growth. With that, I will turn it back to Carla for final remarks. Carla Vernon: Thank you, Curtiss. As we shared last quarter, Powering Honest Growth was about unlocking the full potential of our business model by serving as a force multiplier to our strategic pillars. We believe that our Q1 results confirm that the heavy lifting we did in 2025 is paying off. I'd like to thank our team of Honest Butterfly for their commitment and diligence in building our shared vision for Honest. Now more than ever, Honest is well positioned to deliver strong value creation for investors, expand our Honest community and build the enduring strength and meaning of the Honest brand. With that, I will now turn it over to the operator to open the line for questions. Operator: [Operator Instructions]. Your first question comes from the line of Aaron Grey with AGP. Aaron Grey: First question for me, I just want to talk a little bit about the reiterated guidance. I can certainly understand the commentary in terms of wanting to have to take a prudent approach for the remainder of the year. Just given if you take the run rate for 1Q, that kind of takes you to the high end of your guide now. Curious if there's any shipment timing that hadn't impacted the Q or any type of seasonality we should be thinking about ahead just given some of the other top line initiatives we talked about right now -- earlier on the call that should obviously lead to some nice sales trajectory. Curtiss Bruce: Aaron, this is Curtiss. We are certainly pleased with the revenue growth in Q1. It represents a very good start to the year and in line with our expectation and I say we're equally pleased with the consumption of 8% growth as well, and that was on our higher growth, higher-margin portfolios in Wipes and Personal Care. As you think about the full-year, we're just reiterating our guidance, right? We are still expecting to be able to deliver on the 4% to 6% organic growth. We don't have any concerns coming out of the quarter that there was any dislocation in revenue performance and the consumption performance. Aaron Grey: Second question for me is in terms of marketing spend, some uptick there sequentially to about $14 million. Maybe talk about some of the strategy that you have. You talked about it a little bit, Carla, in your prepared remarks. I'd love to hear in terms of some of the initiatives you have to help support the growth for some of the brand launches and expansion there. Carla Vernon: Sure. Why don't I get started? Aaron, we really believe that marketing is a force multiplier here at Honest, and it has always been an important piece of the fabric of building this powerful brand. We think we've got a strategic advantage because ever since our beginning, we've been very brand forward, very consumer forward. We know that this investment we're making in marketing is going to be a very powerful driver of this improved awareness that's key to our growth strategy. As you know, we have -- the success we've demonstrated on household penetration gains have been very balanced across our products and our consumer types, and that's because we've been very intentional as we allowed ourselves to be more focused coming out of Powering Honest Growth. That degree of focus is allowing us to point our marketing dollars and our marketing strategies strongly towards our key categories. In this quarter, what you've already seen is we kicked off a fantastic marketing campaign against our flushable wipes business. You remember in my comments, we are now the fourth largest brand in flushable wipes, and we delivered more than 200% consumption growth in the quarter. We just about 4 weeks ago, started kicking off a very groundbreaking campaign. You can see some images from that campaign in our investor slide presentation, our social media feed as always. This campaign really takes a different approach than other flushable brands in the category. We are living up to our name of being honest, right? We've got these really glamorous, beautiful women talking about the role that a flushable wipes plays in their life and why they love our particularly soft and plush and cleanly formulated wipes. We've got that campaign off to a very strong start. It includes a social media lens where we've got mega influencers across different demographics. Also, what we have going now is, as I mentioned, our Toy Story 2 launch behind our new portfolio of kid personal care kicked off as Pixar began the early initial rounds of driving buzz against that movie. That movie launches in June. We're really just getting into the window where our own awareness driving of that portfolio is heating up as well as Disney's. We've got some other great stuff planned for later in the year that I look forward to coming back and talking to you about. Curtiss Bruce: Yes. Aaron, let me just reiterate and maybe add on to Carla's comments. We definitely believe that brand building is a strategic advantage for us here. We're going to continue to invest in marketing as we look to strengthen the business and create a sustainable growth platform. This is why it was so important for us to execute Powering Honest Growth. The gross margin acceleration, the gross margin expansion is really the fuel that we need in order to continue to invest in marketing to have a long-term sustainable business. Operator: Our next question comes from the line of Anna Glaessgen with B. Riley Securities. Anna Glaessgen: In the past, I think the classical brand discovery was talked about through diapers and then expanding through the broader categories that you guys offer. Now while we've seen diapers declining, we're also seeing continued nice gains in household penetration. Can you speak to how consumer discovery of the brand has shifted and how your go-to-market has shifted in response? Carla Vernon: Wonderful. I'll give that a try. You are right, Anna. We are at our all-time highest household penetration, which is such an affirmation that we have picked categories where consumers love what we have and where our portfolios are very expandable across demographics and across types. A few things drive that. I've talked a lot about the fact that the largest percent of households in America are not, in fact, the littlest baby households, but they are both those bigger kid households and the households like my own, my daughter ought to go off to college where maybe there was a kid in the household and there isn't anymore as well as households where maybe there were never any children in the household. What we found is that the benefit of Honest, which is that clean formulation, sensitive skin safe, that is relevant, not just for babies, right? That is relevant. We know that a degree of adults describing themselves as having sensitive skin is as high as 50% to 70% based on certain research. Honest products that we make have been relevant to a broader set of households for a while. We already sell more than half of our -- or excuse me, more than half of our consumers are already in these households. What we're doing now is really putting the strategy and product innovation road map together with that consumer base and making sure we talk to them. This Flushables wipe campaign that I just talked to you about is a great example. We are talking to adults about why they will love Honest products. That is really a new form of expanded investment, and we're seeing it work because, of course, those businesses are -- the growth of those businesses is outpacing the pressures we're seeing in the diaper category. We feel really good about what that shift in mix and shift in focus has done for our business model. Anna Glaessgen: Then one follow-up on marketing. Nice to see the investment in Wipe and the activation there, as you noted in the first quarter. Should we take that level of spend and assume that continues? Or was it elevated given the launch cadence that hit that quarter? Curtiss Bruce: Yes. I'll take that one. This is Curtiss. As we think about marketing, we -- you're correct, we did have an increased level of investment in Q1. That was behind the activity that Carla previously mentioned. Like I said in the earlier remarks or the earlier question from Aaron, we are going to continue to invest in marketing. We're not going to sort of guide expressly to that line item, but the investment in marketing is going to be fueled by Powering Honest Growth, and then our -- both the revenue guidance and the EBITDA guidance reflect that increased investment. Operator: Our next question comes from the line of Andrea Teixeira with JPMorgan. Andrea Teixeira: Amazing story about your mom. Carla, I was just hoping Curtiss to talk about like the competitive environment we hear in general. I guess you're above and beyond that in terms of like your premium positioning. But on the diaper segment, there has definitely been a more competitive stance from a lot of the players. If you can comment on that. Conversely, I know you've been getting a lot of new products in and distribution, and you clearly accelerated the delivery this quarter. I was just hoping if you can comment about like what are the learnings and what is the -- what are you seeing towards the back end of the year, as Aaron was saying in his question, right? I mean, you probably would have a potential to raise the guidance. I understand that, obviously, it's early in the year, but how we should be thinking of what's happening -- what has happened in the quarter and what it informs you through the rest of the year? Carla Vernon: Great to hear from you, Andrea. Let me begin with the diaper portion first, and then I'll move on to the new product and distribution learning and our approach to that. Yes, we agree. The diaper category is under an enormous amount of pressure. That pressure is multifaceted, as we know, with macroeconomic pressures facing consumers, along with just increased competitive landscape that is more heated up than we've seen it in previous years. For us, where we feel encouraged is that as we modeled our diaper business, we knew it was important to get past these distribution losses. Now that we are really lapping those distribution losses that we've been talking to you about, and we saw our own declines cut in half then that told us that as we've been looking at the category, things are playing out according to what we've built into the model and according to what we expected. With that said, we know that those baby households are important, and so we think we show up differently than most of the other brands in the baby aisle in the baby category because we have the power of a single brand that applies broadly across even when just in the baby set with great meaning because people trust our products to really do what they say. As we are seeing, there are places where people feel that is very important and worth it to them, right? That is because I think that's clean trust we've always had. We love to think it has to do with also our beautiful design. It just they're beautiful products to use as we know, as well as making sure that they deliver on their sensitive skin friendly benefits. We've got the power of a brand that can press multiple different ways in the aisle. That's why we're still seeing our growth is offsetting those declines that we're managing in diapers. When I think about new products and distribution, I guess I'll pick up on that same storyline, which is the Honest brand was always built broadly even from its beginning. What we have learned is that as we bring the brand into things like kid personal care, adult flushable wipes, hand sanitizing wipes, makeup remover wipes, trial and travel, we are finding the brand is a fit no matter where we take it to new spaces in the store, we take it to new rooms in anybody's household, we take it to new consumers. That does come with the need to invest in each of those categories. We have to show up and talk to that consumer group in that particular category against that job to be done. That's why you've seen that the team has built a financial model that allows us to go after these higher-margin categories while reinvesting. Curtiss Bruce: Then let me just add because we're talking about innovation, we're certainly pleased with the start to Q1, particularly around the innovation. Our 2026 plan and our 2026 guidance on organic revenue was really balanced. It was innovation, velocity and distribution, and so this was not a singular one driver plan. We are still very confident in our ability to deliver with the success that we had with innovation and the distribution that went into the market in Q1. Andrea Teixeira: If I can squeeze one about e-commerce and how you are potentially outperforming. I think it was always the case, but I just wanted to check in, in terms of a channel performance against Biggs? Carla Vernon: I think you're talking about broad national e-commerce. Is that right, Andrea? Andrea Teixeira: Yes. Carla Vernon: Yes, we are continuing to be very pleased. First of all, we're seeing that across the board, whether it's your traditional brick-and-mortar retailers as they continue to build out their own focus in e-commerce in AI-driven purchases and shopping behavior or where you're looking at the sort of original pure-play e-commerce brands. Our brands, they really fit those models. We know that everyday essentials and consumables do very well in e-commerce. We're seeing a lot of strength for HTC in e-commerce in general. Honest was -- we love to talk about this, right? We were born digital. We were one of the original DTC brands. We were built by the digital generation, and we were built for the digital generation. Our products really come to life very well in an e-commerce channel, and we're seeing that the algorithm plays out very strongly. with that being certainly one of the fastest places we deliver growth. Operator: [Operator Instructions]. Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Dana Telsey: Two questions. One, as you think of the tracked channel consumption, which is up, I think, 8.3%, a real acceleration from the fourth quarter. As you think about going forward, how do you see the levels of demand? Is it new product drivers? Is it category drivers? How would you -- how are you planning go forward? Then on the margin side, with the change in energy prices, how is it impacting your pricing, your customer? Any shifts that you've been seeing? How has it adjusted by channel? Carla Vernon: Dana, let's start with that consumption acceleration. As you noted, when we exited the previous quarter, Q4, we reported consumption growth of 3%. In this quarter, we reported consumption growth of 8%. That growth is very encouraging to see given all of the complexities we've been talking about in the macroeconomic environment. The way I think about the drivers and how that would play out for the rest of the year, this lapping of the distribution declines in diapers is certainly one of the components of why it is sort of more wind at our back on a consumption basis with regard to that piece of our portfolio. We should still see that in the year, but as we've talked about, the diaper category has a lot of pressures. That's why we want to make sure our guidance has got that consideration for the unknowns in the diaper category. We also -- well, let me step back and say, Curtiss talked about our growth based on 3 very balanced drivers, right? We've got innovation as a driver. That includes innovation we launched last year, like flushable wipes entering brick-and-mortar for the first time last fiscal year. That stuff takes a while to catch on and drive awareness. The fruit continues to pay out and grow. Now we've got the awareness driving campaign to act as continued wind in the sales for that type of business. Remember, I also mentioned last quarter, we did a considerable amount of our innovation launches for the year in the first quarter intentionally so that we have the ability to drive that all year. New items are a piece of our growth for the year. Then you've got the velocity and the continued availability increases. Those make out really the 3 ways we look at our growth: innovation, the velocity, velocity that consumers -- when they try our products, they love it. We have great repeat rates, and we are driving a lot of marketing to drive awareness. Then the distribution growth. There are a lot of drivers for us on distribution growth. Sometimes our brand is already in a retailer, but we might only be in the baby set. When we enter and step our way into the flushable lifestyle, that drives a lot of distribution for us even in a retailer we're already in. Think of the kid personal care business the same. We were already in Walmart. We were already in Amazon, but that was an entirely new sort of branch to our tree, if you will, that we are now able to get the benefits of as we launch innovation and expand even in retailers we're already in. Curtiss Bruce: Then I will take the inflation and fuel question here. We continue to monitor and evaluate the impact that the volatility in our macroeconomic environment could have on our business. This is where our asset-light model, our inventory position and the cost mechanisms we have with our suppliers enable us to manage risk in the short term. As we think about 2026, we are confident in our ability to still deliver against our expectations. Operator: Our next question comes from the line of Owen Rickert with Northland Capital Markets. Owen Rickert: Just quickly for modeling purposes, last quarter, you mentioned guiding to organic growth improving sequentially throughout the year. Is that still the right way to think about guidance right now? Curtiss Bruce: Yes. Owen, it's a good question. We are pleased with our start, both on net revenue and on consumption. That was the sequential improvement that we talked about, and so that's in line with our expectations. We are still very confident in our ability to deliver the annual guidance, but we're not offering any updates on the cadence. Owen Rickert: Then secondly for me, what early reads are you seeing from some of those newer product launches like the Sensitive Rich cream, Send Wipes and Hydro Rich cream just in terms of potential velocity and repeat? Carla Vernon: A lot of those items launched in Q1, and so often in my experience, Owen, it is still early to have a true velocity run rate on new items like that. What becomes important is making sure that the shelf sets are all settled in so that we really have a clean read on that data and then driving that awareness. What I would really anchor us on is that in almost any category where you look at Honest, our household penetration is so low that each of these new products really gives us an opportunity to reach into a new household and introduce the brand. For example, you brought up some of our baby items, Sensa Rich Cream, and that is in our Personal Care portfolio. Our Personal Care portfolio is still only at 2% household penetration, whereas what we see in brands that have been around the category longer, we see those with anywhere from 5 to 7x as much penetration as we have. As we continue to make our way in these categories, drive familiarity with the awareness that the Honest brand is there, we feel very, very confident that there is so much runway from our loyal consumers as we continue to drive that growth. Operator: I'm showing no further questions. With that, I'll hand the call back over to CEO, Carla Vernon, for closing remarks. Carla Vernon: Well, thank you, everybody, for joining us this quarter as we continue to go to Infinity and beyond. We look forward to talking to you next quarter. Operator: Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.
Operator: . Hello, everyone. Thank you for joining us, and welcome to the Celsius Holdings' First Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Paul Wiseman, Investor Relations. Please go ahead. Paul Wiseman: Good morning, and thank you for joining Celsius Holdings' First Quarter 2026 Earnings Webcast. With me today are John Fieldly, Chairman and CEO; Eric Hansen, President and Chief Operating Officer; Jarrod Langhans, Chief Financial Officer; and Toby David, Chief of Staff. We'll take questions following the prepared remarks. Our first quarter earnings press release was issued this morning with all materials available on our website, ir.celsiusholdingsinc.com and on the SEC's website, sec.gov. An audio replay of this webcast will also be accessible later today. Today's discussion includes forward-looking statements based on our current expectations and information. These statements involve risks and uncertainties many beyond the company's control. Celsius Holdings disclaims any duty to update forward-looking statements, except as required by law. Please review our safe harbor statement and risk factors in today's press release and in our most recent filings with the SEC, which contain additional information and a description of risks that may result in actual results differing materially from those contemplated by our forward-looking statements. We will present results on both a GAAP and non-GAAP basis. Non-GAAP measures like adjusted EBITDA, adjusted EBITDA margin, adjusted diluted earnings per share, adjusted SG&A and adjusted SG&A as a percentage of revenue and their GAAP reconciliations are detailed in our Q1 press release and non-GAAP financial measures should not be used as a substitute for our results reported in accordance with GAAP. With that, I'll turn it over to John. John Fieldly: Thank you, Paul. Good morning, everyone, and thank you for joining us today to discuss our first quarter 2026 results. We delivered a record first quarter revenue of $783 million. And across the portfolio, we continue to see the kind of progress that reinforces the strategy we laid out coming into the year. In Circana tracked channels, our combined portfolio continued to expand its share position over the course of the quarter. This trend has continued into April, with portfolio dollar share reaching 20.9% in the 4 weeks ending April 12. Our portfolio strategy is resonating with both consumers and retail partners. The quarter reflects what we said we would focus on strengthening the platform, executing with discipline and staying closely aligned with the consumer. And as we look at the progress across CELSIUS, Alani Nu and Rockstar, we are confident about the position we are in as we enter Q2 and the summer beverage season. At the core, our focus remains straightforward. We stay close to the consumer and we execute with consistency alongside PepsiCo and our retail partners, which creates the opportunity to grow in a sustainable and profitable way over time. Today, our portfolio reaches more consumers, more places, more occasions and more price points across the category than it did a year ago. And that is increasingly showing up in the marketplace. Our combined portfolio represents approximately 1/5 of the U.S. energy drink market in tracked channels. And that share is expanding. Said another way, 1 out of every 5 energy drinks purchased in the U.S. is a CELSIUS portfolio product. We have 2 billion-dollar brands. And what is becoming clear is that the portfolio is giving us more ways to grow with each brand playing a distinct role and helping us participate more fully across channels and usage occasions. CELSIUS continues to perform across a broad range of channels and occasions. Alani Nu is expanding our reach with a differentiated consumer base and a meaningful runway and channels where it remains underpenetrated. And over time, Rockstar gives us another point of participation in the category as we continue to integrate the brand into our platform. Even as the broader consumer staples environment remains challenging, energy continues to be one of the strongest performing categories in beverage, which reinforces our conviction in the long-term opportunity. As the portfolio is scaled, we have [ since ] equally focused on strengthening how we operate, improving alignment across the business and building a more repeatable and scalable operating model over time. One of the most important areas of progress in the quarter was execution across our integrations. Starting with Alani Nu. We completed the integration, and we have captured approximately $50 million in synergies we outlined at our modeling call last May. That is an important milestone. It simplifies our operating model and creates a more connected commercial structure. I want to recognize our team members across our organization and at PepsiCo for making this happen. We also made substantial progress on the Alani Nu distribution transition with the majority of the work completed across December and January. With Rockstar, the integration remains on track for completion in the first half of 2026. This is not just about completing an integration, it's about strengthening our growing portfolio. With the SKUs transition now substantially complete, and the reset activity taking hold, we are starting to see the early signs of improved velocities on the core items we are prioritizing. We view 2026 as a stabilization year for Rockstar. We expect to have more to share on the brand's trajectory as we move through the balance of the year. Innovation remains central to how we grew in the quarter, driving trial, reinforcing the core and keeping us aligned with consumer preferences. At Alani Nu, the Lime Slush limited time offer performed especially well and became the brand's top-selling flavor in tracked channels. We view that as an important proof point that the brand's innovation model is durable and that is not dependent on any one particular hero flavor. Following the success of Cherry Bomb, Lime Slush reinforces that the flavor rotation strategy is working, and we continue to see Alani Nu innovations supporting share gains and strengthening the connection between the brand and consumers. More than just product launches, Alani's limited time offers have become seasonal community moments that we believe consumers look forward to, which is a meaningful part of what makes the brand so strong. At CELSIUS, fizz-free continues to emerge as a meaningful platform. We saw encouraging expansion in distribution across multiple flavors, including Dragon Fruit Lime, Pink Lemonade and Blue Razz Lemonade. Fizz-free is now broadly distributed, but still early in terms of items per store, which represents a meaningful opportunity to expand as the platform matures. As we look at CELSIUS innovation for the year, Q1 was focused on prioritizing the assortment and strengthening the foundation of the portfolio. With that work substantially in place, we are now moving into a more active period across Q2 and the back half of the year. We just launched Electric Vibe, a limited edition flavor inspired by soccer culture, timed ahead of the global soccer tournament taking place in North America this summer. It's a great example of how we're using innovation to connect the brand to broader cultural moments and reach new consumers. That same focus and discipline is also shaping how we manage the shelf. We continue to sharpen the portfolio through disciplined SKU optimization and recent resets, putting more emphasis behind the items that perform best with consumers and that is starting to come together and show up in the data. Across our single-serve portfolio, the items gaining distribution represent a significant majority of tracked channel dollar growth in volume, which gives us confidence that the shelf is becoming more aligned with demand. We are seeing that in the flavors such as Cherry Cola, Retro Vibe, Playa Vibe, and Grape Rush, which continues to build distribution and momentum. The resets are about quality of assortment as much as space. Heading into the summer selling season, we remain confident in the space gains we outlined at CAGNY, approximately 17% for brand CELSIUS, driven by expanding cooler placements and additional points of sale across national chains and over 100% for Alani across all channels and for Rockstar, maintain net space alongside reconfigured items and assortments. International represents a meaningful long-term growth opportunity for us. And we took another step forward in the quarter with the launch of the brand CELSIUS in Spain through exclusive sales and distribution agreement with Suntory Beverage & Food Spain. This builds on our core existing collaboration with Suntory and other international markets and reflects our approach to focus on key markets, strong local partnerships, disciplined launch plans and sustained marketing and distribution support. Portugal is next on the European footprint, also with our Suntory partnership. With our global headquarters in Dublin now established, we have the operating infrastructure in place to accelerate deeper execution within existing markets and new market entries in years ahead. As we look ahead, the progress we made in Q1 positions us well for the next phase of the year. We expect to build on the recent resets as we move through Q2, and we have additional innovation planned across both CELSIUS and Alani Nu, including a summer CELSIUS limited time offer that we are excited about. Our partnerships and activations are also part of how we support the momentum as we enter the summer beverage season. We are proud to announce a multiyear global partnership with Aston Martin Aramco Formula One Team as our official global energy drink partner. We have also kicked off a global partnership with Palm Tree Music Festival as well as our continued partnership with Breakaway. Building on strong preference, we have established at the intersection of music, fitness and culture. And at Alani Nu, we opened our first ever slush pop-up in Fort Lauderdale, which reflects the kind of consumer-facing activations we are building and bringing to life beyond the traditional retail. For Rockstar, we kicked off the Formula DRIFT season opener in April. We also announced a new partnership with 23XI Racing and Tyler Reddick who has had one of the most remarkable starts to the NASCAR Cup season in recent history. These partnerships continue to connect the brand with its core motorsports and action sports audience. These programs are designed to connect awareness to trial and then the retail activation. Taken together, Q1 was a quarter where the strategy translated into results across the portfolio, across our integrations and at the register. With that, I'll turn it over to Jarrod to walk through the financials. Jarrod Langhans: Thanks, John, and good morning, everyone. From a financial perspective, I will walk through the quarter by brand, then cover the rest of the P&L, operating discipline and capital allocation before handing it back to John for closing remarks. We delivered record first quarter revenue of $783 million, reflecting continued strength across the portfolio and solid execution against the operating priorities we laid out coming into 2026. Starting with brand CELSIUS. We delivered net sales of $348 million in the quarter, representing growth of approximately 6% year-over-year. As we discussed last quarter, we have been focused on tightening the alignment between shipments and underlying consumer takeaway and we saw progress on that front in Q1. As John mentioned, we undertook a SKU optimization project during the quarter, and we are seeing the velocity improvements that have resulted from that work. We are moving into a more active innovation period for brand CELSIUS, including activations around the global soccer tournament this summer in North America and our 100 days of summer programming. Turning to Alani Nu. The brand delivered net sales of $368 million in the quarter, representing a pro forma growth of approximately 60% year-over-year. As a reminder, we acquired Alani Nu on April 1, 2025. We continue to see strong execution as the brand builds on the distribution gains from the PepsiCo system transition. With the integration now complete, we are operating with a cleaner structure and believe we are well positioned to continue expanding reach and solidifying execution through the balance of the year. For Rockstar, net sales were $67 million for the quarter. With the SKU reconfiguration and reset activity substantially complete, we are focusing on stabilizing the brand as we complete the integration in the first half of 2026. The U.S. business is substantially on the finished goods model with some remaining components still in transition. Let me spend a moment on Alani. As tracked scanner growth and reported growth are 2 different numbers this quarter, and I want to walk through how to get from one to the other. We have also included a bridge in our investor deck posted online. Tracked scanner data shows Alani at approximately 100% year-over-year. The cleanest comparison number is 85%. That adjusts for Cherry Bomb, which sold in during Q4 2025, but landed in Q1 2026 scanner data. To translate 85% scanner growth into reported revenue, the right starting point is Q1 2025 RTD U.S. Energy revenue, which was $198 million after excluding the Canadian and U.S. non-energy business. From there, the 85% growth implies organic Q1 2026 RTD revenue of about $340 million when adjusting for the higher sales mix associated with the DSD system relative to our direct business as our ACV gains have been focused in DSD channels. Adding back Canada and the remaining non-U.S. energy business, which together contributed $28 million, brings reported Alani revenue for Q1 2026 to $368 million or approximately 60% growth year-over-year. Bottom line, the underlying business is healthy and scanner growth remains strong. Turning to profitability. The integration-related cost headwinds we discussed in Q4 have largely rolled off, which gives us a cleaner foundation entering the year. And the underlying initiatives that drive margin expansion, our orbit model, which optimizes how we move inventory across our manufacturing and distribution network, freight structure improvements, raw material alignment across Alani and Rockstar and mix improvements through price-pack architecture continue to progress. In Q1, gross margin was approximately 48.3%. Underlying raw material COGS improved quarter-over-quarter as we continue to bring Alani and Rockstar into our purchasing structure with the COGS write-offs and transition costs from Q4 largely behind us. We did see a few discrete items in the quarter that partially offset that progress. The Midwest aluminum premium moved higher as did the LME. Severe winter weather in parts of the Northeast created incremental freight costs and we incurred some additional freight expense as we rebalanced Rockstar inventory across our network. On commodity and input costs more broadly, we are watching the macro environment closely, including aluminum, freight, fuel and resin pricing. While we have sourcing strategies in place, if the elevated costs remain across the year, we will see some impact on the timing and sequencing of our margin expansion back to the low 50s. None of these changed the broader trajectory and the underlying initiatives that drive margin expansion, our orbit model, freight structure optimization, raw material alignment and mix improvement through price-pack architecture continue to progress. At the same time, we remain disciplined on operating expenses. Adjusted SG&A came in at approximately 26.4% of revenue, down from 31.8% in Q4, reflecting continued cost control across the business and the benefits of operating leverage as revenue scales. We also continue to make progress on the SKU optimization work I mentioned earlier, which supports a more productive operating model over time. Taken together, those efforts remain important components of how we think about margin progression and overall quality of earnings through the balance of the year. As we move through 2026, we remain focused on investing behind our brands to support growth including additional marketing investment across the summer selling period while continuing to improve the quality and consistency of our earnings profile. The progress in Q1 gives us additional flexibility to lean into those investments while sustaining the operating discipline we have built. On profitability, we reported GAAP net income of $110 million in the quarter, more than double the $44 million we reported in the prior year quarter. Adjusted EBITDA was $195 million, an increase of approximately $125 million versus a year ago, and adjusted EBITDA margin expanded to 24.9% from 21.2% and roughly 370 basis points of margin improvement year-over-year. The result reflects continued top line momentum, the benefit of the operating model work we have been doing across the portfolio and the benefit of the synergies captured from the Alani integration. On capital deployment, our balance sheet remains a source of strength and flexibility. During the first quarter, we repurchased approximately 700,000 shares for $24.1 million at a weighted average price of $35.39. At quarter end, $236.1 million remained available under the $300 million repurchase program the Board authorized in November 2025. We have continued to utilize this program in the second quarter. Our approach to capital deployment continues to be grounded in 3 priorities: investing to support brand growth and integration execution, maintaining the strength of the balance sheet and returning capital to shareholders. We will continue to evaluate repurchase activity based on cash generation, market conditions and capital priorities while preserving flexibility for strategic opportunities. Overall, Q1 demonstrated the consistency of our financial plan and the operating leverage available as the business scales. We are executing against the priorities we laid out coming into the year, and we are well positioned for the balance of 2026. With that, I will turn the call back to the operator to open the lines for questions. Operator: [Operator Instructions] Your first question comes from the line of Bonnie Herzog with Goldman Sachs. Bonnie Herzog: I wanted to ask about the CELSIUS brand. I guess I was hoping for some more color on the growth, which has been moderating. Could you give us a sense of the drivers behind this and maybe frame or quantify the impact the brand is facing from limited innovation during Q1 versus last year, the SKU rationalization? And then I assume the cannibalization it's experiencing from Alani Nu. I guess how should we think about growth on CELSIUS for the rest of the year between any kind of shelf space gains and planned innovation? John Fieldly: Thank you, Bonnie. Great question. Regards to CELSIUS portfolio, you've touched on a variety of initiatives that really impacted that in the quarter. One thing we did focus on in the quarter is the fizz-free. We see great opportunities within fizz-free as we're optimizing the distribution to get a broader consistent ACV across the U.S. in the U.S. market. And we've seen the focus on that in the first quarter seeing velocity and takeaways increase. And we see a lot of opportunity within that really differentiated segment within the category. Within the optimization, there's a little bit of a timing sequence there as we've optimized some of the slower items. But we are trying to get and as we progress out of resets, looking to really get optimized, consistent placements across the portfolio that are driving the highest velocity in ACV. I have Eric Hansen, our President and Chief Operating Officer with us today as well. I'm going to have him make some comments around CELSIUS and the distribution gains we anticipated coming out of NACS where we made some comments. Eric Hanson: Yes, I think to John's point, as we talked about coming into the year, we said we would be focused on optimizing the SKU assortment, driving focus on fizz-free as a permanent innovation and leveraging our LTOs and partnerships to continue to drive growth for the brand. Optimization, generally, as John mentioned, plays out over a couple of quarters where we see the reduction faster than the ACV build. We are continuing to progress on that, and we'll continue to see that build over the next quarter or so. We do have 2 LTOs on the brand here over the next several months, Electric Vibe, which is launching now and then another one that will be available in summer. So we feel that will continue to drive excitement and anchor strong merchandising for the brand. And we'll continue to make sure that we're managing our space appropriately. As we build out more space, we are seeing for example, increases on dollars per total point of distribution. We'll see TDPs soften a little bit as you think about TDP is really about total SKUs available. While we gain space, we're getting more holding power and more ability to translate that into growth for the brand. So we feel good about the plans ahead. And obviously, we're monitoring it closely and we'll continue to work through. Operator: Your next question comes from the line of Peter Grom with UBS. Peter Grom: So I wanted to come back to Alani Nu, Jarrod, the bridge that you provided and walked through was helpful. But in the release, you mentioned that there was increased orders from Pepsi. So just trying to understand whether there was any sort of shipment benefit or an inventory build that occurred in the quarter and maybe the delta is just kind of the impact from the promo and allowances as you move into the Pepsi system. Jarrod Langhans: Yes. I think that comment was more to refer to that as we were going more into the Pepsi system across Q1 that we're building ACV and therefore, building expanding the locations that the availability of the brand was in terms of average SKUs per location and in terms of just locations in general, which was helped driving the scanner growth and helped driving our internal GAAP numbers. Another question you may ask in terms of some of this build, the DSD to direct mix. There's a couple of things -- a couple of nuances that are different between brand CELSIUS and between Alani. The first is, as we were moving into the DSD system for our largest distributor, when we were brand CELSIUS, our direct business was smaller than the Alani business. The Alani had built out and we had helped build out the direct business pretty well by the time we moved into the DSD system of Pepsi. You can see that in the ACV that existed between CELSIUS and Alani at the time of moving. The other piece is we were taking pricing with brand CELSIUS as we're moving in, that was back in 2022. So that helped as you moved in and had a little bit of that mix shift. And then the third thing is there is a bit of GAAP impact in terms of roughly $5 million, where a couple of things happened. If you remember back in 2022, we had the preferred shares that we issued and we also had -- going into the distribution system, we had the terminations that were paid for by Pepsi. We had to record those expenses immediately on the P&L, but then we recorded the actual payments on our balance sheet and are amortizing those over. That impacted the CELSIUS brand by about $1 million a quarter. So very minor, and you didn't really notice it. With Alani because we also had a couple of other things going on when we did this transaction, including the [indiscernible], there's about a $5 million impact in that number that's in the bridge. That's really a non-cash item. That's just the amortization from the balance sheet. Operator: Your next question comes from the line of Filippo Falorni with Citi. Filippo Falorni: I wanted to go back to the shelf space gains for both CELSIUS and Alani. Maybe on CELSIUS first, you mentioned previously 17% shelf gains, including foodservice. Can you give us a sense of how much food service distribution you have in the figure? How much you're realizing in more tracked channels? And then on Alani, obviously, a lot of the distribution, you mentioned over 100% in gas and convenience. How far along are you in that shelf space gains? How much have you realized so far? And when do you think we should see more of those flowing through in tracked channels? That would be helpful. John Fieldly: Yes. No, I appreciate the question. It's really an exciting time within the energy category. When you look at the energy category overall, it's one of the fastest growing within LRB. We're seeing new consumers enter the category than ever before and retailers are leaning in. Historically, over 60% of the sales were derived from convenience, impulse purchases, and we're seeing retailers lean in, in a much bigger way than ever before and when you look at the Celsius Holdings portfolio with CELSIUS, Alani and Rockstar, we have differentiated offerings, hitting differentiated consumer segments and really being incremental and driving incremental growth. With that, I'll turn it over to Eric to add a little bit more color around the distribution gains we anticipate and what we're seeing in the overall environment. Eric Hanson: Yes, I think to John's point, and we've had a number of conversations with retailers, obviously, over the last several weeks and months. And I think what we hear generally is that the category, they feel very strongly about the category and the growth trajectory. They anticipate adding more overall energy space, in some cases, very significantly. And so while we're also talking about shelf gains, it's also about permanency on space outside of the main gondola. Cold space has been expanding rapidly across a lot of different formats and then obviously within CNG expanding overall doors. And so we continue to see that space opportunity. Obviously, for Alani, a very strong space opportunity. And a lot of that is largely in place. You'll continue to see some resets finalized here probably through the course of May and June, but probably before summer, we'll be almost fully done. And again, we're going to plan that space according to the best SKUs that we have available and ensure that we've got the best velocity profile and efficiency of space in those. And so we feel very good about the conversations that we've had. On your question around foodservice, difficult to break that out. In some cases, foodservice becomes a zero-sum game, you're in or you're not. And so it's really about adding new outlets that help in overall space gains. And we'll continue to put a lot of focus on driving workplace, college, university and the relevant channels, restaurants, et cetera, and continue to make progress on that front as well. John Fieldly: And I think when you look at it as well when you look at the first quarter, and you see that we are -- really, this is the first quarter of the organization managing a portfolio of brands under the category of [indiscernible] within the energy category of PepsiCo. So that has really unlocked a lot of opportunities. As Eric mentioned, foodservice, a variety of nonreported tracked channels as well. So those opportunities are going to continue to progress throughout the year and years to come as we further leverage the capabilities of this partnership that we forged. Operator: Your next question comes from the line of Gerald Pascarelli with Needham & Company LLC. Gerald Pascarelli: A question for John. Just on your LTO strategy, like Cherry Bomb and Lime Slush where -- they were big contributors to the underlying strength in offtake this quarter. And so as we move forward, just given the success of some of these new rollouts that you've had, like how do you think about balancing new flavor innovation for these LTOs versus bringing some of these same flavors back every single year, just given how popular they are. I'd be curious of your thoughts there. John Fieldly: No, I think it's a great question. It really gives us a lot of optionality when you're looking at leveraging the portfolio and planning within our forecasting and strategies for the coming year. If you look at -- the LTO strategy allows us to do a lot of surprise and delight, especially with the Alani portfolio as well as leverage the seasonal trends. When you see the opportunities with the success of Cherry Bomb and Lime Slush and just with the CELSIUS portfolio, Electric Vibe, we have a lot of great opportunities ahead. We get trial. We get feedback and then we can bring that in as a permanent SKU, midyear resets or even into the new selling season as we're entering the new year. So I think it gives -- as you look at our brand managers, it gives them optionality -- trial, gets to learn, and we get the leverage and learn the capabilities of the PepsiCo distribution network and really maximize that to our capabilities. So when you look at really Cherry Bomb was really the first LTO launch within the PepsiCo system. Number two is Lime Slush. Now we have Electric Vibe coming in. We're going to have a variety of others throughout the back half of this year. We're learning our collaboration. We're learning the partnerships and flavor. But when you look at the LTO strategy in flavors, it's driving. It's driving trial, it's driving awareness, it's driving new incremental consumers into the category. We have a 21% share in the U.S. with the portfolio today. And it's an exciting time within the opportunities you have here managing the CELSIUS portfolio, our brand teams are super excited about what's to come. Operator: Your next question comes from the line of Peter Galbo with Bank of America. Peter Galbo: John, Jarrod, just wanted to come back on the margin piece, obviously, with Midwest premium and LME moving up. Maybe you can just kind of help us think about if there is a resolution of the conflict, kind of what you're starting to hear or starting to see in terms of potential downside for aluminum. I know that, that may stall or hinder the ability to get back to low 50s by the back half of this year. But maybe you can help us think about the trajectory over the next, call it, 18 months. John Fieldly: Yes. No, we're not unique to any other consumer products company out there. Those are real costs we're looking at. I'll turn it over to Jarrod for more comments around that on the operation where the environment we're operating under and some of the opportunities we see ahead of us and some of the disciplined approach we've taken and strategies in the past that we're going to be able to leverage today and into the future, especially as we further optimize and integrate this portfolio. Jarrod? Jarrod Langhans: Yes. Probably I have a little bit of a long drawn-out response. So kind of as we discussed in our prepared remarks, gross margin in Q1 was roughly 48.3%, which represented an improvement of around 90 basis points from Q4. So we are moving in the right direction. We saw a few discrete items partially offset that progress. We had severe winter weather in parts of the Northeast creating incremental freight and freeze protection costs in February. We incurred some additional long-haul freight as we continue to rebalance Rockstar inventory across our network during integration. And then to your point, we saw both the LME and the Midwest aluminum premium move higher through the quarter. As John mentioned, that's best described as an industry-wide packaging dynamic, not a company-specific issue. The first 2 of these are largely behind us as we move through the second quarter with the latter being more impactful in Q2 versus Q1 as it really started to spike in March. With that said, as we noted in our prepared remarks, we are watching the macro environment closely, aluminum, freight, fuel, resin pricing. We do have sourcing strategies in place across the major input categories. We're fully locked on aluminum conversion. We've also got price locks on a variety of other ingredients and vitamins. We've also -- we're working actively to extend coverage into 2027 and 2028 across the back half of this year. But if elevated costs do remain across the year, we may see some impact on the timing and sequencing of our ramp back to the low 50s. But the broader trajectory and the structural margin algorithm are intact. The underlying initiatives that drive our margin expansion continue to progress. We mentioned those in the prepared remarks, the orbit model, freight structure optimization, raw material alignment as we bring Alani and Rockstar fully into our structure, mix improvement through price-pack architecture. So we do have a clear plan and a clear path back to the low 50s. We also have another opportunity, as you mentioned, going out 12, 18 months that we're working through, something a little sooner. Back half of the year, we'll see our second manufacturing line in North Carolina begin producing. So we'll start to see some benefit in the back half of the year with full benefit in 2027. We've got some other vertical integration opportunities that we're in the middle of securing that will benefit us in '27 and beyond. We also have some direct sourcing opportunities that we're working through that will benefit us. And then the price-pack architecture programming that we're working on is really a -- we'll see some initial impacts in the back half of the year, but we'll see a lot more when we look at 2027 and 2028. So we do have good visibility to get to the 50s. Depending upon where commodities fall, whether they stay where they are for the whole year or whether they subside can impact a little bit of that timing. But we do see -- we do have visibility into the low 50s and beyond with the initiatives and the programs that we have in place. I think one more thing just for modeling purposes while we're at it, probably as we look at 2026 in particular, Q2 is probably more of a side-step-type activity and then Q3 and Q4, where you're going to see the stair step and then continue on to 2027 with further stair steps. Operator: Your next question comes from the line of Andrea Teixeira with JPM. Andrea Teixeira: So if we step back and analyze the CELSIUS brand as you exit the quarter and some of the puts and takes you mentioned, right, rationalization of the SKUs, can you help us understand like on a more comparable basis, like if the places where you had the [ stats ] perfectly fine in the new planogram you wanted. How has that performed relative to what we calculated being the North America performance for CELSIUS? And in terms of the intersection between Alani and CELSIUS, that has an intersection of consumer, have you seen kind of that cannibalization kind of phase off? Or you think that's going to -- that's the way we should be thinking and take the company as a portfolio and go from there. And then a clarification of the margin commentary that you just gave, should we be thinking so [ side-step ], meaning on a sequential basis, you're probably flattish against first quarter? Or is there any improvement? As you said, you don't -- you obviously have higher aluminum, higher Midwest premium but then you don't have those freight one-timers that you had in the first quarter, how we should be thinking sequentially, as you said, like and then in the second half, above 50% already in the third quarter. Just want to make sure that we understood it correctly. John Fieldly: Excellent questions. Andrea, I appreciate that. Like we've made some prepared remarks as well as some comments earlier, the CELSIUS brand. We're really bullish on the CELSIUS portfolio. It has a unique consumer segment. When you look at the rational optimization that we've done with some of the slower items, as we're getting consistency across the portfolio, we're seeing those SKUs increase velocity with the optimization of larger ACV gains and consistency across the U.S. One thing we know is that we need to have consistent flavors and consistent SKUs amongst all of the retailers. And that's something we've been working on over a variety of years. And we're really leaning in to get that really optimized. So when you come in and you see watermelon, you see Grape Rush. You see a lot of our great flavors in Peach Vibe. It is consistent. Consistency drives repeat purchase. And that's one thing we're really leaning on. Where we saw great success is in the quarter, the organization leaned in on fizz-free. We saw those SKUs optimize at higher velocity rates as it was scaling ACV, which is really promising. We think fizz-free is a great opportunity as a sub-line for CELSIUS we're going to build upon. When you look at the cost of aluminum, and Midwest premium, it is at a high level. And we're keeping -- we're watching that extremely closely. As Jarrod mentioned, on the prior question, those -- if those stay at sustained higher levels, it could provide further impact. When you're looking at Q1 to Q2, we're anticipating for modeling purposes, a sidestep in overall margin with additional opportunities for further enhancements leading into Q3 and Q4 as we progress closer to that low 50% gross profit target. And as the optimizations and investments we're making into vertical integration, that will further help that margin profile as well as the revenue management opportunities and pack size strategies that we have in place. Operator: We have reached the end of the question-and-answer session. I will now turn the call back to John Fieldly, Chairman and CEO, for closing remarks. John Fieldly: Thank you again for joining us today. We believe Q1 was a strong start to the year. We delivered record revenue of $783 million, expanded our portfolio share in tracked channels, completed a major integration milestone with Alani Nu, continued to advance the Rockstar integration, expanded our international footprint with the launch in Spain through Suntory and saw encouraging consumer responses and innovation across both CELSIUS and Alani. We're also entering Q2 with a clear set of priorities. We expect to build upon the recent resets, layer in additional innovation across CELSIUS and Alani Nu and activate the brands across the summer cultural moments, including Formula 1, the global soccer event, music, fitness and motorsports. And we are heading into the most important selling season for the category with a winning portfolio that reaches more consumers and more places and during more occasions. I want to thank everyone for this opportunity. I want to thank our employees and our partners and all of our customers for their focus and their teamwork and making this all possible. So everyone listening today, we appreciate your support and look forward to updating you next quarter. Until then, grab a CELSIUS and live fit. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good afternoon, and welcome to Artivion, Inc.'s fourth quarter and year-end 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. I would now like to turn the conference over to your host from the Gilmartin Group. Thank you. You may begin. Unknown Speaker: Thank you. Good afternoon, and thank you for joining the call today. Joining me from Artivion, Inc.'s management team are Pat Mackin, CEO, and Lance Berry, COO and CFO. Before we begin, I would like to make the following statements to comply with the safe harbor requirements of the Private Securities Litigation Reform Act of 1995. Comments made on this call that look forward in time involve risks and uncertainties and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements made as to the company’s or management’s intentions, hopes, beliefs, expectations, or predictions of the future. These forward-looking statements are subject to a number of risks, uncertainties, estimates, and assumptions that may cause results to differ materially from these forward-looking statements. Additional information concerning certain risks and uncertainties that may impact these forward-looking statements is contained from time to time in the company’s SEC filings and in the press release that was issued earlier today. You can also find a brief presentation with details highlighted on today’s call on the Investor Relations section of the Artivion, Inc. website. Lastly, please refer to our release published earlier today for information regarding our non-GAAP results, including a reconciliation of these results to our GAAP results. Unless otherwise stated, all comments today will be using our non-GAAP results. Additionally, all percentage changes discussed will be on a year-over-year basis. Revenue growth rates will be at adjusted constant currency rates, and expenses as a percentage of sales will be based on adjusted revenues. With that, I will turn the call over to Pat Mackin. Pat Mackin: Thanks, and good afternoon, everyone. Through 2026, we continued to execute our strategy designed to drive long-term profitable growth through an expanding and clinically differentiated product portfolio. In the quarter, we delivered constant currency revenue growth of 12% and adjusted EBITDA growth of 26% year over year. Revenue growth was driven primarily by On-X and stent grafts, including AMDS. We also benefited from growth within preservation services as tissue processing volumes normalized following the 2024 cybersecurity event. Before expanding further on product line performance, I would like to address today’s exciting news regarding the exercise of our option to acquire Endospan. This follows the PMA approval of its NEXUS aortic arch stent graft system for chronic aortic dissections, which was achieved in early April. NEXUS is a branched endovascular stent graft system purpose-built for minimally invasive treatment of aortic arch disease, where patients often have no choice other than open-heart surgery. The clinical data are compelling. Data from the chronic aortic arch dissection cohort of the TRIUMPH trial demonstrated 93% survival from lesion-related death and 90% freedom from disabling stroke at one year post-treatment. Also, 95% were free from intervention due to endoleaks, excluding type II endoleaks, at one year in this very high-risk population. As a reminder, the total annual U.S. addressable market opportunity associated with both cohorts is estimated to be around $150 million, with dissections representing about $100 million of that. We plan to pursue supplementing the label to include aortic aneurysms through formal regulatory processes expeditiously post acquisition. Importantly, our anticipated acquisition of Endospan and its NEXUS system will complete our market-leading three-pronged aortic arch portfolio. This technology, acquired alongside AMDS and our E-vita OPEN NEO with LSA branch (C-Branch LSA), will position us at the forefront of this segment as the only company globally with a complete portfolio of aortic arch solutions. Importantly, NEXUS is a platform technology, not just a single product. It is supported by three additional PMA programs in development that we expect will further extend and solidify our leadership in the aortic arch market over time. We are pleased to have the financing already in place for this acquisition, and, subject to satisfactory and customary closing conditions, we expect to close in 2026. We expect to be ready for a full U.S. commercial launch of NEXUS in January 2027, following efforts to scale inventory production, complete value analysis committee processes, and augment our U.S. sales team. With that, let me turn back to our Q1 2026 results. From a product category perspective, stent graft revenues grew 10% on a constant currency basis in the first quarter compared to the same period last year. Year-over-year constant currency growth fell below our expectations due to lower than expected AMDS starter set sales in the U.S., as well as softer than expected performance internationally, particularly in the Middle East. Year-over-year growth also reflects a tougher comp in Europe, following a strong Q1 2025 performance as we recovered from the 2024 cybersecurity event. While U.S. AMDS sales associated with initial stocking fell short of our expectations in Q1, we have been very encouraged by implant and reorder patterns within the accounts already using AMDS. We view this as much more critical than the immediate impact of sales from starter sets. Strong reordering patterns reflect positive user experience and ultimately our long-term adoption and growth thesis. Looking ahead, we expect U.S. AMDS starter set sales to accelerate as more accounts get through the VAC process and finalize their procurement, and as we benefit from steps being taken to mitigate the initial upfront $100 thousand cost burden associated with stocking. We also anticipate PMA approval of AMDS in the coming months, which will obviate the need for entirely new accounts to go through the IRB process; some have deferred until PMA approval because of this increasingly imminent date. Ultimately, we see our comprehensive stent graft portfolio as a foundational component of our growth strategy. We are encouraged by our enduring fundamental strength and increasingly strong competitive advantage within the segment. Looking ahead, we intend to replicate our proven strategy by bringing additional stent graft products that are already generating revenue in Europe to the U.S. and Japan, which we believe will unlock further meaningful expansion of our stent graft total addressable market. Meanwhile, our Q1 On-X revenue was up 17% year over year on a constant currency basis. This growth was driven by further global market share gains and continued early traction in our new $100 million U.S. market opportunity unlocked by recently published data demonstrating improved outcomes with mechanical valves versus bioprosthetic valves for younger patients. We maintain our conviction that On-X is the best aortic valve in the market for patients under 65, and we will continue to take market share worldwide in that product line. Tissue processing revenues increased 23% year over year on a constant currency basis in the first quarter, as demand for our products remained strong and tissue volumes normalized year over year following the cybersecurity incident in late 2024. Q1 results were slightly ahead of our expectations of roughly $24 million per quarter for that business. Lastly, BioGlue was relatively flat on a constant currency basis compared to the same period last year. While this performance was slightly lower than our mid-single-digit growth expectation contemplated in our previously communicated full-year revenue guidance, it falls within the range of normal quarter-to-quarter growth variability due to the significant amount of stocking distributor business in that product line. Lastly, on our pipeline, we continue to make great progress on the ARTISON clinical trial for our next-generation frozen elephant trunk. We have 26 patients enrolled in the trial, which is a non-randomized clinical trial consisting of 132 patients in the U.S. and Europe at up to 30 centers for treatment of aortic dissection and aneurysm in the arch. We anticipate completing full enrollment in mid-2027. We are optimistic that the trial will be successful, supported by our clinical results from our current-generation frozen elephant trunk, E-vita OPEN NEO, which is available outside the U.S. Following the one-year follow-up period, assuming the trial meets its endpoints, we anticipate FDA approval for our C-Branch LSA in 2029, unlocking an incremental $80 million annual U.S. market opportunity. In conclusion, while Q1 results fell short of our constant currency expectations and reflected some moving pieces that Lance will walk you through in detail, it was a quarter of meaningful progress against our long-term strategy. The fundamentals that underpin our growth strategy remain intact: a comprehensive, clinically differentiated portfolio, a focused commercial organization, and a pipeline that stands to expand our total addressable market continuously over time. The reordering behavior we are seeing within AMDS accounts reinforces our conviction in the long-term adoption story, and we have a clear line of sight to near-term drivers that will accelerate new account conversion. On-X continues to take share from both mechanical and bioprosthetic valves and is the leading aortic valve on the market for patients under 65. With the addition of NEXUS, we now have what we believe is the most comprehensive aortic arch portfolio in the world, a position we have built deliberately and intend to extend. With that, I will now turn the call over to Lance. Lance Berry: Thanks, Pat, and good afternoon, everyone. Before I begin, please refer to our press release published earlier today for information regarding our non-GAAP results, including a reconciliation of these results to our GAAP results. Additionally, all percentage changes discussed will be on a year-over-year basis, and revenue growth rates will be in constant currency unless otherwise noted. Total revenues were $116.3 million for Q1 2026, up 12% compared to Q1 2025. Adjusted EBITDA increased approximately 26%, from $17.5 million to $22.1 million in Q1 2026. Adjusted EBITDA margin was 19% in Q1 2026, an approximate 130 basis point improvement over the prior year, driven by leverage in SG&A and gross margin improvement. From a product line perspective, stent graft revenues increased 10%, On-X grew 17%, tissue processing revenues grew 23%, and BioGlue revenues were relatively flat in Q1 2026. On a regional basis, revenues in Asia Pacific increased 6%, North America 23%, EMEA increased 5%, and Latin America decreased 23%, all compared to Q1 2025. International growth was below what we typically see from that part of the business. EMEA underperformance was driven by the stent graft-related factors that Pat discussed earlier, while underperformance across APAC and LatAm was driven primarily by quarterly fluctuations in distributor ordering patterns, which we expect to normalize over the course of the year. Q1 gross margins were 64.9%, an increase from 64.2% in Q1 2025, primarily due to favorable product and geographic mix. General, administrative, and marketing expenses in the first quarter were $60.8 million compared to $54.7 million in Q1 2025. Non-GAAP general, administrative, and marketing expenses were $59.3 million, or 51% of sales in the first quarter, compared to $53.0 million, or 53.6% of sales, in Q1 2025, reflecting a 260 basis point improvement. Approximately 170 basis points were driven through leveraging existing infrastructure and annualizing our year-one AMDS launch costs, and approximately 90 basis points were from stock-based compensation. Our as-reported expenses included a gain of approximately $1.5 million in Q1 associated with insurance reimbursement for cybersecurity costs incurred in previous periods, and approximately $1 million of diligence and integration planning costs associated with the planned acquisition of Endospan, both of which are excluded from adjusted EBITDA. R&D expenses for the first quarter were $8.8 million, or 7.6% of sales, compared to $6.7 million, or 6.8% of sales, in Q1 2025. Interest expense, net of interest income, was $5.2 million as compared to $7.5 million in the prior year. Other income and expense this quarter included foreign currency translation losses of approximately $800 thousand. Free cash flow was negative $6.8 million in Q1 2026 as compared to negative $20.6 million in Q1 2025. As a reminder, the first quarter is typically our seasonally lowest free cash flow quarter, and although negative, this quarter’s free cash flow results were slightly better than anticipated. As of 03/31/2026, we had approximately $55.8 million in cash and $215.4 million in debt, net of $4.6 million of unamortized loan origination costs. At the end of the first quarter, our net leverage ratio was 1.8x, down from 4.0x in the prior year. Now for our outlook for 2026. As Pat stated, our Q1 stent graft results did not meet our expectations, due to factors that could continue to impact our revenue in the near term, primarily softness in our international markets, particularly in the Middle East, and timing of AMDS starter set sales in the U.S. It is early in the year, and we are working to mitigate or offset these issues. However, given the uncertainty around the timing and impact of those actions, we believe it is prudent to adjust our guidance. We now expect adjusted constant currency growth between 7% and 11% for full year 2026, representing a reported revenue range of $480 million to $496 million. This guidance contemplates FX to have an approximate one percentage point tailwind on as-reported revenue for the full year. From a product line perspective, the reduction relates primarily to stent grafts due to the factors we have discussed. This guidance assumes inconsequential revenue from U.S. NEXUS sales in 2026 as we seek value analysis committee approvals and build supply for an anticipated 01/01/2027 U.S. launch. As a reminder, growth in Q1 2026 was anticipated to be higher than the remaining quarters, driven by the easier comps for the preservation services business from the prior-year cybersecurity event. These flip to difficult comps for the preservation services business in Q2 and Q3 before normalizing in Q4 2026, followed by a more consistent sequential improvement as our U.S. AMDS and U.S. On-X sales accelerate during the year and we return to normal costs for the preservation services business in Q4. Excluding the impact of the planned Endospan acquisition, we now expect full year 2026 adjusted EBITDA to be in the range of $100 million to $107 million, representing a range of 12% to 20% growth over 2025 and approximately 100 basis points of adjusted EBITDA margin expansion at the midpoint of our ranges. Please note that this full-year adjusted EBITDA guidance excludes potential impact from the anticipated completion of the Endospan acquisition. Assuming the acquisition closes later in the quarter as anticipated, we would expect to incur approximately $8 million of incremental expense through 2026. This would include investments in launch costs and commercial infrastructure while also accounting for the absorption of Endospan operating costs, including ongoing R&D and clinical expenses. Given our expectation for immaterial revenue contribution from U.S. NEXUS sales in 2026, this incremental $8 million would be expected to reduce our full-year 2026 adjusted EBITDA to $92 million to $99 million. Looking forward, we would expect the first meaningful revenue contribution to begin in January 2027, and we anticipate our combined results to be EBITDA neutral for full year 2027 as U.S. NEXUS revenue ramps over the course of the year and as we get combined R&D and clinical spending into our targeted range of 7% to 8% of sales. Relative to the pending acquisition, we also announced today that we drew $150 million under our existing term loan facility. The proceeds will be used to fund the $135 million upfront purchase price for the anticipated Endospan acquisition. Assuming the acquisition closes as anticipated, quarterly interest expense would increase to approximately $8 million starting in Q3 2026, with Q2 2026 interest expense expected to be slightly lower than that. As a reminder, we also continue to anticipate paying a $25 million earnout in 2026 following the anticipated mid-2026 AMDS PMA approval. With that, I will turn the call back to Pat for his closing comments. Pat Mackin: Thanks, Lance. Overall, we have near-term work to do, and we exited Q1 with greater conviction in our foundational growth strategy. We are excited to move forward with our pending acquisition of Endospan, as the NEXUS platform stands to complete our market-leading aortic arch portfolio. We see PMA approval of AMDS on track for midyear. Implant adoption for AMDS continues to build, and our broader market expansion pipeline is accelerating as planned, particularly with ARTISON enrolling as expected. Our long-range growth thesis remains intact. More specifically, we expect future growth to be driven by four key growth drivers: number one, the AMDS PMA; we are commercializing AMDS in the U.S. under HDE, increasing penetration of the annual U.S. market opportunity, with new clinical data, reimbursement dynamics, and PMA approval likely to be further tailwinds. Number two, the On-X heart valve data; we are continuing to educate providers on clinical data showing mortality and reoperation benefits in patients under 65 compared to bioprosthetic valves, which we expect to translate into greater market share globally. Number three, NEXUS; we are moving forward with our strategy to acquire our partner Endospan following the FDA approval of NEXUS. This acquisition, if closed, will provide an additional near-term growth driver, position us at the forefront of this segment, and significantly expand our pipeline with three additional PMA programs in development, extending our runway well beyond the initial approval. Number four, the ARTISON IDE trial; we continue to make progress in our third-generation frozen elephant trunk program, our C-Branch LSA. This clinical trial represents an incremental $80 million U.S. annual opportunity. I want to thank our employees around the globe for their continued dedication to our mission of being a leading partner to surgeons focused on aortic disease. We will now open the call for questions. Operator: At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you would like to remove your question from the queue. One moment, please, while we poll for questions. Our first question comes from Stifel. Your line is now live. Analyst: Hi, Pat and Lance. Thanks for taking the question. I just want to understand better on this guidance reset what is exactly contemplated in it now, because I think there are a few key assumptions, and the key one is exactly when AMDS receives PMA and then more broadly what kind of opportunity the PMA unlocks. Is this truly conservative, adequate, or how would you frame it in terms of expectations for when you get this AMDS approval, and then how should we think about the opportunity that approval unlocks in the context of the revenue ramp throughout the year? Pat Mackin: Thanks. I would say a couple of things. There were two things that did not go as planned in the first quarter. Number one was international stents were off, mostly due to unplanned things: one was the Middle East, and two was some supply chain challenges. Those are temporary, and we are working to fix those. Second, as we pointed out, was the AMDS starter set sales. Those are the starter sets where the hospital has to buy four. We do think that the PMA will help. We have been saying all along that we did not think the PMA was going to make that much of a difference, but the closer we get to PMA approval, there is some bureaucracy and work that hospitals have to do to get IRBs in place, and with the PMA so close, many are just going to wait. So we do think that will be helpful. We are also working to knock down some of the barriers that we are seeing on getting these starter sets. The encouraging thing is that we were ahead of plan on the actual implants. That is what we are working on now—making sure we can get access to these starter sets and working through that process. Lance Berry: We have been saying we expect PMA approval midyear. We still expect that. As far as what the guidance contemplates, it basically contemplates the trends we are seeing right now. We are working to improve those, but that is probably going to take a little bit of time. We think this is prudent guidance given the trends we have right now. Analyst: Got it. That is helpful. And then I also wanted to hit on NEXUS. You talked about working towards closing the acquisition. What are you doing as you work up to 01/01/2027 in terms of building out the commercial infrastructure from here, whether it be hiring or whatever else is required? Key next steps as you build to NEXUS would be great. Pat Mackin: We are very excited about this NEXUS platform. It is the third piece of the puzzle—AMDS, our LSA branch solution, and NEXUS—and that really gives us a comprehensive portfolio for the arch. We will need to do a few things to get ready. Number one, we must go through the value analysis committees. As you have experienced with AMDS, it can take four to six months. We will use that time to do two things: build inventory and hire dedicated clinical specialists. The good news is this is a very different market than AMDS in that there are only about 100 accounts on our initial list. These are very high-end, high-volume accounts. We know who they are, and we can cover that call point with not a lot of reps. We have already started hiring and will continue to add as we go through the value analysis process. Those are the two main focuses once we close this transaction to be ready for a January 1 launch. Analyst: Thanks. That is helpful, and thanks for taking the questions. Pat Mackin: Yep. Operator: Our next question comes from Lake Street Capital. Your line is now live. Frank Takkinen: Great. Thank you for taking the questions. I was hoping to get a little more color on reordering versus a potential plateauing of new accounts. Are new accounts starting to slow down or is the reordering not yet occurring? It feels like we had a steep trajectory with some of the initial ordering patterns, and then we are just waiting for the reordering, or are new orders starting to plateau? Pat Mackin: Let me clarify. We have started using the term “starter sets,” which is basically an account that does not have AMDS. To get AMDS, they need to purchase four devices for $100 thousand. That is not a normal practice for a lot of businesses that will consign units or sell out of trunk stock. We are having hospitals acquire four units. The other piece is the actual implants of the existing accounts. Those went quite well and were ahead of our plan. We are very encouraged and pleased by adoption in the accounts that purchased. What we are working on now is a lot of accounts that have AMDS in the queue, and we are working to get the units on the shelf. Barriers include the IRB or the $100 thousand upfront purchase. We are working on programs to minimize that burden. Lance Berry: In summary, there is the upfront $100 thousand, and every time the device gets used, they need to reorder a device. We call that initial $100 thousand a set sale, and everything after that is implant sales. Implant sales went great. They were ahead of our expectation, and all the feedback we are getting on those is fantastic. We are running into barriers getting the upfront $100 thousand investment approved for a number of different reasons—IRB, financial considerations—so we are putting things in place to help overcome those barriers. We think we will see a reacceleration of starter set sales. Pat Mackin: Because the $100 thousand upfront lands on someone’s desk, it can get stuck there for a while. A key point is DRG 209 for complex arch work—there is very strong reimbursement for AMDS. It takes time for that information to be disseminated to the account, so we are working to ensure they have good visibility to the publicly available information on DRG 209 and what that means to their procedural billing. Frank Takkinen: Got it. Very helpful. Thank you. And then as a second one on NEXUS, how should we think about the growth trajectory? There is potentially more training upfront, but it is very novel, so I would expect a strong growth trajectory coming out of that. And is there a point in time that the $8 million incremental cost is offset by revenue as you think about the ramp? Pat Mackin: Surgeons, particularly vascular surgeons, have a lot of patients who are not being treated right now because there is no option. These are patients too sick for cardiac surgery, and we now have a solution in the arch to treat those patients. They adopt technology rapidly because of the unmet need. The building blocks are: get through value analysis committees, train the surgeons, hire the team, and build inventory. Our goal is to be ready by January 1. We believe this technology has real opportunity to drive growth for the company and help a lot of patients. We will give you more information as we go into 2027. Lance Berry: On the $8 million, it is broken into three pieces. One is initial launch preparation costs that will not carry forward into next year. There are R&D and clinical related expenses that are incremental this year, but as we roll into 2027, we will fit those into our normal 7% to 8% of sales; it is not really incremental from a 2027 standpoint. Then there are run-rate expenses for the sales force and some G&A that will carry forward, and we think those will be covered by actual NEXUS revenue in the U.S. in 2027, making it EBITDA neutral overall. On supply chain and logistics, NEXUS is very different than AMDS. We are not making people buy it upfront. AMDS cases are acute type A emergencies, so you have to have stock on the shelf. Chronic dissections are elective, so we have time beforehand to know exactly what devices are needed, and we will ship them into the cases and get paid at the case. There will be no shelf stocking limiter for NEXUS. Frank Takkinen: Got it. Very helpful. Thank you, guys. Lance Berry: Thanks, Ryan. Operator: Our next question is from Canaccord Genuity. Your line is now live. William Plovanic: Hey, thanks. Good evening. I just wanted to unpack AMDS a little more. One of the challenges brought up multiple times is starter sets. You mentioned strategies to get around this. Are you going to shift the product to consignment, or do you believe the PMA is really going to open that? Is there a backlog? Are we through the early adopter phase and now getting into a broader customer base, implying a slower ramp for new accounts? Lastly, what was the growth of the core stent business if you back out AMDS? Pat Mackin: We have plenty of hospitals. When we set our internal plan and expectations for the year, we had more than enough target accounts to hit the numbers we communicated. We were pleased with implants—ongoing implants were ahead of what we expected. The challenge is getting into hospitals with this upfront $100 thousand purchase. We are not going to consignment. That could always be a last resort, but that is not our strategy. We have programs to address barriers to the $100 thousand upfront. Once PMA is out, there is no longer an IRB, and we think that will be very helpful. Getting accounts through those processes is what we are working on. That timing is harder to control than implant timing. Lance Berry: We do not break out the details on U.S. AMDS revenue compared to international stent grafts. You can tell by geographic growth rates: international growth was much lower than we typically expect this quarter for the reasons discussed. If you normalize North America for easier comps in Q4 and Q1, the North America growth rate is pretty similar in Q4 to Q1, which points to the slowdown being driven significantly by international. But U.S. AMDS starter set sales were below our expectations for the quarter. William Plovanic: When you started out the launch in the first quarter last year, you talked about 140 targeted accounts, with 600 full potential. Can you give any sense of the total targeted number of accounts today and how far you have penetrated? Lance Berry: We have not broken that out. I would say at this point we still have plenty of opportunity to sell starter sets. As we move along, we will consider giving more detail because at some point the starter set is a one-time revenue event, and the implants matter most long term. We will consider providing more information later, but we are not breaking that out at the moment. William Plovanic: On NEXUS, you are pushing to a 2027 launch. Is manufacturing scaled and ready to go? Lance Berry: They are manufacturing today. We have been selling the product in Europe for over five years. We do need to expand and build inventory for the U.S. launch. Endospan had an agreement with us to be acquired upon PMA approval and had no intention of commercializing the U.S. product themselves, so they did not build inventory for a U.S. launch. There is some scale up, but mainly we just need to build product. William Plovanic: Thanks for taking my questions. Pat Mackin: Thanks, Bill. Operator: Our next question is from Oppenheimer. Your line is now live. Analyst: Hi, Pat. Hi, Lance. Thank you for taking our questions. On AMDS, can you quantify how many accounts are deferring AMDS for PMA approval? Is this the first time you are calling it out, or has this been an ongoing trend that is now coming to a head? And with that, should we expect a bolus once you get PMA approval? Pat Mackin: We have been saying for several quarters that we did not really see PMA as a big catalyst. What has happened is practical: for example, we have to go to an IRB at a hospital and the surgeon has to take four hours of training. If PMA is expected in the second quarter, the surgeon may say, “I will just wait. I am not going to do four hours of training for this IRB.” We do have a number of accounts impacted by this. We are not giving specifics on counts. As PMA gets closer, people are less inclined to do the IRB work, and we see PMA as an opportunity. That is contemplated in our guidance. Analyst: On cross-selling with On-X via AMDS, any differences you are seeing in physician utilization? Are they ramping up on a similar curve, or is it more additive but minimal? Pat Mackin: It speaks to our strategy. We are a valve company that treats patients under 65 with the Ross and with On-X, and we are an aortic arch company. Our interactions with top aortic surgeons span our trials—PERSEVERE, ARTISON, TRIUMPH. We are training AMDS centers, and we will have NEXUS trainings that bring heart and vascular surgeons together. We have ARTISON investigator meetings. All of those events help us build relationships with aortic surgeons and deliver our messages across On-X, AMDS, and NEXUS. It is all about the aorta and is highly complementary. We are already seeing cross-selling, and it will get better as we scale trainings. Operator: Our next question comes from Ladenburg Thalmann. Your line is now live. Jeffrey Cohen: Hi, Pat and Lance. Thanks for taking the questions. Two from us. Any updates as far as the commercial organization, both U.S., EU, and perhaps Japan—W-2s and 1099s—for the balance of this year that we should anticipate? Lance Berry: We will have to hire some specialists for NEXUS, but other than that, sales force additions would be fairly limited across the globe and still highly leverageable with our focused sales force. Pat Mackin: On NEXUS, our initial target is about 100 U.S. accounts. We can cover that with a small, dedicated team because these are elective cases. In Japan, we have a relationship with a distributor that has a dedicated team on the ground. We have the commercial infrastructure in Japan; we just need to work through the approval process. Jeffrey Cohen: As a follow-up, can we touch upon the tissue business? It was a strong quarter. Any puts and takes or trends for the balance of the year? Lance Berry: We have told people to think about that as a $24 million per quarter business. We did a little better this quarter, which is great, but that is within normal quarterly fluctuations. If it is a little less in a future quarter, do not read into it. As long as it averages to about $24 million for the year, that is in line with expectations. Jeffrey Cohen: Got it. Thanks for taking the questions. Operator: Our next question comes from Needham & Company. Your line is live. Michael Matson: Thanks for taking my question. Starting with AMDS, I understand the commentary around consignment and the $100 thousand sets, but why not put it on consignment? Is it tying up too much of your capital and inventory on hospital shelves, or is there another reason you are requiring hospitals to have this big expense to get started? Lance Berry: You can always flip to consignment; you can never flip back. It is an emergency case; they need it on the shelf. It is a differentiated product with incredible reimbursement, and we think it is something they should stock. Many accounts have made the purchase. We have hit a point where, further down the list, we are seeing resistance that we had not seen earlier. Our job is to overcome that barrier. We have multiple levers to pull and will come up with solutions as we move along. We are not going to throw in the towel at the first sign of resistance. Pat Mackin: The data are extremely compelling. AMDS can convert malperfusion to non-malperfusion with associated mortality and blood flow restoration benefits. It eliminates the need for vein grafts, with about a 30% difference in reoperation at 10 years and a 20% difference in mortality at five years. It is an emergency, there has not been innovation in 50 years, and it has the best DRG in the market. It should be stocked. Once you start consignment, you typically do not reverse it. Michael Matson: On international stent graft issues, you called out the Middle East and supply chain. Which was bigger? Pat Mackin: About half and half. We have significant business in the Middle East, and we did not contemplate the current situation impacting results, but it did. We also had supply chain items we were not anticipating. Michael Matson: On the revenue guidance of 7% to 11% constant currency, what are your assumptions for AMDS sets and international stent graft sales? Any improvement assumed? Lance Berry: There is definitely some improvement expected for AMDS starter set sales, but at a rate lower than originally anticipated. Roughly half of the guidance reduction is AMDS starter sets and half is international stent grafts. The international stent graft impact is split roughly evenly between the Middle East situation and supply chain issues we are working through. Michael Matson: Got it. Thank you. Operator: Our next question comes from Citizens. Your line is now live. Daniel Walker Stauder: Thanks for taking the questions. First on AMDS reordering behavior, usage was more than you expected. Are multiple surgeons utilizing at some of your larger accounts? Any additional color? Pat Mackin: Typically, a surgeon from an account goes to the training program, returns, and starts implanting, then trains partners or they attend training. In bigger centers, there are often two, three, or four surgeons handling acute type A dissections. We might train one at a hospital, but there are multiple on call. We are training more surgeons per account over time. As usage spreads within accounts, reorders increase. We were pleased that reorders were ahead of expectations. Daniel Walker Stauder: Any different margin contribution from reorders compared to initial orders? Gross margins were strong despite starter set softness. Lance Berry: There is no meaningful difference to gross margin. Both are strong. Daniel Walker Stauder: Thank you. Operator: Our next question comes from Freedom Capital Markets. Your line is now live. Analyst: Thank you. On On-X, can you talk about current usage split between younger and older patients before the new data and where it is today? Pat Mackin: We do not get real-time patient-level age data, but we have historical profiles. Based on recent conferences, there is a lot of discussion about papers showing a mortality benefit for mechanical valves in patients under 60 and about a 20% reoperation benefit at 10 years in mechanical versus tissue valves for patients under 65. We are getting that data out and are growing share in the bioprosthetic space where we previously had not. Much of our growth is from patients aged roughly 50 to 65, which is our focus segment. Analyst: On NEXUS go-forward plans, are there plans to bring Duo and Tre to the U.S., and what regulatory steps are required? Any logistical issues having a custom-made product coming from Israel into the U.S.? Pat Mackin: It is still early; we do not own the company yet, but we have strong collaboration. We are planning to bring Duo and Tre to the U.S. It will require a clinical trial. We will have an off-the-shelf version rather than a custom-made version, which is part of the innovation. We are working on timing and will update our pipeline after closing and integration. On logistics, for U.S. commercialization we will align supply to elective case scheduling, so we do not anticipate custom-made logistical constraints for the U.S. launch plan. Operator: We have an additional question from Canaccord Genuity. Your line is now live. William Plovanic: There has been some discussion on supply chain challenges, and it sounds like that will continue to impact going forward. Can you unpack what it is, the solution, and timing? How much of the portfolio does it impact? Lance Berry: We are not going into a lot of detail, but we have ring-fenced the issue. It relates to our supplier network. We have our arms around it and feel confident about solving it, but it will take a little time. The time to solve it is contemplated in our guidance. It is not broadly across the stent graft portfolio—specific to a small number of products. William Plovanic: Okay. Great. Thanks. Operator: We have reached the end of the question-and-answer session. I would now like to turn the call back over to management for closing comments. Pat Mackin: Thank you for joining the call. We are excited about the Endospan transaction and will be working to close that. This is an exciting day for the company as it is the final piece to the puzzle of our aortic arch solutions. We have AMDS approved under HDE in the U.S. now and are hoping to get PMA midyear. NEXUS just received approval, and you heard our launch plans. ARTISON is enrolling as expected. We have three PMAs in the arch—one approved, one about to be approved, and one on its way. It is very exciting for the company, and we appreciate your support as we continue to build this aortic company. Thank you. Operator: This concludes today’s call. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful evening.