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Operator: Good afternoon, ladies and gentlemen, and welcome to TechTarget, Inc. First Quarter 2026 Financial Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. I would now like to turn the conference call over to Charles D. Rennick, General Counsel and Corporate Secretary. Please go ahead. Charles D. Rennick: Thank you, and good afternoon, everyone. The speakers joining us here today are Gary Nugent, our Chief Executive, and Daniel T. Noreck, our Chief Financial Officer. Before turning the call over to Gary, we would like to remind you that in advance of this call, we posted a press release to the Investor Relations section of our website and furnished it on an 8-K. You can also find these materials on the SEC's website at sec.gov. A replay of today’s conference call will be made available on the Investor Relations section of our website. Following the opening remarks from Gary and Dan, they will be available to answer questions. Any statements made today by TechTarget, Inc. that are not historical, including during the Q&A, may be considered forward-looking statements. These forward-looking statements, which are subject to risks and uncertainties, are based on assumptions and are not guarantees of our future performance. Actual results may differ materially from our forecast and from these forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, including those discussed in the Risk Factors section of our most recent periodic report filed on Form 10-Q and the forward-looking statement disclaimer in our earnings release filed earlier today. These statements speak only as of the date of this call, and TechTarget, Inc. undertakes no obligation to revise or update any forward-looking statements in order to reflect events that may arise after this conference call, except as required by law. Finally, we may also refer to certain financial measures not prepared in accordance with GAAP. A reconciliation of certain of these non-GAAP financial measures to the most directly comparable GAAP measures, to the extent available without unreasonable efforts, accompanies our press release. And with that, I will turn the call over to Gary. Gary Nugent: Thank you, Charles, and good afternoon, everyone. As always, we appreciate you taking the time to join us today. I am pleased to share our Q1 2026 results which demonstrate continuing progress with our strategy and our commitment to delivering top- and bottom-line growth on an ongoing sustainable basis. In Q1 2026, we delivered revenues of $106 million, representing a 2% increase year over year, whilst achieving an adjusted EBITDA of $7.4 million, an increase of 27% year on year. These results reflect the durability of our business model, a model that is built upon our proprietary first-party market data and our permissioned member data. They are also the reflections of the early returns of our combination program completed in 2025. For today, we also report the results of our two operating segments, Intelligence and Advisory and Brand to Demand, offering deeper insight into the makeup of the business and the key drivers of growth. I see durability as Q1 results and I suspect the remainder of this year are set against a backdrop of ongoing geopolitical and macroeconomic uncertainty, in addition to the broader digital transformation that is accelerating across B2B markets as AI changes how buyers are informing their buying journey and how sellers are reaching out and trying to stand out to prospects and customers. I spent much of Q1 and April on the road meeting with clients and colleagues. It is always my favorite thing to do. In the main, our clients, who are B2B technology vendors, are in good health. However, they continue to prioritize capital to R&D investment as they seek to stay current with the AI arms race. This is subduing investment elsewhere for now, specifically in go-to-market. However, as future indication, demand for our businesses is incredibly positive. And ultimately, they will need to seek a return on those R&D investments. Our story of the indispensable partner with the breadth and scale to enable our clients and address their ambitious growth objectives resonates loudly. And it is clear that we are only just scratching the surface in terms of how and where we can help them accelerate their growth and in doing so drive our own growth. The trends we are observing and the needs and wants of our clients directly correlate to our strategic focus. First, our clients are themselves experiencing the impact of the shift from a search engine economy to an answer engine economy. And as such, their ability to raise awareness and generate demand by and of themselves is becoming more difficult. And with that reality, they are increasingly recognizing the value of working with a partner that itself has direct reach and relationships and influence with the prospects and customers. Second, there is a growing realization that better marketing outcomes are achieved when the marketing efforts are aligned and integrated across the lifecycle from strategy through to execution, and that the breadth and scale of TechTarget, Inc. makes us one of the few companies that can deliver value across that lifecycle. This is encapsulated in our unified demand playbook that we launched at the beginning of Q1 and which has been very well received in the marketplace. And finally, we are seeing clients prioritize working with partners that can integrate seamlessly with their sales and their martech landscape and join the dots in terms of attribution to demonstrate measurable performance and return on investment from their marketing investments. Again, that is something that we can provide and are getting increasingly good at, further differentiating us from others. In numbers, revenues from our strategic focus on our largest customers, who are the largest players in the industry we serve, were up double digits as a result of this focus and the investments in products, sales, delivery, and customer success in Q1. Daisy Golota, our new CMO, has gotten her feet well and truly under the table, launching our bold and ambitious marketing strategy designed to raise awareness and generate demand in the broader $20 billion addressable market. As a part of this, we recently leveraged the Forrester B2B Summit in Phoenix to showcase how we are leveraging the breadth and scale of TechTarget, Inc. to partner with our clients and transform their go-to-market and deliver tangible results. One example of this was the work that we have been doing with Tanium. Tanium are a cybersecurity company that helps enterprises manage and protect mission-critical networks. Tanium partnered with TechTarget, Inc. to move beyond a fragmented, siloed marketing approach towards a fully integrated, always-on go-to-market model, choosing us not just as a vendor, but as a strategic partner for our unmatched audience access, high-quality intent data, and ability to influence buying groups before their sales teams are engaged. By activating our platform across Portal, BrightTALK, content syndication, and targeted editorial environments, they were able to precisely identify and engage in-market accounts at scale. The results were substantial. Over 5 thousand leads delivered, equating to $1.2 billion of influenced pipeline, and ROI of over 2.8 thousand x. And importantly, this has translated directly into real revenue growth. As a result, they signed a new two-year deal immediately following the program, representing over a 50% increase in their annual investment. On the subject of our membership, our audience members, as buyers increasingly rely on AI-powered research and zero-click search behaviors, we fundamentally adapted our operational approach to meet them where they are. Our content creation and distribution strategy is now prioritizing AI discoverability while maintaining the editorial excellence and thought leadership that our audiences have come to expect. With a focus on quality over quantity, and engagement over acquisition, this dual focus continued to deliver for us in Q1, with our permissioned membership continuing to grow in low single digits, and our active membership in priority personas such as Chief Information Officers and Chief Information Security Officers up high single digits in the quarter, this all being despite ongoing disruption to traffic. In addition, we added four leading UK media-based brands to our portfolio through the period: Accountancy Age, The CFO, Bob’s Guide, and The Global Treasurer. This expands our first-party permissioned members in the financial services and fintech space, and it is in line with our strategy to grow by extending our vertical audiences into new geographical markets. We are already seeing strong engagement from these new community members. And in recognition of the power and the value of our authoritative, trusted, and original content in the age of AI, our editorial teams recently won three coveted awards at the B2B industry’s Oscars, the Neal Awards, and we have also been shortlisted for 15 awards at the forthcoming ASB Nationals. On the product front, investment in the product pipeline continues to bear fruit. By popular demand, we launched the new BrightTALK Nurture demand product, with 12 customers piloting this new offering in Q2. We also announced to the market the commercial partnership and technical integration of our NetLine demand product with the Demandbase ABM platform. In direct response to the shift from a search-based to an answer-based economy, we have leveraged all of our experience as a digital publisher to launch our AI LLM content audit and consulting services, designed to help clients understand how discoverable and citable content is and to work with them on how to improve upon it. And only last week, we launched the Omnia AI Search Assistant, a further example of how we are leveraging AI technology to improve our products, to improve upon how our customers discover and consume our original authoritative content, and extract maximum value from their subscriptions. The Omnia AI Search Assistant enables our clients to submit natural language queries to the Omnia Knowledge Center and receive answers that are an intelligent composite of all Omnia’s data and analysis. They can also return those answers in over 70 languages, increasing the global applicability of our product. This launch builds upon what were already very encouraging KPIs in the Omnia business, with users, user engagement, and the Net Promoter Score all up double digits in the first quarter. And as we move through to the second and the third quarters, you will see more examples of how we are applying AI technology, specifically conversational interfaces, to our data and content that will improve discoverability, ease consumption, and unlock value for our clients and our members. And in June, our AI search for our audience members will undergo a significant upgrade based upon the lessons learned from the pilot of the past six months. Rather than improving the audience experience, we are also leveraging automation and AI technology and tools extensively across the business to improve upon our productivity and quality in marketing and sales and research and editorial and operations, and our experience is that this is a game of continuous improvement, and we are already banking clear benefits. By way of example, in Q1 our time to first lead for our core demand products decreased by 30% year on year, accelerating time to value for our customers and accelerating time to revenue for ourselves. I think Q1 demonstrates delivery to our plan—financially, strategically, and operationally—growing our revenues and adjusted EBITDA, simplifying and focusing the business, embracing and capitalizing upon the opportunities that AI presents. Our priorities for 2026 are clear: deliver value to our customers and growth for our shareholders. This will give us the momentum and put us in a strong position to continue to invest in innovation and build upon our core strengths of trusted expertise, proprietary market permissioned audience data, and a unified portfolio of products with the breadth and scale to deliver for customers across their lifecycle. We are wholly committed to this plan and to growing revenues and adjusted EBITDA in 2026. I look forward to updating you on our continued progress in the quarters ahead, and now I will turn the call over to Dan to discuss our financial results and guidance in a little more detail, and then we will be happy to take your questions. Daniel T. Noreck: Thanks, Gary, and good afternoon, everyone. In Q1 2026, we delivered revenue of $106 million, representing approximately 2% year-over-year growth compared with 2025. While market demand remains subdued and the environment cautious, our results reflect solid execution and early benefits from our sharpened operating focus following the combination and organizational realignment. As Gary mentioned earlier, we are now reporting our results through two operating segments. In Brand to Demand, or the B2D segment, which represented around 70% of total revenues and is where we generate revenues by providing clients with services that help them raise brand awareness, engage with buyers, and target more qualified potential customers, we saw good revenue growth of around 5% year over year, with particular strength in our unified demand offering. In Intelligence and Advisory, or the I&A segment, which represented around 30% of total revenues and is where we generate revenues primarily through subscription services to our intelligence products including first-party data and specialist analyst research content, as well as advisory services that provide clients with strategic support and bespoke solutions, our revenues were around 4% lower year over year, primarily reflecting a decrease in our go-to-market strategic consulting. Both segments improved profitability in terms of segment operating income, which we define as being revenue less allocated direct and indirect costs but prior to unallocated costs such as central functions, facility, and related overhead expenses. Operating margin also improved for both segments. Encouragingly, we delivered company adjusted EBITDA growth of 27% year over year to $7.4 million, an adjusted EBITDA margin of 6.9% compared with 5.6% in the prior year. This improvement reflects continuing cost discipline, the streamlining of operations, and the initial realization of integration efficiency following last year’s combination plan, even as we continue to invest selectively in growth, product innovation, and go-to-market capabilities. On a GAAP basis, our net loss narrowed to $70.8 million. This included $45 million of technical non-cash impairment of goodwill, as well as ongoing acquisition and integration costs and other non-cash charges. Turning to the balance sheet and liquidity, we are in a strong financial position. We ended the quarter with cash and cash equivalents of $47 million and had almost $130 million undrawn on our $250 million revolving credit facility, giving us liquidity of approximately $178 million. Our net debt at March of around $72 million represented around 0.8x adjusted EBITDA for the prior twelve months, similar to the leverage level at 2025 and 2024. Our free cash flow in the quarter reflected the seasonal dynamics of the business as well as the phasing of integration and restructuring activities from 2025. On an adjusted basis, we delivered meaningful cash flow, demonstrating the attractive underlying cash generation characteristics of our business model. Turning to guidance, we are reiterating our commitment to deliver growth in 2026. To this end, we are maintaining our full-year 2026 adjusted EBITDA guidance of $95 million to $100 million. We are pleased with the progress we have made simplifying the business, improving operational efficiencies, and positioning the company for growth. While the macro environment remains uncertain, we continue to see opportunities to expand customer engagement, increase wallet share, and improve margins as the year progresses. In summary, Q1 represented a solid start to 2026 with revenue growth, adjusted EBITDA improvement, and continued progress integrating the business and sharpening our operating focus. We believe we are well positioned to execute through the remainder of the year and deliver on our financial objectives. As a reminder, our financial model is built to scale efficiently. As we return to growth, every additional dollar of revenue delivers substantial incremental margin, giving us the ability to grow profitability and free cash flows significantly over time. And with that, we are now happy to answer your questions. Operator, will you please open up the line for Q&A? Operator: Thank you, ladies and gentlemen. We will now open the call for questions. Once again, that is star one should you wish to ask a question. Your first question is from Bruce Goldfarb from Lake Street Capital. Your line is now open. Bruce Goldfarb: Hi. It is Bruce. Congratulations on the solid quarter, and thanks. So the first is, are there any inflationary pressures in the business that would put your $95 million to $100 million EBITDA guide at risk? Daniel T. Noreck: Bruce, thanks for the question. I do not think we are seeing any out of the ordinary from inflation that would put that at risk right now. We are still very confident, which is why we reiterated the $95 million to $100 million adjusted EBITDA target. Bruce Goldfarb: Great. Thank you. And then how are growing AI search volumes impacting your membership sign-ups and paid subscriptions? Gary Nugent: I will take that one, Bruce. Nice to talk to you. We have certainly seen the shift in traffic and the mix of traffic that we receive as a business as searches become disrupted and answer engines are becoming more prominent. We continue to see that answer engine traffic converts at a much higher rate to membership than search traffic used to. But interestingly, we are also seeing search traffic conversion rates improve as well. I think that is largely as a result of the fact that what we are now getting from search is more qualified. Effectively, what you are beginning to see in an answer engine environment is that it qualifies out people who are not really serious researchers and serious buyers. So whilst traffic may be disrupted and down, because conversion rates are up, we are still seeing solid membership, and therefore our membership is modestly growing. And in particular, the membership and the activity of members who are the key personas is growing quite nicely. Bruce Goldfarb: Thank you. And my next one, how are churn rates trending in the small to medium enterprise market segment? Daniel T. Noreck: Hi, Bruce. So from a churn perspective, we obviously do not show those metrics, but what I would say is that churn is still higher, clearly because our portfolio accounts have grown. So we are seeing a bit more churn at the lower end of the range. But what I would say to that is we are starting to see a stabilization of that, and so it gives us confidence as we look out for the rest of the year as it relates to those particular client segments. Bruce Goldfarb: Great. And my last question, how is business trending internationally in EMEA and APAC? Gary Nugent: I will pick up a little bit of highlights. I spent a couple of weeks on the road; I was actually in APAC traveling through Singapore and then through Shenzhen and Beijing in China before finishing off in Seoul in Korea. I would say that the actual environment was encouragingly optimistic and building. The vast majority of our business in that part of the world is the Intelligence and Advisory business, and there is certainly a huge amount of demand from APAC companies to grow their business internationally and to expand into markets such as the United States and Europe, and that is a great opportunity for us. And similarly, there is still an appetite from big American brands to build their business, particularly in markets like Japan and Korea. So generally speaking, I was actually really encouraged by the demand there, and I would say that the business has been trading in line with the rest of the business in the first quarter, no sort of material in-pattern. The one obvious exception to that is the Middle East and Africa region as a result of the ongoing situation in Iran. There we have definitely seen customers begin to slow down their investments and slow down their decisions. That would make sense. Bruce Goldfarb: Well, thank you. Congrats again on a solid quarter. Thanks for taking my questions. Operator: Thank you. Your next question is from Jason Michael Kreyer from Craig-Hallum. Your line is now open. Analyst: Hey guys, this is Thomas on for Jason. Thanks for taking my questions. I know you touched on it a little bit, but could you give a little more commentary on the environment you are seeing for software sales, particularly like a Priority Engine that has more of a recurring nature to it? Do you feel like tech companies are still sort of hesitant to lock in longer-term deals? Gary Nugent: I might actually pick up on that subject more broadly. I would certainly say that we have definitely seen the multiyear environment is not as strong as it was two years or so ago. That is definitely true. We are seeing customers—and we have said for some time that customers were shortening their contractual commitments—really through 2025, and I do not think that has really picked up in 2026. It is interesting enough in what is potentially an inflationary environment, because usually there is a bit of tension in the marketplace between customers wanting to lock in pricing for multiple years vis-à-vis making those long-term commitments, so it will be interesting to see how that plays out. I think generally in terms of commitments to software in the end of course of the marketplace, I have not really seen a lot of change in the customers’ appetite. But one of the things that we have spoken about is the need for us to actually integrate our data directly into our customers’ platforms, especially in the intent space. As customers’ martech stacks and sales tech stacks have become more mature and more settled, it is absolutely imperative that you are able to play nicely with their environment. So you heard us talk about this a lot when we are talking about the investment in the intent product: a lot of our investments are now on the subject of integration, and integration not just with API but also increasingly with MCPs in the AI world. And that is really where I think the game is being played now and the game will be played in the future in 2027. Analyst: Great. That is helpful. And then maybe just one follow-up. With the moves you made to position NetLine in a more down market, does that carry any incremental churn or volatility? Or do you still have pretty good visibility into NetLine production? Gary Nugent: NetLine continues to perform incredibly well for us. It is a very exciting story within the company, and it is going from strength to strength. As we have said, we have done a very thorough, forensic analysis to see whether it was cannibalizing any of the business elsewhere, and actually that is not the case. These are different customers. They are different personas within our existing customers. They are different budget pools. It forms part of the unified demand portfolio, and in actual fact the unified demand story that we are now telling, where we have I think the broadest portfolio of demand products to meet any demand problem a customer might have, is playing really nicely for us. Analyst: Great. Thank you, guys. Appreciate it. Thank you. Operator: Thank you. There are no further questions at this time. Ladies and gentlemen, the conference has now ended. Operator: Thank you all for joining. Operator: You may now disconnect your lines.
Operator: Ladies and gentlemen, welcome to the SGL Carbon Conference Call Results for the First Quarter of 2026. I am Mattilda, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Claudia Kellert. Please go ahead. Claudia Kellert: Yes. Thank you. Good afternoon, and a very warm welcome to our today's conference call. We would like to give you an overview about the business development of the first three months in 2026 and a short overview on the current sentiment today. Andreas Klein, our CEO; and Thomas Dippold, our CFO, will lead the presentation and will answer your questions. So let's start. So I hand over to Thomas Dippold for the financials. Thomas Dippold: Hello, everybody. This is Thomas. It's my pleasure and my privilege to guide you through the results for the first quarter. And as a summary, we can clearly state that our top line, as we already anticipated, and I think as everybody of you joining this call already know, is influenced to a large extent by discontinued unprofitable business activities, which we closed down in the course of the year 2024. And therefore, we cannot repeat this unprofitable sales in this year. We also suffer in some sales drops in Graphite Solutions and also Process Tech and the three effects, all in all, stand for, which you can see on this slide here on Slide #3, they stand for a reduction of our group sales of EUR 50 million or 21.3%, coming from EUR 234 million in the first quarter last year to EUR 184 million this year. And as I said, EUR 28 million clearly can be attributed to the discontinuation of the carbon fiber activities in Lavradio and Moses Lake, which we closed roughly at half year 2025. In Graphite Solutions, we still see weak demand from our silicon carbide customers. The inventory levels are still very high. However, what we are trying to do there is on an individual customer basis, we try to renegotiate with them in a partnership way, some specific adjustment of the CTP contract. And one of them is already in Q1, but I come to that when we talk about Graphite Solutions in particular. And for the first time since four years, the continuous growth, at least in profitability and a stable -- roughly stable sales platform. Also Process Tech suffered a severe downturn in the market. We have anticipated that also in a way. We had always, as you remember that in the second half of last year, already a declining book-to-bill ratio. And this now kicks in, and therefore, also our sales in Q1 for Process Tech suffer. And these three factors influence our top line. However, we managed to keep the EBITDA pre on a group level in, I think, a moderate way in just a moderate decline. Our EBITDA dropped by EUR 4 million coming from EUR 33.5 million in the first quarter 2025. And in the first three months of this year, we reached EUR 29.6 million. So it's a decline by 11.6%, which is less than the decline in our top line. And how does it come from -- or where does it come from? We have lower contributions, of course, from the high-margin silicon carbide business in Graphite Solutions. We have lower contributions from Process Technology, where in the past, you remember that we also saw margins of about 25% and beyond. But we can compensate that with continuous cost savings and our ambition to keep the cost intact. Our EBITDA pre margin increased to, I think, a very healthy 16% for a company which is so capital intensive like us. And this is exactly as we predicted Q1 and which is exactly in line with our guidance. We come to that later in the next chapter. Now on Slide #5, coming to the individual business units, Graphite Solutions, as I already just pointed out, suffered an 8.8% decline in the top line, which stands for EUR 10 million, coming from EUR 116 million last year to now EUR 106. This is influenced in the top line in sales, in EBITDA and also in cash by one settlement with one of our CDP silicon carbide customers, where we anticipate future sales in the course of the year and make it already a payment right now. So we kind of anticipate future sales, but also have a kind of a breakup fee in that where we adjust the conditions of the contract. There's maybe more to come, but Andreas will talk about that later in the chapter when we talk about guidance and outlook and strategy. As I said, we are still suffering from a sluggish demand in silicon carbide customers. The other markets that we see there are also burdened by some difficult macroeconomic environment. You know that our GDP is hardly growing. You know how the overall economic situation in Europe, in particular, but also worldwide in general looks like. And therefore, there is no real spark that our sales go into an opposite direction if we leave out the small, medium reactors, but they're also part of the strategy, Andreas will touch the latest status on that in his chapter. EBITDA-wise, I think we also managed it quite well that our EBITDA dropped only from EUR 21.6 million last year in the first three months to first quarter 2026, EUR 18.4 million this year, which is minus 14.8% or minus EUR 3 million. The negative impact comes from the decline in the high-margin silicon carbide products, which hit then the bottom line overproportionally. We try to do our best in order to keep our costs in the right way. And I think if you see the decline in the margin only from 18.5% last year to 17.3%. I think this is a remarkable achievement when you see that your super high-margin business goes down in a way as it does in Graphite Solutions. Coming to Process Tech. And as I said, for the first time since many years, we have to report a major decline in sales and also EBITDA for this business unit. Where does it come from? We see a postponement and a lot of uncertainty in the meantime in the chemical industry. So even a lot of maintenance projects and also some overhauls and parts and service business is really declining significantly for us. And other investment projects where somebody builds up a new synthesis plant or a heat exchanger really came to a standstill and everybody is waiting that the bottleneck gets solved, and we have a little bit more visibility and clarity whether or not these investments are really viable. So our order intake also in the first three months stays below our sales. So this is also for the next months, we don't expect a real recovery. And when you look at our overall performance in the first three months of the year, and we are coming down from EUR 36.5 million to EUR 25.5 million, which is a EUR 30 million decline -- 30% decline, sorry, for that, and minus EUR 11 million in our top line. This is really remarkable how hard it hit us in Q1. And this, of course, also hits our bottom line as this is a project business, and we only are left with some fixed costs. our profitability declined by 62% coming from EUR 11 million to now EUR 4 million. The absolute impact is minus EUR 7 million is not that much given the impact on the group. But relatively, of course, for Process Tech, this is a big decline that we are trying to fight against in the upcoming months. The margin is now 16.1%, which is not bad at all given the historic averages that we've seen. Of course, in the past -- in the last two, three years, we had a very special economic situation for us where we had margins above 25% and beyond. But we always said that 18% is a very good margin, and I think we came close to that. And maybe we can recover a little bit in the course of the year. And now for the first time, I can introduce our business unit Fiber Composites. As you probably can remember, we merged our remaining carbon fiber activities with the Composite Solutions business unit starting from January 1. So with the start of the new year 2026, we only have Fiber Composites. In the end, you can just add those two business units together. There's hardly inter business unit consolidation effect. In the end, you just can add the two together. This is more or less the right figure. There we see also the impact from the discontinued business, which I started my presentation with. We are coming from EUR 76.6 million first three months last year now to EUR 47.7 million. This is a decline by EUR 29 million. I said EUR 28 million is a decline of the discontinued businesses of the carbon fiber and more or less, this is now the new normal that they roughly have EUR 50 million in a normalized and like-for-like activity. This is a decline by EUR 37.7 [ million ]. But as I said, the big chunk of it comes from the discontinuation of the unprofitable businesses of Carbon Fiber. The profitability, however, increased significantly. There are many factors in that. On the one hand side, we are only left with the profitable remains of the carbon fiber business. We have a steady and healthy Composite Solutions business, which also pays in for that. And also our BSCCB JV, which is consolidated at equity contributed EUR 4 million to that. So if you exclude the EUR 4 million, then our new business unit has an operative result of EUR 5 million. And this is roughly a 10% operating margin. If you include BSCCB, then it's 18.9%. I think it's a super healthy recovery that we've seen. And I think it was a very stringent and consequent restructuring that we did last year. And I think the result of that can be seen now where we are only left with profitable businesses there. Then maybe a quick look on the bottom line of the P&L, the cash flow and maybe also some balance sheet figures. Our net result turned positive. Last year in the first three months of the year, we were left with minus EUR 6 million, which was thanks to the fact that we had EUR 16.6 million restructuring and one-off costs in the first quarter. There are also some purchase price allocation depreciation there. So when you look at in our quarterly report, you see EUR 17.7 million, if I'm not mistaken. Now we see EUR 5.9 million. So it's a big turnaround by EUR 12 million from minus EUR 6 million to plus EUR 6 million. And I think this is the other strong message. We only are left with EUR 1.4 million restructuring and one-off costs in Q1. This is exactly what we told you three weeks ago when we presented our full year figures for 2025. The restructuring is over to a large, large extent. We only have some couple of smaller remains, which we digest in the course of the year. But when you see that the first quarter is only affected by EUR 1.4 million, I think this clearly underlines what we said three weeks ago. Our free cash flow is again positive and increasing from EUR 5.1 million to EUR 6.4 million like-for-like despite the fact that last year, we also had some cash-wise restructuring costs, but we expect the free cash flow to be on the level of last year also for a full year figure. So we are on a good way to achieve that. And last but not least, thanks to the good free cash flow, our net financial debt declined a little bit again. So we have a very healthy leverage ratio of 0.7. Our equity ratio is getting closer to 40%. Again, we are at 39.5% and the ROCE is roughly 10%. So I think these are very, very steady and solid figures that we can report there. For the outlook and the guidance, I hand over to Andreas, who will lead through that chapter. Andreas Klein: Thank you very much, Thomas, and also a warm welcome from my side you know the guidance just a couple of weeks ago in the next slide. You even know that slide, the EUR 720 million to EUR 770 million sales level we guided leading to an EBITDA pre of EUR 110 million to EUR 130 million. However, I would like to highlight two topics in the assumptions part of that slide because they have been particularly reconfirmed in the last couple of weeks. It's number one, the assumption of an overall weak economic development and uncertain geopolitical environment. Of course, we all know that this has been underlined by the ongoing Middle East conflict, the Strait of Hormuz developments and also recently the further tariff activities. So overall, all paying into ongoing uncertainty. And of course, for many of our industries, for many of our customers, that's a negative development because it doesn't enable our customers to take the decisions needed. The second thing I would like to highlight is that we do not foresee a recovery in the semiconductor and automotive sector for 2026 yet. This has been confirmed by the development in Q1 and further customer discussions and of course, also the uncertainty and the tariff developments paying into the automotive sector doesn't help the downstream demand for these applications. Digging a little bit deeper in the next slide, I would like to give you some more details on the current sentiment and how we see it. As already mentioned, we see ongoing high uncertainty, especially in automotive and chemicals, impacting basically all our three business units, as already commented for the Q1 performance by Thomas. We see availability and prices of raw materials and energy negatively impacting key markets. So that's adding to the uncertainty and the weak economic development we were already seeing. And of course, that's a lot driven by the developments in the Middle East. However, we are quite relaxed on the cost side in the short term because a rather nice hedging rate for the year 2026 and also constructive discussions with customers to forward these cost impacts in the chain should be able to limit the effects from the cost side as much as possible. In the area of defense, that's the third point commenting on the current sentiment. We see the budgets feeding slowly through the chains. So the -- especially in the Western government Hemisphere, all these big funds are arriving at the primes in the defense industry, they are feeding through the Tier 1 and Tier 2 steps. And this is what we need to create the certainty and the commitments for us to finally ramp up that business in the area of defense and generate contribution from that business as anticipated in our Strategy 2030 plan. What do we focus on at the moment in light of these developments? We mentioned one example already from the semiconductor side that impacted already Q1. We are in negotiations with our silicon carbide customers, with the CDP customers to, yes, bridge the situation we are currently in together with still high inventories in the chain, although we see them continuously decreasing and bridging from that situation in a sustainable long-term cooperation and the growth future we foresee for silicon carbide as an important demand driver for SGL. The second thing is we are expanding project development in the defense sector, a lot of network cooperation activity in the highlighted application fields in defense from our strategy work. And these discussions that networking, that intensification leads now to piloting steps and a step-by-step ramp-up of that business, hopefully having the potential to impact 2027. As you know, for this year, we didn't take into account any more significant contributions from defense yet. Last but not least, and this is for sure, the most present activity with a rather short-term impact. You know that from the publication from the announcement we did in January, we are working intensely on ramping up the full value chain. It's quite a long value chain in our network for the Energy projects and the orders we had received. So we are operationally well on track in that regard. And this is why we can also here reconfirm the impact of the USD 100 million over the next three years from these orders. The three focus areas to the right side of this slide, they are all paying into SGL Growth 2030. So we can clearly confirm we are intensifying the implementation activities for the long-term strategy, and we consider ourselves to be well on track to leverage the potential as soon that is possible in the respective markets. Many thanks for your interest, and we are looking forward to your questions now. Operator: [Operator Instructions] Claudia Kellert: At the moment, I don't see any questions. So, it seems that our press release and quarterly statements are very clear in our messages. So I think we give you an additional minute to write your questions. So, then I think it's everything really clear. So maybe you have an upcoming question in the next hours or days. Give me a call that we can answer your information needs. Thanks a lot for your time. I know it's a busy day today of announcement of quarterly statements of other companies. So thanks a lot for your participation, and have a nice afternoon. Goodbye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect.
Operator: Good day, everyone. My name is Michael, and I'll be your conference operator today. At this time, I would like to welcome you to EPAM's first quarter earnings release conference call. [Operator Instructions] At this time, I would like to turn the call over to Mike Shandel, Head of Investor Relations. Mike Rowshandel: Good morning, everyone, and thank you for joining us today on our first quarter 2026 earnings call. As the operator just mentioned, I'm Mike Shandel, Head of Investor Relations. We hope you've had an opportunity to review our earnings release we issued earlier today. If you have not, copies are available on epam.com in the Investors section. With me on today's call are Balazs Fejes, CEO and President; and Jason Peterson, Chief Financial Officer. I would like to remind those listening that some of the comments made on today's call may contain forward-looking statements. These statements are subject to risks and uncertainties as described in the company's earnings release and SEC filings. Additionally, all references to reported results that are non-GAAP measures have been reconciled to the comparable GAAP measures and are available in our quarterly earnings materials located in the Investors section of our website. With that said, I will now turn the call over to FB. Balazs Fejes: Thank you, Mike, and good morning, everyone. It's a pleasure to be here with all of you. We delivered a solid first quarter with revenue growth at the high end of our outlook range, year-over-year improvement in adjusted profitability and gross margins and strong adjusted earnings per share pure AI revenues exceeded $125 million in Q1, up nearly 20% sequentially from Q4. This momentum gives us a strong line of sight to our $600 million target for the full year, even with the broader macro variability we have factored into our outlook. We also just announced a strategic multiyear applied AI partnership with Ontic to accelerate the delivery of safe, reliable enterprise-grade AI for our clients. As an Anthropic services partner, EPAM is building a dedicated practice for more than 10,000 cloud-certified architects, including the specialized cadre of 250 forward deployed engineering Black Belts. To date, over 20,000 EPAMers have completed training via entropic economy and more than 1,300 are already Claude certified. We expect to reach 5,000 certifications by end of Q3 with 10,000 by year-end. This is a further proof of our engineering expertise for adaptability, advanced learning and education programs and readiness for Claude within the enterprise. As we outlined at our recent Investor Day, we have a clear multiyear strategy to drive our next phase of profitable growth and further capitalize on the global AI transformation opportunities. Our aspiration is to become the go-to partner for enterprise a transformation with a focus on 3 strategic pillars, which are helping reshape the company. These pillars include establishing ourselves as a leading AI delivery software engineering services provider, transforming ourselves into an AI-native organization and capitalizing on our AIT structure to expand go-to-market offerings. For 30-plus years of engineering DNA and heritage expanding domain and vertical expertise, advanced IP and platforms and deepening strategic partnerships continue to differentiate us and provide a durable advantage. Our mission is to win the build opportunity of our lifetime. The gap between the rapidly developing foundational AI capabilities and the ability of enterprises and societies to adopt AI safely, reliably and with sustainable growing volume will drive some of the largest technological investments humanity has ever made. This view was recently validated by our new partner Anthropic and also by NVIDIA's CEO, Jensen during his interview with Vorkesh Patel. Today, we are moving beyond traditional IT services with a sharp focus on AI native engineering and AI native business transformation, which both continue to gain traction. At the same time, EPAM is fundamentally retaining how the company operates, which goes beyond scaling AI adoption across 60,000 people. With our Client Zero mentality, we are engineering an entirely new operating model one that dynamically blends human talent, AI capabilities and advanced agentic systems to run the business foster better and lower cost across all geographies. The early stage of this new blend reflected in the number and the shape of AI-native projects that we are starting with clients. AI/Run, then from being an SDLC transformation pay book to powering a series of AI/Run transform motions that bring significant structure and volume to our clients' own adoption apertures. ROI-driven Playbook uniquely brings together our engineering excellence with AI native delivery, coupled with strategic consulting and advisory teams, deep technical expertise and partner ecosystem technologies. Online traditional consulting roads and deployments, EPAM's AI run transform integrates blueprints, talent and tools into a single proven, repeatable and scalable transformation platform for our clients. We continue to create global go-to-market playbook using proven methods across the globe. The larger number of our AI programs are scaled into deployments, tonic and implication for our engagement is becoming more significant. This is a generally new and consequential commercial construct and presents both challenges and opportunities for us and services companies in general. As the industry works through the models, we intend to be ahead of the curve as we continue to evolve our approach to AI investment pricing, client engagement and delivery models for some quarters to come. One additional element of our strategy worth highlighting is the fact that we are now accelerating our deliberate go-to-market investments in our largest market in North America. These investments are modeled on what has proven to be successful in EMAR, evidenced by their industry-leading growth rate in Q1. Now let's turn to some quick Q1 highlights. In Q1, revenues grew 7.6% year-over-year with constant organic currency revenue growth of 3.7%. The 5 of our 6 verticals grew year-over-year, led by Financial Services and Software and Hi-Tech, followed by Consumer Goods, Retail and Travel, emerging verticals and Life Sciences and Health Care. Across geographies, growth was led by email, delivered strong double-digit year-over-year growth. We are continual balancing our delivery locations and scale mix, adding new certification, domain specialization and additional roles across our global pet. We also continue to proactively manage our commercial engagement types, driving new fixed price and other service deals while proactively managing localized banks. Now turning to the demand environment. Overall, client sentiment remained stable through the end of Q1 and with continued shift in spend towards AI native and strategic deployments. Clients continue to turn to EPAM for help in addressing the widening adoption gap. The need to modernize and build out a foundation readiness remains critically important. Technical debt continues to mount and the latest AI capabilities are making backlog of required work evident, further underscoring our confidence that the build opportunity is a long-term win. As we look ahead, there's a more macro uncertainty today compared to 90 days ago. And our outlook reflects the broader variability we are seeing in the client decision-making. We are particularly seeing underperformance in North America, and this is contributing to lower visibility in the second half. At the same time, our underlying momentum, particularly across our AI native business continues to build. However, macro volatility has introduced some additional caution in client decision-making, particularly on certain larger discretionary programs. While Q1 was not impacted, we are expecting some impact in Q2. Importantly, our client pipeline of AI programs and fundings remain strong. What we see is a temporary shift in timing and direction as clients respond with caution and reprioritize the short-term actions against the bigger transformation opportunity. Now turning to AI. As we have all seen in the news, AI capabilities continue to advance extremely fast. The pace of technological change and digestion is unprecedented for enterprises as they face the challenge of balancing cost optimization and productivity with real business outcomes at scale. Further token usage and the associated economics are only becoming a more integral part of the investment thesis and business case. All this just increases complexity, which, as we stated at our Investor Day on less new sets of requirements across all 8 dimensions of AI enterprise. EPAM remains in the sweet spot of helping enterprises close the AI adoption gap, solve their most complex challenges and deliver quality AI-native enterprise-grade solutions at scale. We are working hard to further build and create high velocity performance teams within our AI native delivery engine to take advantage of larger growth opportunities. By design, our teams will bridge strategy to execution with a more consultative approach, all with deep domain and verticalization expertise. Looking across our top 100 clients, traction remains strong as more than 80% of our engaged in AI initiatives. Our AI frameworks and tools continue to support hundreds of active AI-native projects. Note, we had more than 100 new AI-native project launched in Q1, illustrating our active pipeline and healthy replenishment of new opportunities. In terms of new deals, or since we shared our updated at our AI Day. EPAM is seeing an oxalating large-deal pipeline focused on AI-enabled vendor consolidations, where EPAM has significant opportunity to gain market share. These multiyear deals are larger than our historical norm are expected to scale over time and include a range of commercial models. The trajectory of this pipeline marks a meaningful step in EPAM's evolution as a strategic partner to enterprise clients. However, the full potential of these deals is not yet reflected in our outlook. Across our pure AI native revenues, our momentum continues and fundamentals remain intact with another quarter of double-digit sequential growth. Demand across our AI foundational services remains solid with faster growth in both our data and cloud practices as compared to the rest of the business. Importantly, we believe we can further accelerate capturing AI foundation demand with the deployment of more domain capabilities and forward deployed engineers to engagement. This motion will take some time to scale, but we see this as a critical unlock to being able to deliver true business transformation to clients. Beyond transforming EPAM's business and go-to-market approach towards more outcome-based models, we are building not just an engineering moat, but a domain and context-based mode and court in playbook built on successful engagements over time. Capturing expertise at the source of these engagements further develops our playbooks into differentiated IP and ways of working. Here are some client example to illustrate the shift. one, PDLC transformation for Nelnet, a global company specializing in consumer finance, student loan servicing, telecommunications and education to explore the potential of GenAI tools to boost PDLC efficiency. To do that, EPAM developed a program to identify baselines and performance productivity benchmarks based on EPAM's AI/Run transform, Nelnet achieved a 31% productivity increase, accelerated back-end development by nearly 2x and empowered its teams to scale AI-driven innovation across the organization. We continue working with Nelnet to expand the PDLC program across the organization and continued building an enterprise governance model that scales. Two, modernize and upgrade global streaming infrastructure for a leading streaming platform client within the media entertainment, serving 10-plus million concurrent users across 50-plus countries. With our partner, AWS, we successfully transformed a fragile single-region platform into a self-healing global system sustaining 99% uptime without manual interaction. The solution deployed active, active ES across more than 6 regions with automated IAC governance and standardized site reliability engineering practices. Together, we helped our client achieve 70% less configuration drift and 0 downtime deployments. Three, bring the right AI and GenAI programs from use case concepts to full-scale production deployment for a large global insurance company. Here, our DI platforms serve us both domain playbook and a significant accelerator, integrating both upstream and downstream systems to ensure seamless end-to-end automation to assist the reinsurance clean department in first order of loss processing. EPAM automated billing reconciliation and streamlined reinsurance treaty analysis proving the real-world potential of AI in a highly regulated industry. After implementation, time to process first order of loss events decreased by 75%. Our efforts continue to be recognized validating our strategy and the quality of our execution. So far, in 2026, we have been honored to receive several key leadership distinctions. We earned two 2026 Google Cloud Partner of the Year awards for helping clients achieve measurable business outcomes through advanced AI and cloud technologies. The sustainable award highlighted our use of AI and geospatial technology to address environmental challenges, while databases, ML awards celebrated or scalable methodologies for enterprise cloud migrations including our work with Deutsche Bank. EPAM was included in the Forrester Customer Experience strategy consulting services landscape, featuring providers that supports end-to-end CX transformation from visions through execution. EPAM named a leader in the IDC Marketscape worldwide data modernization services provider for retail and restaurants. And finally, EPAM was ranked among the top 3 companies in Glassdoor's inaugural best companies in tech and AI 2026 list, recognized for its culture of belonging, innovation and leadership. These recognitions continue to reflect the hard work and dedication of global teams and riveting commitment to delivering tangible, high-volume outcomes for our clients. In summary, we are pleased with our first quarter results, which delivered the high end of our revenue outlook despite more uncertain macro environment, a solid foundation we intend to build upon throughout the year. We remain confident in our long-term strategy and vision in transforming ourselves into a global leader in AI transformation services working to further capitalize on faster-growing parts of the total IT and AI services market. Our underlining AI native and AI foundational readiness momentum remains strong and continues to resonate with our existing client portfolio. while we transform our go-to-market motions over the coming quarters to further expand our new client portfolio, while the economic environment impacted visibility and added some vulnerability. We feel good about our pipeline, including the larger strategic opportunities I described earlier, which represent a meaningful step in our evolution. Lastly, I want to thank you all for your continued commitment, trust and support. Jason, over to you. Jason Peterson: Thank you, FB, and good morning, everyone. In the first quarter, EPAM generated revenue of $1.4 billion at the high end of Q1 revenue outlook, delivering year-over-year growth of 7.6%. On an organic constant currency basis, revenue grew 3.7% compared to the first quarter of 2025. With improved year-over-year profitability in the quarter. GAAP income from operations grew by approximately 18% and non-GAAP income from operations grew by over 14%. AI native and AI foundational revenues continued to contribute to year-over-year growth with more than $125 million AI native revenues in the quarter. This is the fifth consecutive quarter of sequential double-digit growth. Moving to our Q1 industry performance. We delivered broad-based year-over-year growth across the majority of our verticals. Financial Services delivered strong growth, up 11.5% year-over-year, driven by asset management and insurance clients. Software and Hi-Tech grew 10.9% year-over-year, driven by strong execution across existing clients and contributions from new logos. Consumer Goods, Retail and Travel delivered 7.2% year-over-year growth, notably driven by retail and consumer goods. Life Sciences and Health Care increased 5.9% on a year-over-year basis. Revenue growth in the vertical continues to be driven primarily by clients in life science and med tech. Business Information Media decreased by 0.7% year-over-year, and our emerging verticals delivered year-over-year growth of 6% and 8%, primarily driven by ongoing strength in energy and government. From a geographic perspective, Americas, our largest region, represented 57% of our Q1 revenues, grew 2.5% year-over-year. EMEA comprised 41% of our Q1 revenues, grew 15.9% year-over-year and 8.4% in constant currency. And finally, APAC making up 2% of our revenues grew 1.2% year-over-year. Lastly, in Q1, revenues from our top 20 clients grew 4.4% year-over-year, while revenues from clients outside our top 20 increased [ 9.1% ] Moving down the income statement. Our GAAP gross margin for the quarter was 27.7% compared to 26.9% in Q1 of last year. Non-GAAP gross margin for the quarter was 29.4%, compared to 28.7% for the same period a year ago, demonstrating our commitment to improving profitability and gross margin during the fiscal year. GAAP SG&A was 17.1% of revenue compared to $0.168 in Q1 of last year. Non-GAAP SG&A in Q1 2016 came in at 14.1% of revenue, compared to 14.2% in the same period last year. GAAP income from operations was $117 million or 8.3% of revenue compared to $99 million or 7.6% of revenue in Q1 of last year, and grew by 18% year-over-year. Non-GAAP income from operations was $201 million or 14.3% of revenue compared to $176 million or 13.5% revenue in Q1 of the previous year, and grew over 14% year-over-year. Our GAAP effective tax rate, which includes a higher level of tax shortfalls related to stock-based compensation, came in at 31.6%. And our non-GAAP effective tax rate was 23.6%. Diluted earnings per share on a GAAP basis was $1.52 compared to $1.28 in Q1 of last year, a $0.24 increase year-over-year, reflecting growth of 18.8%. Our non-GAAP diluted EPS was $2.86 compared to $2.41 in Q1 of last year, a $0.45 increase year-over-year, reflecting growth of 18.7%. In Q1, there were approximately 54.2 million diluted shares outstanding. Turning to our cash flow and balance sheet. Cash flow from operations for Q1 was negative $36 million compared to $24 million in the same quarter of 2025. Q1 cash flow was negatively impacted in the quarter by higher variable compensation payments related to 2025 performance as well as timing of certain vendor payments. Free cash flow was negative $54 million, compared to free cash flow of $15 million in the same quarter last year. Cash and cash equivalents were just over $1 billion as of the end of the quarter. At the end of Q1, DSO was 76 days and compares to 72 days for Q4 2025 and 75 days for the same quarter last year. Share repurchases in the first quarter were approximately 1.8 million shares for [ $264 million ] at an average price of $143.84 per share. To date, since the initiation of our share repurchase program, we've returned approximately $1.5 billion in cash to shareholders. Moving on to operational metrics. We ended Q1 with more than 56,500 delivery professionals, reflecting total growth of 1.6% compared to Q1 2025. Our total head count at quarter end was more than 62,750 employees. During the quarter, the company reduced head count in Mexico. Additionally, there were targeted reductions in certain geographies as part of our cost optimization program. These actions produced a modest sequential decline in production head count during the quarter. Utilization was 77% compared to 77.5% in Q1 of last year, and 75.4% in Q4 2025. Q1 2026 utilization was impacted by the ongoing introduction of juniors, who initially operate at lower levels of utilization. The addition of juniors is intended to improve our seniority index over time. Now let's turn to guidance. Before moving to the specifics of our 2026 and Q2 outlook, I'd like to [indiscernible] and are beginning to modestly delay decisions. This behavior became more apparent early in [indiscernible] opportunities and are looking to close these in Q3 and Q4, driving higher levels of growth in the second half of the year. At the same time, we are now expecting that higher energy prices and global economic uncertainty will have an impact on our revenue growth rate for the year. As a result, we are lowering our full year revenue growth outlook. We remain committed to improving overall profitability and gross margins. As usual, our guidance assumes that we'll be able to continue to deliver from our Ukraine delivery centers at productivity levels similar to those achieved in 2025. Moving to our full year outlook. Revenue growth will now be in the range of 4% to 6.5%. Foreign exchange is expected to have a positive impact of approximately 1.5%. Therefore, the organic constant currency growth is now expected to be in the range of 2.5% to 5%. We expect GAAP income from operations to continue to be in the range of 10% to 11% and non-GAAP income from operations will continue to be in the range of 15% to 16%. We expect our GAAP effective tax rate to be 27%. Our non-GAAP effective tax rate, which excludes the impact of benefits in shortfalls related to stock-based compensation will continue to be 24%. For earnings per share, we expect that GAAP diluted EPS will now be in the range of $8.29 to $8.59 for the full year, and non-GAAP diluted EPS will now be in the range of $12.98 to $13.28 for the full year. We now expect weighted average share count of 52.7 million fully diluted shares outstanding. Moving on to our Q2 2026 outlook. We expect revenue to be in the range of $1.4 billion to $1.415 billion, producing year-over-year growth of 4% at the midpoint of the range. Our guidance reflects a 1.3% positive foreign exchange impact during the quarter, producing organic constant currency growth of 2.7% at the midpoint of the range. For the second quarter, we expect GAAP income from operations to be in the range of 9% to 10% and non-GAAP income from operations to be in the range of 15% to 16%. We expect our GAAP effective tax rate to be approximately 27% and our non-GAAP effective tax rate to be approximately 24%. Earnings per share, we expect GAAP diluted EPS to be in the range of $1.79 to $1.87 for the quarter, and non-GAAP diluted EPS to be in the range of $3.10 to $3.18 for the quarter. We expect a weighted average share count of 52.4 million diluted shares outstanding. Finally, a few key assumptions that support our GAAP to non-GAAP measurements for Q2 and the remainder of the year. Stock-based compensation expense is expected to be approximately $50 million for Q2 and $44 million for each of the remaining quarters. Amortization of intangibles is expected to be approximately $70 million for each of the remaining quarters. The impact of foreign exchange is expected to be an approximate $3 million loss each quarter. Tax effect of non-GAAP adjustments is expected to be around $19 million for Q2 and $14 million for each of the remaining quarters. We expect $2 million excess tax shortfall and negligible in Q3 and $1 million in Q4. Expenses associated with the 2025 cost optimization program are expected to be $13 million in Q2. And 1 more assumption outside of our GAAP to non-GAAP items. We now expect interest and other income to be $1 million in Q2, $2 million in Q3 and $4 million in Q4. Lastly, my continued thanks to all our EPAMers for their dedication and focus on serving our clients and driving results throughout 2026. Operator, let's open the call for questions. Operator: [Operator Instructions] Our first question comes from Bryan Bergin from TD Cohen. Bryan Bergin: On the 2026 guide on the organic growth guide revision. So is this a handful of large engagements that are just moving slower or a broader portfolio dynamic, and what gives you the confidence on the second half implied sequential growth, just given where the 2Q number is. Are you assuming geopolitical volatility moderates to hit that revised target? Do you have things in hand? Maybe a little detail on that. Balazs Fejes: Yes. I guess I'll talk a little bit about the impact that we're seeing as we look at Q2. And I would say it's probably more of a handful of customers where decision-making does seem to be somewhat delayed. And again, we began to see that probably more so in April and May. And then I think Jeff probably could update us on some of the larger deal opportunities in the second half. . Jason Peterson: Number one, in our estimate, we are not kind of considering that the geopolitical environment changes significantly. So we are guiding as we see it right now. So we're not assuming anything significantly changing in the current geopolitical setup. At the same time, we have quite a bit of -- as I in the prepared remarks, I highlighted large, unusually large opportunities, which we are targeting. We are currently not really sure yet how fast they're going to ramp, how fast they're going to close. But we are actually went after a piece of market, which was previously was not open to us, but I already became available due to our AI native and AI/Run capabilities, which opened us for large vendor consolidation, large transformation deals, which is for us was outside of our normal norm. So that's what's included in our current guide. Bryan Bergin: And then my follow-up on the Anthropic relationship. So good to see that come through. Can you talk about how different that model is relative to your heritage delivery approach? I'm trying to understand how difficult of a pivot that may be for you. And do you see that relationship potentially driving an inflection in your AI native revenue growth mix? . Balazs Fejes: I think Anthropic is going to be a very important relationship for -- we are -- I think we are following a playbook, which we've done before. We are -- we prepared preprepared engineers with our internal development. Once commercial products became available and certification quickly. We pivoted towards uncertified or engineering team. I just checked this morning, we are over 1,400 certified cloud architects as of this moment. So it's ramping up pretty nicely. And we will be going to the market together with Anthropic and bring to the market applied AI solutions. . I think it will be similar to the go-to-market movements like what we've done previously. But clearly, this is in the AI era. We will be focusing on AI native AI transformation to bring safe AI capabilities to the enterprise. I don't think it's a pivot, it's an expansion, and we are hoping to see acceleration from this partnership. Operator: Our next question comes from Maggie Nolan from William Blair. Margaret Nolan: Maybe to follow up on that subset of clients that are seeing a little bit of fitness there. Does the full year guidance range consider any broadening of this weakness beyond that subset of clients that are currently affected, and maybe can you help us understand if that's a specific vertical or why or why not you wouldn't see that broadening? Jason Peterson: Yes. So I think the reflection in the -- lowering the bottom end of the range, obviously, would sort of -- if we were to end up closer to that portion of the growth range that clearly maybe would reflect that we saw a somewhat broadening of the delayed decision-making. So again, we took the top down because we are sort of have a less rapid entry into the second half. We still feel good, as FB said, about some of the larger opportunities that we're looking to close here in the second half, but the bottom end of the range clearly reflect that there's some broadening of the delayed decision-making. Balazs Fejes: And talking about impacts. I think clearly, already, we see some of these impacts coming in from travel and consumer sector. It's well understood for the reason. And right now, clearly, our Financial Services or in our Hi-Tech environment, we continue to see strong demand. Margaret Nolan: Okay. And then, Jason, can you sort of bridge the gap for us between the non-GAAP operating margin that you saw in the quarter, a 14.3% to kind of the full year target range in the kind of 15% to 16% range? Jason Peterson: Yes. So I think probably the best way to look at profitability is really to compare kind of year-over-year. And so we always have seasonal factors where Q1 is lower from a profitability standpoint. You've got the reset of the social security clocks. You also generally have that slow January that we talked about. And those things usually sort of result in sort of lower profitability in Q1. I think if I -- where I feel actually very positive, if I compare Q1 to Q1, we've got improvement in gross margin, which is the first time that we've seen that in quite a long period of time. And it's consistent with the expectations that we said that we would be working on improving profitability throughout the year. What you should see, Maggie is improved gross margin as we go from Q1 to Q2. Some of that is seasonal, but again, we continue to sort of focus on profit improvement while trying to drive top line revenue growth and certainly being successful with the transformation opportunities. Operator: Our next question comes from Jason Kupferberg from Wells Fargo. Jason Kupferberg: Just wanted to see if we can put a finer point on quarter-over-quarter revenue growth expectations for Q3 and Q4. I mean we know what typical seasonal patterns look like, but would be curious what your base case looks like there, just given the moving parts in the macro. Jason Peterson: Yes. I'll talk to, I guess, maybe just about what my model looks like, and I'll let FB sort of provide more color as to the client opportunities. I mean, usually, what we would see is stronger sequential growth between Q2 and Q3 driven seasonal factors, the additional available bill days. And then we're also factoring in some subset of the deals that we're working on that those would then begin to ramp. We clearly have a higher grade in the second half than we have in the first half and again, that's driven by the opportunities that are within our line of sight at this time. Balazs Fejes: And what brings us this confidence and what we're counting on. We have quite a few deals which we already know is going to start in the Q3. We also had a pipeline of large opportunities, which we're working to close and start to ramp in Q3 and Q4. Jason Kupferberg: So yes, sorry, that's why I wanted to follow up on the. So those large opportunities. There's vendor consolidation deals. It sounds like there is -- I don't know if there's 2 or 3 of them, maybe you can clarify that, but it sounds like that you do have something in your back half guide for those, I guess, maybe on a risk-adjusted basis. If you can just clarify that? And then just say a little bit more about the nature of the work that is comprising those large pipeline opportunities for the second half. Balazs Fejes: So it's no longer just 3 or 4. We're actually talking about close to 10 opportunities at this point of time. These opportunities are outsized in terms of range, all of them are non-T&M, so different commercial models, combining AI, token in the picture themselves. They are -- it's a variation of business transformation, vendor consolidation and the size is really outside of EPAM's norm, what we typically do. Jason Peterson: And then, Jason, clearly, there's a number of opportunities. And from a risk-adjusted standpoint, obviously, we're not assuming that we control all of those. We're just capturing a small subset and then that helps contribute to the growth in the second half of the year. Operator: Our next question comes from Jamie Friedman from Susquehanna. James Friedman: I'll just ask my 2 together in the interest of time. Jason, I want to get your perspective on the outlook that you had provided longer term at the Analyst Day for -- for the period 2027, 2028. There were assumptions about the improvement in gross margins, which you delivered in the first quarter and then SG&A efficiency, I think, 20 to 30 basis points. So wondering if you could share that -- I think it was 16% objective in the margin? And then FB, I'd be interested, so in your prepared remarks, you were mentioning that you're seeing opportunities in AI-enabled vendor consolidation. So I was hoping you could elaborate on that. What's that about? Jason Peterson: Yes. It's quickly on profitability. So there's a -- we did get price in Q1. We're focused on improving some utilization. I think we've done a nice job with our cost optimization program and kind of getting us into good shape. The cost of our bench is somewhat lower. So all the things that we talked about doing, including improving the seniority index, all of that's in process. And as a result, you see better gross margin, Q1 of 2026 to Q1 of 2025. I also expect you will see better gross margin Q2 2026 to Q2 2025. So I think that whole journey of improved profitability, we're certainly, I would say, on our way. We're not expecting so much SG&A optimization this year that would come more in those out years. In this year, I think you'll see us do more with sort of go-to-market investments as we talked about during the IA Day. Then, I guess, I will turn it over to FB. Balazs Fejes: Absolutely. Thanks, Jason. So during IA Day, we kind of talked about and demonstrated our AI capabilities, we talked to you about Level 1, Level 2, Level 3 level of AI capabilities and SDLC maturity. In these larger deals, in vendor consolidations and also in enterprise AI transformation, we're deploying the best of EPAM or AI/Run Transform playbook. And this is a combination of our global capabilities augmented with AI, where we are able to bring a very differentiated and I would call, and a challenging proposition to our clients, which very much challenges the status quo in the vendor landscape. And that's what we are doing right now with our larger clients. . Operator: Our next question comes from David Grossman from Stifel. David Grossman: So I know this has come up in a couple of the previous questions, just about the visibility on the back half of the year and the guide. But historically, you've done a really good job of framing the low versus the high end and what needs to happen. So perhaps you can take some of the data points that you shared already and maybe put that in the context of the range, what happens at the end, what happens at the midpoint versus the high end? Jason Peterson: Yes. So I think probably the first thing is that we're not assuming an improvement in the economic environment. So on the lower end of the range, you probably have maybe some further worsening you also have maybe more of what we referred to earlier, where you do have some clients sort of delaying sort of spending decisions. And so again, that would probably just be incremental kind of uncertainty and incremental kind of delays in decision-making. On the higher end of the range, it's both sort of solid execution in the traditional book of business, and then probably a somewhat higher share of wins in these larger deals that FB have been talking about. Again, we have throughout the year and even when we guided during our Q4 call, we always expected a stronger growth rate in our second half, in part driven by these deals that we've kind of been focused on in developing over the last sort of quarter or two. Is that sufficient David or anything else? . David Grossman: Well, I was just curious, can you still hit the midpoint of the range if we see a continuation of the environment where these larger deals continue to get pushed out? Balazs Fejes: I think the question, David, is where the environment is the current for the mid range, I don't think we need to win too many of those deals. So actually, we're not that much counting on them on the midrange. I think -- but if the environment continues to get worse, that's clearly challenging for the mid range. So the midrange is steady execution, the usual conversion, typical EPAM style deal structures in order to achieve the midrange. David Grossman: And then if I heard you right, I think you said that North America was where you were seeing the most incremental weakness and you also said that that's where you're focusing your go-to-market investments. So Dakota market investments were similar to some of the prior cycles we've been through. So I don't know, did I get that right? And if I did, could you maybe at least provide some clarity around that dynamic and where those investments are going? . Balazs Fejes: David, absolutely. I mean already in IA Day, we called out the go-to-market investments, although we were not that specific, but actually highlighted that we are -- we brought in a new Chief Marketing Officer, who started and focusing on performance marketing. We talked to you about how the market changed moving away from a seller to a much more of a buyers market. We didn't highlight it, but we already at that point of time was thinking about the North American market itself. So what we're going to start doing is applying all the learnings and the investments, what we've done and understanding what we've done in the EMEA market and bring it to the North American market. Clearly, it's going to be investment in personnel, investment in process, investment in changes and transformation of our go-to-market motions in North America. Operator: Our next question comes from Jonathan Lee from Guggenheim. Yu Lee: You highlighted large multiyear deals in the pipeline that are larger in scale than what EPAM has historically pursued. What gives you confidence in your ability to close and execute on those agents do you have the sales muscle, governance frameworks and delivery infrastructure to manage those programs and that magnitude? And how should we think about the profile of these deals as it relates to competitive dynamics in deal size and margin profiles relative to what you currently see? Balazs Fejes: Jonathan, great question. I think Clearly, I think it was also kind of a surprise, how successful our offering has been with our clients. We didn't expect this amount of pipeline be built with these differentiated offerings. I think do we have the sales muscle to close them, to convert them to run them up. That's why we are risk-adjusting the pipeline itself. And we are not fully including them the same way as we include other deals because we actually -- we are not sure that how fast they're going to convert and how fast they're going to ramp. So that's been all honesty, right? So yes, we have the sales muscle to actually get into these opportunities. I think the offering is differentiated enough and resonates really, really well with our clients because we bring AI native capabilities to these deals, and we are disrupting the status quo. In terms of scaling these opportunities and to governance in place, we, EPAM has an experience running large programs, but in the past, those programs were built bid by bed, not as one big opportunity. So yes, we were running these opportunities before as an aggregate, but we never really wanted us won't go. So that's the difference. At the same time, I think what you asked about profitability. Clearly, what we can tell you is that our current AI native business or portfolio, which is over $125 million per quarter is run higher profitability than EPAM average. So that's what we see. Yu Lee: Got it. And just as a follow-up, where do we stand on the large network client? Did revenue stabilize in Q1 as expected? Or are you seeing incremental deterioration there? And what does this imply for the remainder of the year? . Jason Peterson: Yes. So the client did stabilize revenue as expected. I think we would see probably some very modest sequential decline over the next quarter or two. But again, something I would still put very much in a stable camp. And then in terms of the rest of the book of business there we are seeing solid growth in their book of business in the Iberian Peninsula. We're also seeing growth throughout South America. And so we feel generally good about the book of business there with the exception of some slowness in Mexico and with that large customer. . Operator: Question comes from Jim Schneider from Goldman Sachs. James Schneider: I was wondering if you could maybe comment on the extent that the large deals convert into revenue beginning in the back half and heading into 2027, what would be the impact, do you think, on margins? Or would they be coming in at or below sort of your corporate average? Jason Peterson: Yes, we're still looking at improved gross margin on a year-over-year basis. There's always seasonal impacts. And so again, Q3 would have generally higher profitability just because it's got higher billl days. And so I think what we'll all have to be looking at is just Q1 to Q2, Q2 to Q3. Sometimes, as you bring in deals, there is a modest kind of impact as you sort of do the transition or what's called KT our knowledge transfer. But I think what you'll find is that with our focus on improving profitability. In India, reducing the cost of the bench, improving utilization and focus on sort of improving fixed fee profitability. I feel comfortable that we can continue to improve profitability. . James Schneider: Yes. And then maybe as a follow-up. On capital allocation, given what the stock has done, can you give us a kind of a refresher on your latest thoughts on the relative uses of cash between buybacks at this point and incremental M&A new capabilities? Balazs Fejes: Yes. So we did the accelerated share repurchase. There's kind of a true-up piece of that, that will show up in Q2, and we will also be probably doing incremental repurchases when the market opens again next week. At the same time, I think we are looking ahead to sort of the second half of the year. You might see us begin to again prioritize sort of M&A-related investments. But certainly, with the share price at this level, you continue to see some amount of generally open market purchases of the stock. . Operator: Our next question comes from Bryan Keane from Citi. Bryan Keane: FB, can you talk a little bit about contract pricing and how those dynamics have changed over the last year or so, in particular, something like the Anthropic deal the partnership there. How does that -- how are you going to recognize revenues in that contract in that partnership? Is it any different than the model has been over the last few years? . Balazs Fejes: Bryan, it's a good question. I think it's a moving target. As we highlighted, the economics is -- continues to be a subject which we are exploring. At this point of time, we are in most client relationships or clients are bearing the cost of the tokens. I don't know how it's going to change. We are in discussion with quite a few clients, how would that transition. So Anthropic in this sense, it's not different. We -- our relationship, we will be expecting to develop software using the Anthropic stack, the models, the tools themselves. . And right now, we are in various cases. We're exploring different commercial models, how we can actually charge the tokens or the client pays for the tokens or what is the commercial model going forward. It's complicated in a sense because it's impacting certain security considerations. And it's -- I think it's an open subject, which we continue to work with our partners, with our clients, and with Anthropic themselves. In terms of, I think, pricing, I think Jason is actually -- was very pleased to see even rate increases in the first quarter. So we are actually not seeing what we call rate compression at this point of time. We're quite successful for minority -- small minority of our clients to negotiate rate increases. So overall, we are not seeing that type of market pressure. Bryan Keane: And then just as a follow-up, Jason, I saw that sequentially, head count was down, and then obviously, revenue per head was up in the first quarter. How do we think about the rest of the year to hit the guidance maybe sequentially? How should we think about the head count cadence and the revenue per head? Jason Peterson: Yes. So I think with Q1, clearly, we've talked about the lead customer in ours, and so we did see some reduction in the head count in Mexico. And we continue to make some adjustments in different locations that kind of improve utilization and decrease the cost of our bench. I do think you'll see head count additions throughout the remainder of the year. The revenue per head count is usually not a calculation that I do, and you always have to remember the foreign exchange also plays a role in that, but as FB that be indicated, we did get rate in Q1, and so that was positive and did help with profitability and throughout the remainder of the year, I think you'll see ongoing head count to support business growth. But I think you'll also see some adjustment in sort of contract structures. And so I think the whole calculation of revenue per head is probably a conversation we'll be having kind of later in the year. But again, we feel good about the growth associated with some of these larger revenue opportunities. Operator: Our next question comes from Arvind Ramnani from Truist. Arvind Ramnani: I just wanted to ask, right, like I mean it looks like you kind of lowered the guidance on sort of existing customer weakness, and I think what you have described as sort of in order to hit your guidance for the full year, there's some, I guess, prospective clients or pipeline, or some of the pipeline needs to convert. It seems like it's kind of like visibility at existing clients wasn't like kind of properly accounted for how are you getting confidence that the prospect of clients will actually convert to revenue on time in order for you to hit your guidance numbers? Jason Peterson: Yes. I think maybe the first thing just remember is I don't think any of us thought that what happened in the Middle East was going to happen and it was going to go on for as long as it's gone on for. So we are seeing some impacts from that. And then from a deal standpoint, there are a significant number of opportunities, Arvind, and we're just running on a modest share of those to convert. And so again, that's why we think that it's an appropriate guidance and why we also think that there's also opportunity to get to the higher end of the range. Arvind Ramnani: And then just on the topic of AI, right? I mean, certainly kind of -- you are seeing kind of good traction out there. I mean, is there any sort of like revenue cannibalization or workflow cannibalization or displacement of some of the legacy work as some of the AI work ramps up? Balazs Fejes: Arvind, mean clearly, there is some impact. clients shifting some of the IT budgets towards AI spending and also the increasingly automating parts of the SDLC, for example, testing itself. And probably, they are diverting investments away from digital platform, e-commerce platform build-outs towards new AI native products or a native platforms construction. So that's the shift what we are seeing right now. Arvind Ramnani: And just last question. Just with these advancements and model capabilities we have seen both across Anthropic and open AI just in the most recent model releases. Are you all proactively going to some of your clients and saying, like, hey, we can use some of these of improvements in sort of AI to kind of lower head count on certain projects? Are you offering that a few clients or not really seeing the dynamic? Balazs Fejes: So we are going to the clients with very advanced engagement model. This is what I highlighted when you were in the IA Day, we demonstrated dark factory capabilities. And yes, we are proactively talking to our clients, how we can introduce them how we can actually provide them a dark factory based for the autonomous applicable maintenance and support capabilities, how we can automate a large part of the testing flows. So this is all part of the go-to-market movement, which we launched earlier this year. Operator: Our final question today comes from James Faucette from Morgan Stanley. James Faucette: Thank you very much. Just a couple of quick follow-up questions. On margins, I think you -- Jason, you've talked about like what you're planning to do, but especially on these longer duration projects and if we're starting to factor in tokenization or token costs, excuse me, how do you think about like the levers that you need to control or what kinds of relationships and that kind of thing do you need to develop? And then I'll just throw in my second question simultaneously. I heard loud and clear, your potential interest in revisiting M&A, especially in the latter part of this year. Can you give us a little bit of view on in terms of what you might be looking at what makes sense and what valuations are doing in the types of acquisitions you could be looking at. Balazs Fejes: James, I think it's -- this is a great question, and it's so funny that so few people actually ask about economics. What you need to do is you need to control multiple aspects. You need to, first of all, control the model usage, what task, which model you are using what is the frequency of that model. You need to have the right blend of model. So what we are building out is this blending capability, which is which where for each particle task, you need to select the right model, which is able to execute, but cheap enough to deliver the ROI. At the same time, you also have to recognize that you can buy the same token from the same model from multiple sources. So you need to have the multi-sourcing capability, someone came to a trading desk, which allows you to purchase the same model, same capability from various sources. And this is -- we need to develop this capability to manage these contracts, how to manage our consumption and how to buy the same tokens related to price, availability, cash hit limits. All of these are influencing the pricing at the end. You can achieve differentiation or different in terms of pricing and profit levels, if you correctly control the sourcing and the usage of models themselves. In terms of M&A, I turn over to Jason. Jason Peterson: Yes. So I think that we continue to focus on domain capabilities, probably data assets and then some of the geographic opportunities that we talked about in the past, allowing us to expand our position, most likely in Asia Pac. And so kind of similar to what we've talked about in the past, again, I think you're not likely to see anything in the very near future, but maybe later in the year. And then just quickly from a valuation standpoint, I think we continue to see what in our eye is still a little bit of a disconnect between private market expectations and kind of public market valuations, but we continue to be engaged with the potential targets and I guess, kind of stay tuned. . Operator: This concludes the question-and-answer session. I'd now like to turn the call over to Balazs Fejes for closing remarks. . Balazs Fejes: Thank you for joining us this morning, and we're going to see you guys in 3 months. Thank you. .
Rune Sandager: Hello, everyone, and welcome to GN's conference call in relation to our Q1 report announced yesterday evening. Participating in today's call is Group CEO, Peter Karlstromer; Group CFO, Soren Jelert; and myself, Rune Sandager, Head of Investor Relations. The presentation is expected to last about 20 minutes, after which we'll turn to the Q&A session. The presentation should already be uploaded on gn.com. And with that, I'm happy to hand over to Peter for some opening remarks. Peter Karlstromer: Thank you, Rune, and thanks to all of you for joining us today. Let's start with some highlights on the quarter. Our Enterprise business experienced strong growth in the U.S. and the APAC market, while EMEA continues to experience weak demand and some level of channel inventory reductions. We started shipment of our Evolve3 range at the beginning of March, and we have been very encouraged by where we've seen so far. During the quarter, we experienced significant growth in the premium segments of headsets. This is exciting as we will be launching further additions to the Evolve3 family later this year that will gradually support our growth in Enterprise. On the margin side, we have had a soft quarter as expected due to the annualization of tariffs and inventory provisions related to warehouse movement in the U.S. and certain channel investment to support the launch and rollout of the Evolve3 headset platform. In Gaming, we continue to gain market share in the gaming equipment market influenced by continued weak consumer sentiment. While Gaming also faced some of the same margin headwinds as Enterprise due to tariffs, we have managed to control it through positive ASP development coming from the price increases implemented last year as well as a continued good cost control. We have just launched an exciting addition to our gaming headset portfolio, the Nova Pro Omni category, which is expected to contribute with growth for '26. In addition, we still have a strong product pipeline in the coming quarters, and we look forward to even more exciting launches in '26. Moving to our Hearing division, that now is treated as discontinued operations due to the announced divestment to Amplifon March 16. While we prepare for the closing of the transaction, the Hearing division continues to perform well and in the quarter across regions and channels grew with the help of ReSound Vivia, driving continued market share gains, which led to an organic revenue growth of 9%. With this summary, let me provide you with some more details on the performance across our divisions. In Enterprise, the business continues to do well in the U.S. and APAC, but due to the continued weak demand and some channel inventory reductions in EMEA, we delivered a negative 5% growth in the quarter. The gross margin ended at 53.7% in the quarter, which was around 2 percentage points lower than last year due to the annualization of tariff costs as well as some temporary effects due to an inventory provision related to the U.S. warehouse movement. We expect the gross margin to stabilize in the coming quarters. The divisional profit margin reflects the development in gross margin as well as some higher channel investment into the Evolve3 launch and rollout. The launch of Evolve3 has been very well received and is progressing better than expected, driving significant growth in the premium segment of headset. This is encouraging and supports our growth ambitions for the year as we extend the Evolve3 family. Let's move to the next slide for a bit more detail on this. Within our premium headset category, where we have started the shipment of Evolve3 75 and 85 in March, we have experienced more than 50% growth year-over-year in Q1. This is, to some extent, driven by channel stocking of the new products, but the sell-through to resellers also showed strength in the segment, which is an encouraging sign of momentum. The premium category accounts for around 15% of the Enterprise revenue. Evolve3 did contribute to growth in Q1, and we expect the effect from the launch to grow stronger over the year as we launch more products. In Q3 and in particular, in Q4, we do expect to see a significant Evolve3 contributions to absolute revenue and thereby also growth. As for the channel reductions we experienced in EMEA in Q1, we expect them to continue in the next few quarters given the current geopolitical uncertainty and the desire for several distributors to reduce the inventories. To help you understand how we plan our year, we would like to tie all this together. As several of you know, we normally see a revenue seasonality between H1 and H2 of around 47% sales in H1 and 53% in H2. Due to the short-term channel reductions and the H2 benefit of the Evolve3 rollout, the revenue seasonality will likely be more pronounced this year, which we have factored into our guidance. Let's move to the next slide and take some further look into the dynamics we observe in the markets we operate in. On this slide, we're illustrating the different dynamics that have contributed to the top line development in Q1. Our sellout in North America and APAC continued to be very strong. This has also been supported by some market share gains, in particular in the U.S. The channel inventories are stable, both in North America and APAC. And for both regions, we delivered double-digit organic revenue growth in the quarter for our core Enterprise business. Our main challenge for Enterprise is EMEA that is also the largest region. In EMEA, we are experiencing a weak market demand due to the geopolitical uncertainty. We also lost some market shares in the region, which can be expected from time to time given our more than 60% market share position. The decline is mainly related to the entry-level price points of headsets where we have seen increased competition. We do expect to regain this share with the launch of Evolve3 when we're launching these products relatively soon. Lastly, we've also seen some channel inventory reductions as our distributors navigate the global uncertainty. These effects together have resulted in a double-digit organic revenue decline in the quarter for EMEA. We do expect the challenged market conditions in EMEA to continue for the next few quarters. We focus on successfully upgrading our portfolio by rolling out the Evolve3, and we do expect this will stabilize our growth as the year progresses. Let's move to the next slide for some highlights and performance in the Gaming division. In Gaming, we delivered a negative 1% organic revenue growth in the quarter on top of a very demanding comparison base of 11% growth last year. This was driven by strong execution in a relatively soft market suppressed by continued muted consumer sentiment. The growth was supported by a good momentum in the headset segment, while low-end keyboards and mice provided some growth headwinds. Region-wise, North America contributed positively, while the business was somewhat weaker in EMEA and APAC. The gross margin of 34% was negatively influenced by the annualization of tariff costs as well as the wind-down effects in Q1 of the consumer business. This was partly offset by a positive ASP development coming from the price increases introduced last year. The divisional profit margin developed positively to 11% compared to 10.4% in '25, despite the negative development in gross margin, reflecting a continued good cost control. Let's move to the next slide for some more information on the gaming launch. SteelSeries expands our premium category of gaming audio with the introduction of the Arctis Nova Pro Omni. This headset enhances overall experience for the modern gaming, providing the best circumstances for ultimate immersion with the best ANC in gaming and an AI noise rejection baked into the microphone for impressive background noise reduction. The ability to connect to 5 devices at once with real-time audio control and infinite battery life enables complete omnipresence while the sound experience is enhanced further with a Hi-Res Wireless Certification and custom Hi-Res magnetic drivers. Coming in a new refined compelling design, this is a truly step-up in the Nova Pro headset category. We're excited about this launch and do expect the Nova Pro Omni to meaningfully contribute to SteelSeries growth from Q2 and onwards. With these updates on the Enterprise and Gaming divisions, let's move to the next item on the agenda, where Soren will provide some more details on the Hearing transaction. Soren Jelert: Thank you, Peter. On March 16, we announced the divestment of our Hearing division to Amplifon. Let me give you an update across key aspects of the transaction and its value creation. The carve-out process is well underway, and we continue to expect the transaction to close towards the end of the year as previously communicated. The transaction proceeds comprise a cash payment and the shares in Amplifon. The shares are subject to the customary lock-up period. We are excited to create an industry-leading player with Amplifon by combining our strength. We are convinced that this transaction will contribute with significant value creation for GN and Amplifon shareholders. While we do not see ourselves as a very long-term shareholder in Amplifon, we give our new strategic -- given our new strategic direction, we will be patient and wait for the value to be realized before we responsibly and in a controlled way sell our shares. The carve-out will be taxable, and we expect an upfront tax payment of DKK 1.5 billion to DKK 2 billion. However, we will also get an equal sized tax asset that can be used for tax reductions over the coming years. To unlock shareholder value, we are committed to return excess cash to our shareholders. We are currently, in the short term, targeting a leverage of 1 to 1.5x EBITDA. Shortly after closing, we plan to initiate a share buyback program. To avoid any doubt, we also like to be clear that we are not planning to do any large-scale acquisitions. So the excess cash at closing and additional cash when we exit our Amplifon shareholding is expected to be returned to our shareholders. Moreover, to address stranded costs and to set up GN for financial success, we are initiating cost initiatives to be executed during '26 that would deliver around DKK 200 million in structural cost savings. To separate Hearing and to adjust our cost base, we estimate total one-off cash costs of DKK 750 million across '26 and '27, of which around 75% is expected this year. Related to the separation and to the setup of GN for the future, we have also, in Q1, executed a number of noncash impairments. On the next couple of slides, I'll provide you with some additional details around some of these initiatives driven by the transaction. Let me first start by framing the size of the initial cash we will have available for distribution. With the cash proceeds from the transaction, net of tax, we will have an excess cash position. On top of this, we will drive a healthy operating cash flow in '27, which will further add to the positive cash position. In order to reach a leverage target of 1 to 1.5x by the end of '27, this would imply a quite meaningful excess cash holding somewhere between DKK 3.5 billion and DKK 4.5 billion, depending on the EBITDA of the business and the leverage target. As an overall planning assumption, you should expect the significant majority of this excess cash to be distributed back to our shareholders. As we mentioned, we are currently planning to initiate a share buyback program after closing of the transaction. Until the AGM in '27, we are authorized by our shareholders to hold up to a 10% treasury shares. We are currently holding 3.5% shares, so we can buy back around 6.5% shares, which equals to roughly 10 million shares. At the AGM in '27, we will then propose a cancellation of any excess shares and ask for a new authorization, which would allow us to continue to significant shareholder distribution. In addition, we also expect to reinstate yearly dividends. In the years to come, we will also have a few attractive financial assets that can be sold over time, which could drive even more shareholder distribution. We hope that this framework will help you to understand our priorities. We will come back with more details about our capital allocation priorities at our upcoming Capital Markets Day, which will also allow us to discuss the framework with our investors. Slide 14. We are focused on driving GN towards sustainable profitable growth. Let's talk about where we are and the steps we are taking in the near term. All margin numbers on this slide refer to the new GN without our hearing business. If we start with where we are coming from, in '25, our restated EBITA margin is 7.6%, which includes DKK 200 million in stranded costs as part of the transaction. While we in '26, will have limited operating leverage due to the low growth from our challenged markets, we still expect to drive a margin expansion from cost focus and also from lower average tariff exposure than we had in 2025. We'll also benefit from some of the balance sheet adjustments, which we announced today. This will, in total, lead us to an EBITA margin of 8% to 9% for the year. The effect from the cost initiatives of around DKK 200 million will further support our underlying margins with around 2% in '27. With the help of these steps, you will derive at an underlying EBITA margin of 10% to 11%. This margin level then serves as the structural margin level, which we will further improve in the years to come. We will share more of our plans around this at our upcoming Capital Market Day, which we plan for towards the end of the year. At this event, we will explain our plans for how to accelerate growth and drive margin expansion beyond where we are now, thanks to attractive markets, customer-centric innovation, selective investments and strong execution. Next slide, please. As a natural consequence of the transaction, we will be having some one-off costs related to the transaction. We estimate a total of one-off cost of DKK 750 million, of which 75% is expected to be incurred in '26. The one-off costs comprise of costs directly related to the transactions such as adviser and consultant fees, legal costs and the likes. To complete the carve-out, we will have costs for advisers, legal support, IT consultants and costs related to contract separations. As we communicated today, we will also have costs for rightsizing of the business, which mainly will serve the severance costs. As for 2026, one-off cash costs, you should assume that most of these will be in the discontinued operations as these are costs necessary to drive the carve-out, while the rightsizing costs will be sitting in the continued operations. In total, this means that roughly 70% of the one-off cash costs in '26 will be related to the discontinued operations. Finally, we have done some asset impairments across IT, R&D and facilities. The majority of these is related to a large ERP project within our Hearing division that is not part of the transaction perimeter, and we are therefore subject to an impairment to the asset. The impairments are noncash by nature and is incurred in the first half of 2026. With that overview of the status and impact of the transaction, let's move to the group numbers and the related guidance. As a consequence of the transaction, our Hearing division is now treated as discontinued operations. So from now on, we will focus on the performance of the continuing operations in GN, which comprise of our Enterprise division, Gaming division and group functions that are not part of the transaction perimeter. In Q1 of '26, the continuing business delivered organic revenue growth of minus 4% due to the challenges in the EMEA part of our Enterprise division. The gross margin ended at 48.2%, reflecting gross margin development in Enterprise, as Peter mentioned earlier. However, we do expect our more normal gross margin in Enterprise already from Q2, and we will likely also see further improvements in gaming. The adjusted EBITA ended at DKK 6 million, equal to a margin of 0% compared to 6% in Q1 of 2025, driven by the development in the gross margin as well as negative operating leverage. The cash flow development in the quarter is including the discontinued operations. In Q1 of '26, GN delivered a free cash flow, excluding M&A of negative DKK 45 million, driven by seasonality, but offset by well-managed working capital. The net interest-bearing debt ended at DKK 8.9 billion, corresponding to an adjusted leverage of 3.8x EBITDA. Let's move to the next slide for our group financial guidance for the year. First, I would like to say that we are now reintroducing our guidance on EBITA margin, which was suspended when we announced the divestment of the Hearing division to Amplifon. As mentioned earlier, we are now guiding for a full year '26 adjusted EBITA margin for continuing operations of 8% to 9%. The benefits of the DKK 200 million cost savings would then come on top of this number and will be visible from 2027. Our guidance on organic revenue growth is a result of assumptions from our 2 divisions. The performance of our Gaming business in Q1 has been fully in line with our plans for the year, while we are confirming our early applied assumptions, which were an organic revenue growth contribution of 7% to 13% for the Gaming division. As Peter mentioned earlier, the demand in EMEA and Enterprise has been weak in the first quarter, and we are now taking a more cautious perspective to the underlying market development in EMEA. Consequently, we are now assuming a modest declining global Enterprise market for the year. However, due to the early feedback around Evolve3, we remain confident in our ability to drive market share gains for the year, while we are assuming Enterprise to contribute with organic revenue growth of minus 3% to plus 3%. As a function of the divisional assumptions across Gaming and Enterprise, we, therefore, are updating our organic revenue growth guidance to 0% to 6%. And with that, I'm happy to hand you back to Rune. Rune Sandager: Thank you, Peter and Soren for the updates. That was the end of the presentation. I will hand over to the operator for the Q&A. Please limit yourself to 2 questions at a time, please. Operator: Your first question comes from Veronika Dubajova with Citi. Veronika Dubajova: I have 2, please. One, I just would love to understand what gives you the confidence in that improving growth outlook in Enterprise. And I guess maybe you can kind of touch upon, one, what gives you confidence in the growth improving, but two, also what gives you confidence in the improving margins? I know you've not given an Enterprise guidance, excuse me, but obviously, that, I think, was the piece that the market was most disappointed this morning. And then I have a quick follow-up after that, but maybe we can start there. Peter Karlstromer: Thank you so much. I think it's fair to say that we are a bit behind what we expected here in Q1, and that's also why we're making some adjustment, of course, to the outlook. But I think what remains the same is that we always believed in a much stronger second half of the year than early half of the year. And this is solely due to the Evolve3 product launches. We have now launched the first products in late Q1, and we shared some of the initial encouraging effect of this where we see a very healthy growth. And when we say growth, we're then looking on the segment as total, so the old product and the new products together, how do we perform now vis-a-vis a year ago. We do expect to see similar effects as we're launching products in the medium and the entry-level segments of the market. And this is also where the majority of our Enterprise business is sitting. So this is essentially why we are believing in a much stronger second half of the year. So this will help us then to improve the momentum, in particular, in Q3 and Q4 compared to what you see here in the beginning of the year. Then when it comes to the margins, we had some one-off effects in this quarter, and we highlighted them here in the intro. And there is something related to the tariffs first where, of course, we didn't have tariffs in the beginning of last year. And then the other one is this movement of the warehouse, which is also a one-time effect where we're taking some kind of provisions related to that. So we do expect the gross margins to bounce back already in Q2, and you should see them on more, what you say, levels that you have got used to throughout the rest of the year. And then I would say, of course, also if you look more on the divisional margins and on the group margins, they will, of course, be supported by the growth as well. So this is our thinking around it. Veronika Dubajova: And that was actually going to be my follow-up. Can you quantify the warehouse provision for us or the impact that it had on the gross margin this quarter? Soren Jelert: Veronika, the warehousing is around 1% in terms of the implications in this first quarter. And then, of course, you have the tariff also that is also -- bear in mind that the tariff is sitting on the balance sheet. So whatever was the improvement in the tariff in the quarter 1, you won't see that until a little further down the line once we start to pick the product from the balance sheet. So that's also why we are confident in that it will actually improve our underlying margins because Q1 is mostly, of course, linked to the old tariff that we saw during last year. Operator: Your next question comes from Carsten Madsen with Danske Bank. Carsten Madsen: A question to Enterprise and the comments you have about North America, where you say strong growth, but your segment breakdown points to a decline in Danish kroner of 8.5%, the dollar is down 10%. So I guess you have something like a 1.5% growth in North America for Enterprise. I don't think that is strong or am I missing something here? And secondly, the EBITA margin of 10% to 11% for 2027, what level of amortizations are you expecting that year? Because I have a little bit difficult stripping out all the balance sheet impairments today and estimating the impact on future amortizations from these. Yes. Peter Karlstromer: So thanks a lot for the question. Let me start. I think the comment I made in the intro was mostly the Enterprise core. It's essentially the core Enterprise headsets. As you probably recall, we also in Enterprise, the way we report, have BlueParrott as well as FalCom. If you look in North America, there was not any real impact of FalCom in any way. But BlueParrott had a very good quarter last year and a weaker quarter this year. So that is essentially putting some negative effect. So if you filter that out, actually, the growth we saw in the core enterprise was a very solid growth in North America. So hopefully, that helps understand. Just one more comment related to this to help you all. I mean, I think that some of you probably will also reflect and we did have some FalCom business in the quarter. So to some extent that, that positively contributed to the overall Enterprise numbers. But as I mentioned, we also had a bit of a negative contribution from the BlueParrott. So they more or less netting each other out, so to say, if you look on the global Enterprise numbers. But in North America, it's a BlueParrott negative effect. Carsten Madsen: Okay. Soren Jelert: Then to the impact of the amortizations, I mean, the majority of it, given that we already do it now, you see the positive effect of that this year, and that's baked in. Of course, as it's also a full year and part of the portfolio also is depending on it, there is a little step up next year, but the majority is this year. Carsten Madsen: But can you help us understand what the EBITDA margin guide would have been for '27 without these impairments? Soren Jelert: Yes, fair. I think approximately, it's 1% that it's -- that's the tailwind we can have from these amortizations this year. And we'll have the same next year, essentially because it will continue over multiple years. Operator: Your next question comes from Andjela Bozinovic with BNPP. Andjela Bozinovic: This is Andjela. The first one is just on Enterprise. I'm interested to hear your thoughts on the phasing of the growth for the rest of the year, especially because on Slide 7, you signaled that Evolve3 portfolio should contribute less to group growth than in Q1. And as far as I remember, you only launched Evolve in March. So just curious why should we assume less of contribution in Q2? And the second question is more like a follow-up to Veronika's question on profitability. So with the adjusted EBITDA margin of 0.3% in the quarter, just -- can you help us break down the improvement assumed for 2026 and 2027? I understand that the provision is 1 percentage point, but what else should drive the improvement from here? Peter Karlstromer: Okay. Thank you so much. Let me start with the phasing. I think that these are the base assumption. It might vary a bit. So I don't think we can read into the very details of this. But we -- I think it's back to how we launched the product. So in Q1, we launched the Evolve3 85 and 75, the premium products. Then when you launch, you're getting the initial channel stocking, which is essentially all channels are filling up the products. And then if you look on Q2, you will not have that initial stocking effect. So it's more like a replenishment of what being sold out. So it's still a very healthy contribution, but we do expect it to be slightly less than in Q1. And then why it's picking up again in Q3 and Q4 is because then we are launching more d Evolve3 products into the mid- and lower-tier segments of Enterprise. Soren Jelert: And when it comes to the buildup on the margins that, of course, was muted here in quarter 1, I think a couple of things. Of course, we do have the impairments, and that's probably an easier one, right? That's a 1%. But in general terms, the business we have left in GN has a higher share of the profitability and a higher share of also the sales in a normal year in the subsequent 3 quarters and especially in the second half of the year. So you should always expect us to earn a larger part of our earnings and also through that, have a better leverage in the second half of the year that should drive up towards the 8% to 9% in margin. So it is top line driven, but it's also a fact that we generally earn more the way our company is the seasonality in the company. And then in addition to what we then land this year, you should think of it as the 2 percentage points, they come on top of the landing of this year in terms of us addressing the stranded costs this year, but the benefit of addressing it will deploy next year and give the 2% margin uplift. Andjela Bozinovic: Just a follow-up on the first one. So basically, you assume that Enterprise will decelerate into Q2. Is that a fair assumption? Peter Karlstromer: If we look on the Enterprise core, we do think it will be relatively similar. So don't expect a significant effect in any way. If you look at Enterprise in totality, what we need to factor in then is also the FalCom business where we had a very large order last year. So if you include FalCom, we probably could see some pressure on the number from that year-over-year comparison. We do expect we will have a good year on FalCom, but it will come more towards the end of the year. So we have talked about that before. It's a little bit, of course, lumpy in the way this business is delivered. So hopefully, that helps you to think about Q2 in the right way. Operator: Your next question comes from Niels Granholm-Leth with DNB Carnegie. Niels Granholm-Leth: My first question is on your expected tax going forward. So you're talking about this tax reduction for the coming years. So would that be fully lifted in your tax in '27 and onwards? Or should we still assume 23% tax rate in your P&L? And secondly, could you just update us on the situation about nation's benefits and to what extent there is a sale process ongoing for this asset? Soren Jelert: Niels, on the tax, our base assumption is that the tax we are paying will approximately stay at the same level, but we'll, of course, get back to you if we get different clarity on that. So that would be our working assumption based on how we calculate today in the P&L, of course. And then in terms of paid cash tax is, of course, reduced as we will be able to take advantage of the tax assets we are having. Peter Karlstromer: On nations, I think no real update on any imminent sales process. The underlying business continues to develop well, and we will act together in coordination with other major shareholder when the time is right, but no real further info at this time. Operator: Your next question comes from Martin Parkhoi with SEB. Martin Parkhoi: Martin Parkhoi, SEB. Just also two questions. First on the guidance, 2 questions. Firstly, maybe just around for both. If we look at the guided interval in the old year, you had an interval range of 2 percentage points. Now you put a very narrow guidance range on the EBITDA margin of 8% to 9% in a business where your ability to forecast the development in the last couple of years has been difficult. So can you be so confident in such a strong guidance range on the EBITDA margin and also on the guidance side, maybe that's for Peter. On Enterprise, it is a little bit confusion on the commentary as also Carsten alluded to that you make the commentary on the headset business and then afterwards, we talk about, yes, BlueParrott was a little bit high last year. So can you maybe say that on the minus 3% to plus 3% Enterprise growth, what's the assumption for the core Enterprise headset business on that side? And then just as now you have revealed some details on hearing still with a very good quarter of 9% organic growth. What drove that acceleration? And have you seen your share to Amplifon increase in the quarter? Soren Jelert: Martin, basically, on the guidance for the year of us being more precise, I think we are having the insights now. We are now further into the year. And we also believe that now our outlook is more firmed up of how we see the cost patterns also pan out and also how we see the overall landscape of the top line. So it is a function of that we are closer through the year essentially, and that makes us more confident in the 8% to 9%. Peter Karlstromer: Okay. And when it comes to the BlueParrott and FalCom, for the year, we do expect similar sales this year for both as we had last year. So there is not a real effect from them on the Enterprise growth, so to say. So for the core Enterprise is the same as the guidance we have given. The comments are more because in individual quarter, there could be effects. So we're more making these comments to try to help you understand the business in that way. And then if you look on the Hearing business, I mean, yes, thank you. We had another very good quarter in Hearing. It was a broad-based growth across the 3 regions. I mean I don't want to go and comment specifically on the Amplifon business as we would not I can confirm that we still have no customers that are, I mean, 10% or higher, and that's also true in this quarter. So I would say it's been a broad-based growth across regions and channel types. Operator: Your next question comes from Susannah Ludwig with Bernstein. Susannah Ludwig: Mine is a more long-term question on the Enterprise market. So we're heading into what looks like the potential fourth year of negative growth in that business, which will now be the majority of the group's revenue following the hearing sale. Could you update us on your thoughts on midterm growth in this market? And I guess in conjunction with that, previously, you've talked about a 3-year replacement cycle. Is this still the replacement cycle that you're seeing? Or is this lengthening? Peter Karlstromer: Thank you. And we appreciate it's been a long adjustment period here after the strong COVID growth. I mean taking a step back, I mean, we very much still believe in the attractiveness of the Enterprise market. And then when we're saying that we are taking, of course, a longer-term horizon on this. If we look on the strength of the market, I think it's encouraging to see what we see in North America and APAC. The market here has actually been in growth for the, I mean, 6 quarters now in a row. What has, to some extent, surprised us is the continued weakness in the EMEA market. And it has had a period of encouraging signs of improvements and coming back to growth and then setbacks. And we have some level of setback now also, likely driven by the more macroeconomic uncertainty driven about the unrest in Middle East and so on. The indirect effects of that seems to be that there are many companies across Europe, which have tightened spending and it's affecting us also. So in terms of the long-term belief in the market, I don't think anything has changed. We are working now to develop a new kind of mid-range plan and with detailed targets and so, which we intend to share with you at our Capital Markets Day here towards the end of the year. But the attractiveness in the market, we still think it's very much there. And then in terms of your question on replacement cycles, I mean, on average, we still assess them to be around 3 years, and then the periods can be slightly longer or slightly shorter. But if you look like over some period of time, that is still our best assessment of it. I will say though also that this year is likely one of the years in a long time where we will launch most products, and we started now in the beginning of the year, and we will launch many more products throughout the year. So I do think that our guidance, you should factor in that there is, of course, a market element of it, but also what's in our control in terms of launching strong products and having good launch processes is quite a lot of what's in the guidance as well. So we're coming back to this that as we're launching more products this year, we do also believe that will support the Enterprise business very well. Susannah Ludwig: Okay. Great. And just quickly on the replacement cycle, is that the same across sort of different categories, call center, sort of office workers and frontline workers? Peter Karlstromer: It actually varies a bit across them, as you say. call center tend to be slightly less and office workers slightly longer. But given that we have the majority of the business with office worker, we're trying to weigh it, see it as a blended average. So that is around these 3 years. Operator: Your next question comes from Andjela Bozinovic with BNPP. Andjela Bozinovic: I just wanted to ask on the conflict in the Middle East and if you're seeing anything in terms of inflation, increased transport costs or raw material and especially considering you're in the launch phase in Gaming and Enterprise and you need to ship these products from Asia to North America and EMEA market. Is any of this impact reflected in the new guidance? Peter Karlstromer: Thank you so much. I would say that both direct and indirect effects from the Middle East and rest. The direct effects on us includes things you mentioned, like logistic costs are slightly elevated. You need to find new shipment routes and also, in particular, around launches, we have been using a bit more flights for transportation of the products -- so that has some impact. That is factored into the guidance. The indirect effect, we actually think is the larger ones, which we think is one of the key contributors to we see -- the weakness we see now in EMEA, which is also factored into the guidance as we have shared with you today. So everything is in the guidance, but we do expect this actually holding back the business quite a bit, mostly on the EMEA side. The direct margin impacts, I think, are quite manageable for us. So that is not anything significant. Operator: Your next question comes from Julien Ouaddour with Bank of America. Julien Ouaddour: I hope that you can hear me okay. I have one which is just like a clarification on Enterprise. So if I'm correct, you said the core Enterprise roughly down 5% again in Q2. Then we take the 5% comes from FalCom, so roughly Enterprise down 10%. So first of all, is it correct? And can you just help me to bridge the H1 performance in Enterprise to the full year guidance, especially to the upper end of this guidance? And maybe just a quick follow-up on margin. I expect that this could have a pretty negative impact on margin next quarter. So could you also help us to understand the magnitude of it and the kind of margin we should expect from this business? Soren Jelert: It was a little difficult to hear you in the end. Could you please repeat the margin question, please? Julien Ouaddour: Yes. No, on the margin side, just when the top line declined potentially by 10%, I assume some like operating leverage. So any comments about the margin at the divisional level or just like the EBITDA margin impact that we could expect from this like low growth will be -- would be helpful. Any comments? Soren Jelert: I think when it comes to the margin, we are anticipating, as we also said, that the gross profit will improve already from quarter 2, actually. And as such, it's more down to the absolute value. When you look into the growth rates, bear in mind the comparators of last year, that's, of course, important. And coming into quarter 2, as also Peter spoke to, we had a FalCom order, large order that was in quarter 2. So essentially, that will give some pressure on the growth rates for quarter 2. But from a margin -- gross margin standpoint, there, we expect the uplift to be seen already from quarter 2 and onwards. Peter Karlstromer: I can also clarify, I think you -- if I understood the first question right here, also the growth in the quarter. I mean, we had a bit of a positive effect from FalCom and a bit of a negative effect from BlueParrott. So the core Enterprise growth, I think, is very close to the reported growth for Enterprise. Operator: Your next question comes from Veronika Dubajova with Citi. Veronika Dubajova: I just want to ask a couple of technical questions around the new structure and just how we should be thinking about the next steps. Just the timing of buybacks, are you willing to do buybacks before the deal closes? Or are we waiting for the deal to close? And I guess, would you want to wait for authorization to do a bigger buyback? Or would you be happy to use the 6.5% before we get there? If you can talk to that, that would be helpful. And then just a very technical one, apologies. But from a covenant perspective, anything that we need to be aware of until the deal closes or effectively, the debt is fine even as the leverage is kind of changing optically at least in the deconsolidation process? Soren Jelert: In terms of the buybacks, what we have said today, and also stands, is that we will wait until we have closed essentially and then go for the buybacks. As I also said in my intro that we have the 6.5% left in our -- the permit we have basically to the 10%, and that's where we will go first. So that's at least on the buyback side. And then the other question was on -- on the covenants, yes, we -- of course, yes, covenants, we are in a good balance there and also have commitments from our banks in terms of this process. So that is in good control. Operator: That does conclude our question-and-answer session. I will now hand back to the company for closing remarks. Rune Sandager: Thank you very much, operator, and thank you, everybody, for joining on the call.
Operator: Greetings, and welcome to the KORU Medical Systems First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Louisa Smith from Investor Relations. Louisa Smith: Thank you, operator, and good afternoon, everyone. Joining me on the call today are Linda Tharby, Chief Executive Officer of KORU Medical Systems; Adam Kalbermatten, President and Chief Commercial Officer; and Tom Adams, Chief Financial Officer. Earlier today, KORU released financial results for the first quarter ended March 31, 2026. A copy of the press release is available on the company's website. I encourage listeners to have our press release in front of them, which includes our financial results and commentary on the quarter. Additionally, we will use slides to support further commentary in today's call, which are also available on the Investor Relations section of our website. During this call, we may make certain forward-looking statements regarding our business plans and other matters. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to risks and uncertainties, including those mentioned in the associated press release and our most recent filings with the SEC. We assume no obligation to update any forward-looking statements. During the call, management will also discuss certain non-GAAP financial measures. You will find additional disclosures, including reconciliations of these non-GAAP measures with comparable GAAP measures, in our press release, the accompanying investor presentation, and SEC filings. For the benefit of those listening to the replay, this call was held and recorded on Wednesday, May 6th, 2026, at approximately 4:30 p.m. Eastern Time. Since then, the company may have made additional comments related to the topics discussed. I'd now like to turn the call over to Linda Tharby, Chief Executive Officer. Linda, please go ahead. Linda Tharby: Thank you, Louisa, and good afternoon, everyone. Before we get into the quarter, I want to briefly acknowledge that this will be my final earnings call as CEO. As we shared last quarter, Adam has been appointed as my successor and will step into the role on July 1st. The transition is well underway and is progressing extremely well. I have great confidence in Adam's leadership and in the continued momentum of the business under his direction. I'll begin today with some commentary on our performance highlights in the quarter, and then Adam will step in to speak about our broader strategy. Tom will then walk through our financial results before we open the call for questions. Q1 2026 was a record start to the year. We delivered $11.8 million in revenue, representing 22% growth over the prior year period. This reflects the strength and consistency of a recurring revenue model business built on the foundation of approximately 60,000 patients on the KORU platform. A few highlights. Domestic core grew 12% year-over-year, driven by new patient diagnosis starts in both legacy KORU accounts as well as competitive conversions, driving outperformance within a strong underlying SCIg market. International core grew 35%, driven by prefilled syringe conversions in Europe and strong distributor orders in a new market to support this growth. Within our non-Ig pipeline, two of our existing pharma collaborations advanced assets within their Phase III clinical trials, including one for an expanded indication and the other restarting their trials for a new drug application. We executed to plan in submitting our 510(k) application for the use of the Freedom Infusion System with deferoxamine, reflecting further tangible progress in our growing commitment to expand beyond Ig. From a balance sheet perspective, we used only $100,000 in cash this quarter, ending the period with $8.8 million in cash, reflecting our continued progress towards sustainable profitability. We are reiterating our full-year 2026 guidance for revenue, gross margins, adjusted EBITDA, and cash flow. Overall, this was a very good quarter, delivering strong revenue growth and continued execution against our strategic priorities. And now I am pleased to turn it over to Adam. Adam Kalbermatten: Thank you, Linda. I'm encouraged by what lies ahead for KORU. Before I discuss our strategy more broadly, I'd like to take a moment to reflect on how our recent performance fits into the three-pillar strategy, protecting and growing our domestic core business, international expansion, and enabling more patients by adding more drugs to our Freedom Infusion System. The three strategic pillars we've been executing against are all moving in the right direction, and they remain central to our focus as I step into my role as CEO. The first pillar is protecting and growing our domestic core business. Our U.S. business continues to outperform the underlying SCIg market, driven by capture of new patient diagnosis starts in both legacy KORU accounts as well as competitive account conversion and further supported by a strong recurring revenue base serving chronic immunodeficient patients. Regarding the recent clearance for RYSTIGGO on KORU's label, our commercial rollout with this asset is advancing as planned. We are working through clinical evaluations with specialty pharma companies, and we expect the incremental revenue contribution from RYSTIGGO this year to be modest. Most importantly, however, this rollout represents meaningful progress as an entry point into the ambulatory infusion clinic channel and marks an important expansion of our platform beyond the home setting as RYSTIGGO is administered across both home and ambulatory infusion clinic environments. We believe this positions us well for increasingly meaningful contributions in this channel in the years ahead. We also want to highlight secondary immunodeficiency or SID as an important emerging opportunity for KORU. Outside the U.S., SID has already become a key priority for major pharma players, and there has been increasing focus on Ig manufacturers translating that success in the U.S. market with several ongoing pivotal trials expected to reach their endpoints in 2027. Should reimbursement coverage expand in this area domestically, it could meaningfully broaden our addressable opportunity in SCIg with another indication. In terms of current market dynamics, the SID market growth has been tracking ahead of the broader SCIg market, with growth currently being driven primarily by immunologists. However, we anticipate that as the clinical trials conclude, SCIg manufacturers will begin actively marketing to hematologists and oncologists who recognize the unmet need for patients following courses of treatment with immunosuppressive drugs like chemotherapy and ultimately opening up an entirely new and incremental patient population that we believe KORU is well positioned to serve. The second pillar is international expansion, and this remains one of the most exciting areas of our business. Today, our international growth has been led by SCIg, but consistent with our domestic strategy, we are establishing a footprint designed to support an extension into non-Ig drugs over time. In the first quarter, we delivered 35% international growth, and we believe we are still in the early stages of a much larger long-term opportunity. With key EU markets coming online in 2026 through the pharmaceutical manufacturer-driven vial to prefilled syringe conversions, there is significant runway for continued market penetration. Our growth rates in these markets will continue to be variable as we continue to deepen our knowledge and expand our capabilities across reimbursement, pharmaceutical and home care partnerships. Beyond this core SCIg opportunity, we are also actively exploring the expansion of our oncology initiative into international markets, an area we view as a longer-term growth driver for the company and one for which we already have compelling market insight given some of our early hospital work on the KORU value proposition, including last year's Denmark nursing study. The third pillar is enabling more drugs to reach more patients. Our pipeline continues to advance meaningfully with new drug submissions, Phase III trials with the KORU Freedom Infusion System and multiple new feasibility agreements. We are engaged in active conversations with partners across multiple therapeutic areas, conversations that we believe will translate into tangible opportunities for KORU in the years ahead. Turning to the pipeline. We now have eight active non-Ig drug opportunities in development, which together represent more than 6 million annual infusions worldwide, a meaningful reflection of the breadth and scale of what we are building. To put that in context, 6 million incremental annual infusions would represent approximately double our current SCIg business revenue, where we estimate we are enabling the delivery of nearly 3 million infusions a year, underscoring the significant long-term growth potential embedded in our pipeline. I want to highlight two important updates this quarter. As Linda noted earlier, two of our existing non-Ig pharmaceutical collaborations have advanced to Phase III clinical trials, and we remain an infusion device supplier for those trials. Apellis continues to invest resources in adding new clinical indications for Empaveli, having progressed into Phase III trials for the drug's fourth indication, this one in DGF or delayed graft function. We estimate this unmet need within nephrology represents an additional 25,000 annual infusions across the pediatric patient base. And second, one of our undisclosed pharmaceutical partners has reinitiated Phase III clinical trials on one of its assets, for which we believe the opportunity to be 500,000 annual infusions. The progression of both of these drugs in their clinical pipelines represents meaningful signals of forward momentum across our development portfolio and another step forward in potentially recognizing commercial revenue opportunity upon these drugs' commercial launches. Additionally, we submitted our 510(k) application this quarter for use of the Freedom Infusion System with deferoxamine, for which we estimate that there are approximately 200,000 annual infusions of this drug, another base hit for our non-Ig strategy. We also made the decision this quarter to remove vancomycin from our active development pipeline. As we reviewed the market opportunity, the current usage we are already seeing and the risk of an infusion to the central artery, we chose to commit our resources to align to our greatest commercial opportunities. The incremental 2026 revenue associated with vancomycin was expected to be modest, and we remain confident that our current guidance still accurately reflects the strength and trajectory of the business going forward. Turning to oncology specifically. We continue to have highly constructive discussions with pharmaceutical partners on a range of oncology assets and the opportunity ahead remains strong. We are in active communication with the FDA regarding our Phesgo submission, and we are also in early discussions around an additional high-volume oncology asset that we believe could be significant for us. We look forward to providing further updates as these discussions progress. The momentum building across our domestic business, international expansion and pipeline reflects progress on our three-pillar strategy. Each pillar is advancing and the compounding effect of that execution is what drives durable long-term value creation. We remain focused on maintaining that discipline as we move into the next phase of KORU's growth. I'll now turn things over to Tom for a review of our quarterly financial results and 2026 outlook. Tom Adams: Thanks, Adam, and good afternoon, everyone. We are very pleased with another strong quarter with revenue of $11.8 million, which represents 22% year-over-year growth and speaks to the underlying strength of the business. Breaking down by segment, domestic core grew 12% year-over-year. Growth was driven by higher consumable volumes from new patient starts and market share gains within new and existing accounts against the healthy SCIg market backdrop. International core grew 35% year-over-year, driven by higher pumps and consumables volumes in support of prefilled syringe conversions in the EU market. We saw strong first quarter distributor orders from one of our new 50 ml prefill markets, where we saw a bolus of pump orders for new patient starts and moving forward, we'll expect to see end user pull-through of our consumables. We remain highly encouraged by the opportunity ahead of us in the EU. PST revenues grew 166% over the prior year period, driven by higher clinical trial product revenues from our pharma collaborations who are advancing in their clinical trials. As always, this business will remain variable based on milestone and clinical trial timing, but the underlying activity level with pharmaceutical companies remains high. On gross margin, we delivered 61.5% for the quarter to 62.8% in the prior year period, a 130-basis points reduction year-over-year. The primary drivers of the decrease were higher production costs based on timing of production runs at the end of 2025 that were amortized in Q1 as well as tariff-related charges that did not occur in the prior period. These were partially offset by favorable geographic sales mix. Adjusting for the 87-basis point tariff impact, gross margins for the quarter would have been 62.4%. Despite the tariff headwinds in the quarter, we remain confident in our full year guidance range of 61% to 63%. Turning to cash. We ended the quarter with $8.8 million, reflecting minimal cash usage of $100,000 in the quarter. This was driven by 22% revenue growth and continued operating leverage. On a cash flow from operations basis, Q1 was essentially breakeven, a strong result given the normal seasonality patterns of the business. As we've noted before, Q2 is expected to be our heaviest cash usage quarter for the year, driven by the annual one-time cash outlay for last year's performance bonuses paid in April. We expect positive cash flow in the back half of the year as revenue ramps and planned operating leverage builds. Based on these dynamics, our full year guidance of positive cash flow remains intact. And as a reminder, we also have access to our unused $10 million debt facility, which provides additional financial flexibility for incremental opportunities as we execute against our growth plan. Looking at the full picture for Q1, revenue grew 22%, gross margin was 61.5% and net losses improved 33% to $800,000 and adjusted EBITDA was minus $10,000, essentially breakeven and a 95% improvement versus the prior year period. Operating expenses increased 11% versus the prior year. We continue to invest strategically in sales and marketing and R&D to support growth while maintaining spending discipline across the business to drive operational leverage. On guidance, we are reiterating our full year 2026 outlook with revenue of $47.5 million to $50 million, representing growth of 15% to 22%, gross margin of 61% to 63% and positive adjusted EBITDA and positive cash flow for the full year. Growth momentum in the business continued to advance in the quarter. We are maintaining the current range with the guidance we provided in March. Our Q1 results were benefited from strong PST revenues associated with clinical trial orders. We are also watching how dynamics related to how end user adoption develops behind the strong distributor orders we saw in Q1 in our prefill markets. Let me walk through each component in further detail. On revenue, the primary growth drivers are continued U.S. and international share gains in SCIg, NRE and clinical trial revenue from ongoing and new collaborations and modest incremental revenue from pending 510 clearances. We continue to expect these drivers to build through the year, taking into account some upticks in initial orders. We expect the back half to be weighted more heavily as recent clearances and new prefilled geographies ramp up and patients are added. We have also incorporated geopolitical risk associated with the Middle East in our guidance. We continue to expect revenues to ramp in the second half. On gross margin, we are maintaining our full year range of 61% to 63%. We expect pricing and manufacturing efficiencies to support our range through revenue mix variability in new markets and channels could move margin modestly in either direction quarter-to-quarter. We continue to be active and are making progress with cost improvement initiatives through our operational excellence programs to drive margins higher. On cash, we were disciplined in our usage this quarter. Q2 is expected to be our heaviest usage quarter from our annual one-time prior-year bonus payouts. And moving into the second half, we see operating leverage building through the year with a positive cash flow anticipated in the second half. I'll now turn the call back over to Adam for additional comments on our forward momentum. Adam? Adam Kalbermatten: Thanks, Tom. I want to take a few minutes to talk about what lies ahead. On the domestic side, we now have two new non-Ig drugs on label. RYSTIGGO was cleared earlier this year in January in addition to the earlier Empaveli in the U.S., Aspaveli in the EU approvals starting in 2022, which are now generating broader patient indications. Our oncology opportunity continues to advance. Our Phesgo 510(k) is currently under active FDA review, and we are also in productive discussions related to another high-volume oncology asset. On the international side, we achieved EU MDR clearance of our Freedom60 with prefilled syringe compatibility earlier this year and are supporting the EU conversion. We are also actively exploring the expansion of our oncology opportunity into international markets. Alongside our pipeline and market expansion work, we continue to invest in the next generation of the Freedom platform. We plan to submit a 510(k) and MDR applications for the next-generation Freedom60 pump in 2026, and we are targeting the submission for the flow controller in late '26 or early 2027. The pharmaceutical pipeline remains strong. We have four new collaborations targeted for this year, two of which have already been in signed. Two existing collaborations have advanced to Phase III clinical trials. And with the deferoxamine 510(k) submitted this quarter, we are steadily building towards a diversified platform spanning multiple therapeutic areas, one that we believe will define the next chapter of recurring revenue growth for KORU. I want to close with a broader framing of where we are going because I believe the best is genuinely ahead of us. The foundation we have built is differentiated and durable, a growing recurring patient base, a patient-preferred delivery system, deep and expanding pharma partnerships and a platform purpose built to support multiple drug categories across multiple therapeutic areas. That foundation positions KORU for something meaningfully larger than where we are today. Our long-term targets are clear, and we are executing toward them with discipline, $100 million in revenue, accelerated double-digit revenue growth, gross margins above 65% and EBITDA margins of 20% or greater. Achieving those targets requires continued focus on three things, growing our domestic market share, expanding internationally as we help to enable the pharmaceutical manufacturer vial to prefilled syringe market conversion and adding more drugs on our label. We know what we need to do, and we are doing it. The first quarter results are a tangible demonstration that we are on the right path. The pipeline is advancing. The platform is expanding, and the team is executing against the strategy in an exceptional way. As I step into the role of CEO, I do so with a deep sense of responsibility and an equally deep sense of confidence in what this capable company is able to achieve. KORU's most significant chapter of growth is ahead of us, and I cannot be more energized about what that means coming next. With that, I'll turn it back to Linda for closing remarks. Linda Tharby: Thank you, Adam. Q1 sets the tone for 2026, underscoring the results we've been working hard to deliver and is a reflection of how far this organization has come. As I step back from my role at KORU, I leave with real confidence in Adam's leadership, in the strategy and in this team's ability to execute against it. The strategic pillars are in place, the pipeline is advancing and the commercial momentum is there. I have no doubt that the path to $100 million in revenue, margins above 65% and EBITDA of 20% or greater is within reach. It has been a privilege to lead this company and to work alongside such a talented and dedicated group of people. I want to express my sincere gratitude to our employees, our customers, our partners and our shareholders. To the entire KORU team, thank you. What we have built together and what you will continue to build is something I am incredibly proud of. I remain fully supportive during the transition, and I'm confident the company's best days are ahead. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question will hear from Caitlin Roberts with Canaccord Genuity. Caitlin Cronin: Linda, again, congratulations on the next chapter of your journey. Just to start off, maybe just the rationale for keeping top line guidance the same despite the beat this quarter. And if you could give us some insight into the maybe updated cadence for the year. Linda Tharby: Thank you, Caitlin, for your wishes. And yes, we are very excited that we have a strong quarter behind us and good momentum heading into the year. I will let Adam comment on the guidance for the year. Adam Kalbermatten: Caitlin, thanks for the question. As Linda was mentioning, we're really, really happy with the strong start to the year in Q1. We have a lot of momentum. We're continuing to outperform the market and international growth remains strong. In addition, we're finding a lot of new opportunities. One of the things is we're going after bigger opportunities, we are seeing that there's some more variability there, really around the vial to prefill syringe conversions in Europe and how we're going about entering each of those markets. We continue to see a lot of really good momentum there. But at the moment, we're pretty confident in our guidance, and we're just not looking to make any changes on that at the moment until the year plays out a little bit further. Linda Tharby: I was just going to hand it to Tom for the cadence question, Caitlin. Tom Adams: Caitlin, you can think of our -- in terms of our guidance, you can think of the pattern, specifically in Europe. similar to last year, where we have initial markets that are ordering pumps, if you will, to start their initial adoption. We expect to see that adoption play through in Q2. And then after that happens, we expect to see strength in the back half of the year. So very similar to what we saw last year in the case of the European and the international markets. Caitlin Cronin: Understood. And then just thinking about adding new drugs to the core revenues, how much of your core mix is Empaveli and Aspaveli today? And do you have any expectations for non-Ig mix this year over the next few years? Linda Tharby: Yes. Maybe just -- I'll start and then hand it to Adam for more specifics. So broadly, we don't comment on any specific drugs contribution. But what we have said is that all of the new drugs we're adding, we expect to add between $0.5 million and $1 million in 2026 via those new label additions. With that, I'll turn it to Adam. Adam Kalbermatten: Yes. So, as we are thinking about non-Ig drugs, I mean, one of the recent ones we had approval on is with RYSTIGGO, and we're seeing some really good traction on that so far. Between RYSTIGGO and some of the other drugs outside Ig, we're continuing to look at anywhere between $0.5 million and $1 million overall is what we're targeting to plan. We're tracking really well against that overall, throughout the first quarter and looking forward to continuing to execute that plan as we get to the rest of the year. Tom, anything else you want to add to that? Tom Adams: No, I think you guys hit it pretty well. Operator: Next, we'll move to Frank Takkinen with Lake Street Capital Markets. Frank Takkinen: Wishing you the best in retirement, Linda. I look forward to keeping in touch. I was hoping to start with some additional color on oncology conversations. I think Adam twice in the prepared remarks, you referenced kind of the what's up beyond Phesgo and large volume oncology infusions. Can you just maybe speak a little bit more about that? When could we see the second oncology? I know we're still waiting for the first, but when could we see the second oncology and maybe magnitude of size would be helpful color as well. Adam Kalbermatten: Frank, great question. You picked up on that earlier. So, we're really excited about the oncology opportunity, right? Just to kind of frame that out at a higher level. We're seeing it today as almost a $40 million market opportunity growing over the next five years to over $120 million. Putting that in perspective, that's roughly 4 million units today, growing to over 10 million units. We did file for Phesgo at the end of last year. We are in active discussions with the FDA. So, we still continue to be really excited about that. We continue to expand into other areas where we have some other potential drugs that we're looking to bring on label. So, we do have some active discussions ongoing now. As we see it continuing to go forward, we're hoping that towards the end of this year, hopefully, in the next quarter, we have an update on where we are with Phesgo moving forward. But at a high level, still really, really excited about where this is going and what it can do for us. Phesgo alone is approximately 1.1 million, 1.2 million units a year. So, we see that as being something that would be really, really great entering into these infusion clinics. Frank Takkinen: Got it. That's helpful color. And then I was hoping to follow up on the distributor. I think last year, we saw this play out. And obviously, there was extreme growth from the geography launch with prefilled last year. But we had a distributor order come in, and I think there was a concern that, that was going to be the big order of the year. And then what we actually saw was orders increasing in magnitude of size throughout the year. Is there a chance that, that dynamic could actually happen again as this geography is just getting up and running on prefilled? Tom Adams: Yes, Frank, thanks for the question. Yes, similar to last year, you are correct. We did see some nice orders in the first quarter of 2025. Then we saw a little bit of a lag after that in this particular market. And as I mentioned, as adoption and rollout happen, that took about a quarter. And then you're right, we saw the ramp-up really start to pick up in the second half of the year, particularly in our international business. So, we do expect a similar pattern. We entered the next phase of a launch in a particular market. And so, we see a similar pattern rolling out here in 2026. Operator: And next, we'll move to Jason... Jason Bednar: Can you hear me okay? Linda Tharby: We can hear you, Jason. Jason Bednar: Great. Linda, I will add to the well wishes here. Have been great working with you and wish you all the best. Adam, I want to follow up on, I think, Caitlin's question earlier on the revenue side. So, I think the midpoint of the guide, I mean I appreciate it's early in the year, still you left it unchanged, but it does imply a little bit of a decel from the revenue growth rate we saw in the first quarter. I think midpoint something like mid-teens implied over the balance of the year. So, what decels from here? Is it the U.S. that decels in the growth? Is it international that decel in the growth? And then also within the whole answer, if you could, I think I heard you're building a little bit of cushion or uncertainty around the Middle East. So, if you can maybe quantify or size that for us, it would be helpful. And then also within the whole answer, if you could, I think I heard you're building a little bit of cushion or uncertainty around the Middle East. So, if you can maybe quantify or size that for us, it would be helpful. Adam Kalbermatten: Yes. Absolutely. I heard a few things in there. So let me start, and then maybe I'll pass it to Tom. In terms of where we've started the year, we're feeling really, really good about everything ongoing, both domestically and internationally. As we look at international markets and where we see some of the high growth coming, it's really country by country and figuring out the pieces of the puzzle in each of these countries, how the health care systems work. As we're going forward, we're planning to do a lot of blocking and tackling. And depending on how that uptake continues to go, it's going to go at different speeds in different markets. Compared to last year, when we converted the large international market, it's a little bit of a different approach, where it wasn't a pharma-driven tender. It's more of "How do we go out and actively convert those markets on our own?" And we're working with partners to do that, but it's a little bit of a different approach than last year. So, we want to continue to see how that plays out over the second quarter with the balance of the year. But overall, we're still seeing very positive momentum, very, very happy with how we started the year, and we're encouraged that we're on track and continuing to move forward in a very positive fashion. But Tom, maybe you want to take that second part of the question. Tom Adams: Yes. I'll just reiterate some of what Adam said. And the fact of the matter is that we are still largely a distributor market in our international business. And with that, you do get distributor orders that are ramping up for launches. So, we did see some of that in Q1. So, we know that some of that has to play out. We know that we need to see that patient conversion happens. And then we typically see it backed up by orders after that conversion starts to pull through. So, we did see some of that in Q1. And then again, the type of market is different. The tender markets are generally faster because the pharmaceutical is the financial backer of the tender markets, and the reimbursement markets are generally a little slower. So, we're taking all those dynamics into effect with our phasing in our quarters. But I will say we start off pretty strong with our Q1 results. Linda Tharby: He also asked about the timing of the phasing for the Middle East and the comment there. Tom, if you can comment on that. Tom Adams: Yes. So, in terms of the Middle East, if you all remember last year, we started up a distributor in the Middle East. We have one large one that dominates it for us. And we saw some strength, we are just cautious this year, just due to the geopolitical risk. We don't see the strength in the orders so far this year. So, we're just putting some caution around that Middle East distributor. Not a meaningful part of our business, but one that we're just making sure that we're cautious with, given the risk in the region. Jason Bednar: Okay. All right. That's helpful. And then just as a follow-up, I mean, actually kind of dovetailing off of that, the Middle East point. Now a lot of companies are dealing with fuel surcharges, freight increases as they source product, just given where oil is. So, I don't know if you're seeing that. Maybe you can speak to that a little bit, just how you're handling that in terms of are there mitigation actions underway if you are seeing that in your sourcing? And then also, are you passing along any fuel surcharges or price increases to your customers? Tom Adams: Yes. Thanks, Jason. We're watching that situation closely, specifically with oil prices with respect to our supply chain. We do procure plastics from different parts of Asia, et cetera. So, we are watching it. So far, we haven't seen any impacts that are material to our business. But we will continue to monitor the situation. We know this conflict started in Q1. So, we think there will be some time before it really hits. But for now, we don't see any meaningful impacts. Jason Bednar: Congrats, Linda. Linda Tharby: Thank you, Jason. Pleasure to work with you as well. Operator: And next, we'll move to Chase Knickerbocker with Craig-Hallum Capital Group. Chase Knickerbocker: So, just first for me, if you could give us a quick update on kind of what you saw from an SCIg volume growth in the market in Q1? And then, just secondly, another one on international. If we kind of look at where the strength came from in Q1, maybe talk us through kind of how many geographies this reflects, as far as prefilled conversions? How many times has it occurred now? Is it one or two geographies that we may be sold into ahead of those conversions that kind of led to a little bit of a stocking benefit in Q1? Maybe just kind of some additional thoughts on those fronts. Adam Kalbermatten: Chase, I'll start with your question. You had a few in there. On the international market side, we are seeing strong growth across a few different specific markets. In the past, we've mentioned five specific countries where we saw a large volume of prefilled syringes entering the market, and we are working in all of those markets. They continue to go through what I would describe as the initial conversions and continue to progress with those new patient starts and conversions. Each of them is a little bit different depending on how the pharmaceutical partners are introducing them, but we're following closely behind in all of them. So, we're making progress across the board. I think you were specifically asking if we're one or two. We are tracking in all five of those that we previously mentioned. In terms of volume growth, Tom, I don't know if you want to take that one on the numbers side of things and what we're seeing so far. Linda Tharby: I think it was for SCIg growth. Tom Adams: Yes. On the SCIg side, we did see a strong -- in the U.S. market, we saw strong growth. In terms of the market, we did outpace the market. Our third-party marketing source had a number of around 8%, and we outpaced that with our performance. We see strength in the U.S. business. We expect that strength to continue, and we expect to continue to grow sequentially in our U.S. business. So, we left the quarter feeling very good about the future strength in that business. Chase Knickerbocker: Got it. And then maybe just on the 510(k) submission for the next-gen pump. Can you just give us an idea of kind of what's left to do to enable that submission? And if we should think about the kind of timing on MDRs, kind of similar to 510(k), will those happen pretty concurrently? Adam Kalbermatten: We're really excited about our Freedom360 pump. That's the new pump that we have under development right now, which is looking to accommodate all sizes of prefilled syringes in one device. So, this is super exciting as the market continues to progress from vials to prefilled syringes across the different geographies. In terms of where we are right now, we are at the end of our development process. We're actually in the middle of going through some final checks on that development side, called design verification testing. As we get to the second half of this year, we are looking to submit our regulatory filings in both the U.S. and Europe. So, we're super excited about how this is continuing to progress. We've had a number of different industry meetings and specific pharmaceutical partner meetings where we've been discussing the pump across the board. We're getting very positive feedback. So, a lot of excitement is building here. And we're kind of at the 10-yard line looking to drive this one across the goal line pretty soon here towards the end of the year. Operator: There are no further questions at this time. I would like to turn the floor back to Linda Tharby for any additional or closing remarks. Linda Tharby: Great. So, thank you for your questions. I'm extremely proud of the strong track record of the company over the last five years, which reflects the strong team that I am leaving behind here at KORU. I want to thank Adam, who is knee-deep in this transition and is going extremely well. So, with the strategic momentum that we have ahead of us, I really think the company is well-positioned as we move forward. So, thanks to everyone for all the support. Operator, you can close the call. Operator: Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.
Eric Boyer: Good morning, and thank you for joining Bentley Systems Q1 2026 results. I'm Eric Boyer, Bentley's Investor Relations Officer. On the webcast today, we have Bentley Systems' Executive Chair, Greg Bentley; Chief Executive Officer, Nicholas Cumins; and Chief Financial Officer, Werner Andre. This webcast includes forward-looking statements made as of May 7, 2026, regarding the future results of operations and financial position, business strategy and plans and objectives for future operations of Bentley Systems Inc. All such statements made in or contained during this webcast other than statements of historical fact are forward-looking statements. This webcast will be available for replay on Bentley Systems' Investor Relations website at investors.bentley.com on May 7, 2026. After our presentation, we'll conclude with Q&A. And with that, let me introduce the Executive Chair of Bentley Systems, Greg Bentley. Gregory Bentley: Thanks to each of you for your interest in BSY's '26 Q1. Nicholas will describe factors that contributed to commendable operating performance, favorably according as usual for BSY with our annual full year outlook. Werner will put this in the financial terms, which continue to differentiate BSY as leading among peers, both in the quality and in the measures most meaningful to shareholders of sustained profitability and cash flows. I will supplement their on-the-ground reporting with perspectives behind our characteristically even higher prioritized endeavors to benefit our future value, in particular through advancements, which make AI for us, more a seminal opportunity than a terminal threat. Last quarter, I enumerated some respects in which Bentley Systems prospects are rather uniquely enhanced and accelerated by AI. Our advantages, as summarized here, make the case that leadership in infrastructure AI is destined, given our experience and determination within Bentley Systems' grasp. Our long-established incumbency as the digital quartermaster for infrastructure engineering organizations substantive tooling is a differentiating and immediate advantage. Quantification of that pole position will be my focus today. In particular, our modeling and simulation applications have established the de facto standards for responsible and deterministic infrastructure engineering, and the stewardship for each account of their cumulative infrastructure engineering data in Bentley Infrastructure cloud, ProjectWise, SYNCHRO and AssetWise, positions them to leverage AI to compound value for themselves and for their own constituents at a steeper rate than ever. Beyond our existing consumption business models, AI is on the cusp of adding to our growth incrementally, agentic API consumption of our modeling and simulation functionality, especially for optimization of designs and, for instance, to intrinsically improve constructability. And our asset analytics initiative, spawned by AI and already exceeding $50 million in annual revenue run rate, is leading the way toward instant on digital twins to optimize operations and maintenance, commercialized through subscriptions denominated in consumption per asset. Imbued with all these factors and shaping our distinctive AI game plan, our business is anchored by stalwart enterprise accounts. Within infrastructure engineering, these enterprises are on the leading edge of adopting, acting upon and evolving individual proprietary AI initiatives which we are there to support, prioritize and enable. What will never change is that their business is our business, and their success is our success. Underscoring this affinity, 45% of our revenue comes from 220 accounts, which each spend over $1 million per year with us. And almost 2/3 of our revenue comes from 824 accounts, which each spend over $250,000 per year with us, mostly, of course, through E365 consumption subscriptions, which include, in each case, a dedicated BSY technical success team positioned to nurture joint AI initiatives. To understand the extent to which our interests are aligned with rather than opposed to our accounts, let us drill down on project delivery firms, in particular, because engineering news record surveys and ranks them all, publishing individual revenue breakdowns that can help us understand their economics and our own penetration level and potential as digital quarter masters. From engineering news records, 2 lists ranking, respectively, domestic and international headquartered design firms, last published together a year ago, we compiled the composite ENR global top design firms ranked by their verified design billings. For 2025, these 639 global top design firms generated $280 billion of design billings. 25% of these design billings were generated by 25 Chinese organizations. Unfortunately, because they're generally within state-owned entities, geopolitical tensions currently inhibit their accessibility for us. Thus, the top global design firms ex-China consists of 614 top firms generating design billings of $212 billion. Of these, 470 are BSY accounts, together accounting for $198 billion in design billings, 93% of the ex-China total. A considerable portion of those whom are not the BSY accounts are rather pure architecture firms. With our ARR across these BSY accounts totaling $414 million or about 28% of our overall ARR, top design firms are our largest constituency. Per million dollars of their design billings, they spent on average about $2,000 in BSY ARR. On average, each uses about 4 among BSY's top brands plus several other lesser brands. The top brand for these accounts, also now BSY's top brand, is ProjectWise, in use by 270 of the top firms, together generating $160 billion in design billings, representing 76% of the design billings of the ex-China top firms. In our coming quarter, we will describe joint AI initiatives with these firms to compound the reuse benefits from their Bentley Infrastructure cloud data platform. For now, I would like to quantifiably illustrate the aligned incentives for BSY and top design firms to work together on the incipient AI transformation of their business model. The key is that infrastructure engineering software isn't for these firms overhead or administration. It is a most necessary factor of production to enable, capture and deliver their substantive work. Along with attendant labor and associated computing, it's a cost of revenue. To assess the economics, let's consider a representative project with $1 million of design buildings. Triangulating variously, including from BSY's $2,000 average of spending per million dollars of design billings across the universe of all of our top firms accounts projects globally, I estimate that a representative million-dollar design project would consume about $10,000 of design software. Since margins for these firms now reach about 10%, the cost other than for design software, mostly for engineers labor, must then be $890,000. Now what could a top firm gain by theoretically investing to the detriment of its design software vendors to somehow reduce its design software spending, say, by 20%? For that putative inspiration and effort and distraction and risk and liability and investment, which thus couldn't afford to be much, their net profit margin would extensively grow from 10% to 10.2%. But back to the drawing board, consider that investing instead in AI automation and agentic API consumption and computing, even if that say double the all-in design software cost, could save at least 20% of scarce engineering time as that is readily achievable with just agentic automation of drawings production. It seems logical to prefer reducing engineering labor because these top design firms compete with one another for a demographically shrinking talent pool of infrastructure engineers. And with near record backlogs, these resource constraints limit the new projects each firm can pursue, even though there's an abundance of infrastructure engineering work available. Unfortunately, with the prevalent hourly billing commercial model for infrastructure engineering, improved productivity would produce more output with the same staffing, but not more design billings. So one more simple change would be needed to make this fully worthwhile, transform the design billings commercial model for such projects to fixed pricing. Now if I were an infrastructure owner-operator client, the only objection I can think of to fix pricing would be a concern that as a result, corners might be cut, alternatives might not be pursued and thus, engineering quality could be compromised. But now with API consumption enabling demonstrable agentic optimization, that concern can be overcome technically. And each human engineer, now augmented by busy agents and automation, remains daily in the loop, but delivering 20% more design billings on additional projects in the same time, yielding very worthwhile, AI-enhanced economics. The top design firm enterprise by investing in proprietary AI agents to automate and leverage and to API consume trusted modeling and simulation functionality could now generate IP level margins of over 24% on the same engineering inputs. As the owner client gets better assured and more timely quality of designs at no higher cost, everyone wins, including the fully employed and probably gainfully incented engineer, not to mention the software and computing providers. So while respecting confidentiality of our enterprise accounts individual AI plans and strategies, Nicholas will provide a brief update on our infrastructure AI program with accounts for such joint initiatives, among his other content. So over to you, Nicholas. Thank you. Nicholas Cumins: Thank you, Greg. We began 2026 on a strong footing. Our Q1 performance demonstrates our ability to consistently execute against the backdrop of sustained global demand for better performing and more resilient infrastructure. Before going further, my thoughts are with our colleagues and users affected by the conflict in the Middle East. I am incredibly grateful for our team in the region. Their commitment to our users has been unwavering, and their dedication is inspiring. Following up on Greg's remarks, I will start with an update on AI. We continue to execute on our AI initiatives across the portfolio, but I will focus on 2 recent highlights. First, on Bentley Asset Analytics. To take this business to the next level of scale, I am delighted to welcome [ Bryan Friehauf ] as our new General Manager. Brian joins us from GE Vernova and was previously at Hitachi. He brings a wealth of experience in scaling enterprise software businesses in the operations and maintenance phase of the infrastructure life cycle. Second, on Bentley open applications. We have engaged with leading infrastructure organizations, both engineering services firms and owner operators, as part of the infrastructure AI initiative announced at the end of 2025. The feedback has been clear and consistent. There is strong demand for us to instrument our applications so they can power users on AI-driven workflows. Based on this strong feedback, we have prioritized the development of both APIs and MCP servers. In fact, we just released an MCP server for STAAD, our flagship product for structural analysis. To give you a sense of the potential, this allows an AI agent like Claude to interact directly with STAAD to optimize the structural design at machine speed. The ability to iterate on complex design trade-offs so quickly is transformative. Our next steps are to instrument other key applications and to validate the commercial model for this powerful new usage pattern. We look forward to sharing our progress. Now turning to our business highlights. Our year-over-year ARR growth for Q1 was 11.5%, in line with our expectations. Our net revenue retention rate remained strong at 109%, consistent with previous quarters and highlighting the stability and growth within our existing accounts. Our enterprise 365 commercial program continues to drive steady growth, both in terms of conversions as well as floor uplift and renewals, noting that Q1 is our smallest quarter for renewals. New logos contributed again, 300 basis points of ARR growth, primarily within the SMB segment. Through Virtuoso, our flagship commercial program for SMB accounts, we again added over 600 new logos in Q1. At the same time, our growth model is evolving, with an increasing contribution from cross-selling and upselling to existing Virtuoso accounts. While our renewal rate remains high, the sheer scale of the Virtuoso base creates a natural churn dollar amount to overcome each period. Our combination of new logos and existing account expansion allows us to continue to deliver strong net growth. Turning to our performance by infrastructure sector. Resources was the fastest-growing sector in total and across each geographic region. We expect another strong year for Seequent, bolstered by improving mining fundamentals. I will come back to how we plan to expand our addressable market even further into critical resources in a few minutes. Our largest sector, public works utilities, delivered a solid quarter, driven by robust global infrastructure investments. Power line system continues to benefit from increasing demand for grid resiliency and new power generation as well as international expansion. The adoption of SQL applications for the civil infrastructure also supported growth in that sector. Growth in the industrial sector continued to be solid, while commercial facilities remain relatively flat. Turning to our tone of business by geographic region. In the Americas, our largest region, the U.S. delivered solid growth, supported by stable public funding at both the federal and state levels for transportation, grid and water projects. Private investment was also robust, particularly in resources and AI-related data centers and power generation. Latin America delivered a standout quarter, with strong performance from Seequent and mining and from our increased focus on transportation in the region. EMEA was our fastest-growing region in the quarter. This strong performance was achieved despite the conflict in the Middle East, which saw some project delays and a shift in consumption to all the regions. However, this was more than offset by strength elsewhere. In the U.K., growth accelerated as major projects moved into the delivery phase just as we anticipated last quarter. We also saw robust growth in Africa, driven by increased spending in mining. Asia Pacific delivered solid growth, with India once again leading the way, and Australia showing improved momentum. While we continue to navigate persistent headwinds in China, which represents approximately 2% of ARR, the strength across the rest of the region more than compensates. Now I would like to take a deeper dive into our resources sector. This is a part of our business that has become increasingly significant, and we believe it's important for you to appreciate its journey and its forward-looking potential. When we acquired Seequent almost 5 years ago, our primary objective was strategic, to integrate their best-in-class software for understanding the subsurface into the world of infrastructure. We knew that a misunderstanding of ground conditions is a primary cause of delays in risk in major infrastructure projects. As a byproduct of that strategic move, we also acquired a sizable and thriving business in the resources sector. I am pleased to report that the initial strategy has proven effective. Since the acquisition of Seequent, we have grown our subsurface ARR in civil infrastructure by a factor of 4, in part due to successful cross-selling into the existing Bentley accounts. The potential for further growth is significant, as engineering services firms adopt a ground informed design approach, bringing detailed ground investigation in as a foundational step before design begins, much like they already do for above-ground survey. At the same time, Seequent has continued its impressive growth in its core mining market. Seequent's growth rate in 2025 accelerated as the geopolitical climate and race to AI increased the focus on critical minerals. We expect these trends to continue in 2026, contributing to another standout year for Seequent. However, it is important to note that Seequent has delivered strong growth even during the mining exploration slowdown starting early 2023, when production mining companies use our solutions to mine existing deposits more efficiently. But the potential of Seequent's resources extends beyond traditional mining. Seequent's technology is pivotal for other critical resources that are essential to the global economy and to society. Take, for instance, new sources of energy. Seequent software is already instrumental in the operations of more than 60% of the world's high-temperature geothermal electricity generation. Now it's being applied to new enhanced geothermal systems by companies such as [ Fervor Energy ], the winner at our 2025 year infrastructure awards. Their project [ cape ] in Utah, for example, demonstrated how new drilling techniques and digital technologies are making geothermal power increasingly accessible and economically viable. Clean, renewable and consistent baseload energy is more critical now than ever as AI and data centers demand more power. And Seequent's impact extends to the most vital resource of all, water. Groundwater supplies about 50% of global domestic water and over 40% of irrigation water. Most of these resources are under stress due to overuse. Seequent software is used around the world by engineering consultancies to manage these resources, mapping aquifers from California to India, designing managed aquifer recharge facilities and constructing a digital framework for groundwater management models. So nearly 5 years since the acquisition of Seequent, resources have become our second largest sector, accounting for more than 20% of our sector attributable ARR, and it continues to be our fastest-growing sector. In summary, it was a strong start to the year. We are executing well in a robust market, and we're excited about expanding our reach further within the resources sector. Before handing off to Werner, a quick update on our event strategy. We are decoupling our YII awards from our user conference to create 2 distinct world-class events. Our year-end infrastructure event will now be exclusively focused on our global awards competition. We are keeping its intimate and celebratory format. And this year, it will be held in Singapore from October 6 to 7. Separately, we're launching a new large-scale user conference dedicated to product learning, best practices and community networking. The very first will take place in Toronto in April of 2027. We believe this new format will allow both events to thrive. And now for a detailed review of our financial results, over to you, Werner. Werner Andre: Thank you, Nicholas. We are pleased with our strong start to the year, which continues the momentum we built through 2025 and positions us well within our financial outlook for 2026. Total revenues for the first quarter were $424 million, growing 14.5% year-over-year and 11.9% in constant currency. Our growth continues to be driven by our mainstay subscription revenues, which represent 93% of total revenues and grew 14.7% for the quarter or 12.2% in constant currency. Our E365 and SMB initiatives continue to be solid contributors. In our smaller and less predictable revenue streams, perpetual license revenues decreased 18% in constant currency. Perpetual license sales remain a very small part of our business, and are, as always, the less controllable and less predictable component of our revenue mix. Service revenues increased 25.8% in constant currency, driven by long-weighted reacceleration in maximum related services from our cohesive business. Last 12 months recurring revenues now stand at 1.440 billion, increased by 13.3% year-over-year or 11.5% in constant currency, and represent 93% of total revenues. Our last 12 months constant currency account retention rate remained consistent at 99%. Our constant currency net revenue retention rate remained at 109%, consistent with recent quarters. The combination of our high retention rates and new business momentum gives us confidence in the continued durability of our recurring revenue growth. Now turning to ARR. We ended the first quarter with ARR of $1.495 billion at quarter end spot rates. On a constant currency basis, our year-over-year ARR growth rate was 11.5%. Our sequential quarterly growth rate was 2.5%, all organic and in line with our expectations for the quarter. We continue to expect our quarter-over-quarter ARR growth seasonality to be similar to 2025, and thus organic year-over-year ARR growth rates to be relatively stable during the year. Our GAAP operating income was $126 million for the first quarter. As I've discussed previously, our GAAP results can be impacted by deferred compensation plan revaluations and acquisition-related expenses. Moving to our primary profitability measure, adjusted operating income less operating stock-based compensation or AOI less operating SBC. As we announced with our 2026 outlook, this is the first quarter we are applying this refined metric. This change aligns the treatment of cash settled and equity settled acquisition-related stay bonuses, removing M&A-related volatility from this key operational metric. AOI less operating SBC was $141 million for the quarter, with a margin of 33.2%. This quarterly margin performance was in line with our expectations, positioning us well to deliver on our annual margin improvement. As a reminder, we plan to invest earlier this year, resulting in operating expenses being more weighted towards the first half compared to 2025. Our free cash flow for the quarter was $188 million. This result was in line with our expectations and reflects 2 key factors we signaled on our last earnings call. First, our 2025 free cash flow benefited from exceptionally strong collections at year-end. This created a timing benefit in 2025, which, as anticipated, resulted in a tougher year-over-year comparison for the first quarter. Second, the plan for operating expenses to be relatively more weighted towards the first half this year is reflected in comparison to 2025 for both profitability and cash flows. Looking beyond quarterly timing fluctuations on a last 12 months basis, free cash flow of $492 million was up 13%, and we remain on track to meet our full year free cash flow outlook of $500 million to $570 million. We continue to execute a disciplined and balanced approach to capital allocation. During the quarter, we repaid, at maturity, the outstanding balance of $678 million of our 2026 convertible notes, utilizing borrowings under our credit facility and cash on hand. The retirement reduced our fully diluted share count by approximately 10.6 million or 3%. In total, our net debt decreased by $134 million in the quarter. We also returned capital to shareholders, deploying $54 million for share repurchases and $21 million for dividends. Our balance sheet provides significant strategic flexibility. At quarter end, capacity under our credit facility was $756 million, and we reduced our net debt leverage during the quarter from 2.1 to 1.9x adjusted EBITDA. Subsequent to quarter end, we closed on a new $550 million term loan A under the [ accordion ] feature of our credit facility. This transaction was completed at attractive terms and used to repay outstanding borrowings under our revolver and lowering our interest cost. With the term loan in place, total borrowing capacity under our credit facility increased to $1.850 billion. This provides ample capacity to support our strategic priorities, positioning us well ahead of the 2027 notes maturity, while also funding potential programmatic acquisitions, ongoing share repurchases and dividends. We continue to actively manage our interest rate exposure. Our safeguards include a low fixed coupon on our remaining convertible notes and our $200 million interest rate swap expiring in 2030. And finally, we remain comfortable with our 2026 financial outlook range that we provided just over 2 months ago on our Q4 call. With regards to foreign exchange rates, for the first quarter, the U.S. dollar has strengthened, slightly relative to the exchange rates assumed in our 2026 annual financial outlook, resulting in approximately $2 million less revenues from currency changes. If end of April exchange rates would prevail throughout the remainder of the year, our Q2 to Q4 GAAP revenues would be negatively impacted by approximately $3 million, relative to the exchange rates assumed in our 2026 financial outlook. And with that, over to Eric for Q&A. Thank you. Eric Boyer: Thanks, Werner. Before we begin, just as a reminder, please limit yourselves to one question so we can get to everybody today. First question comes from Joe Vruwink from Robert Baird. Joseph Vruwink: Great. I guess, Greg, the example you shared is interesting. I think the prospect of supporting $200,000 more in revenue by spending $10,000 on software is something all of your customers would gladly entertain. What do you think about in terms of Bentley's product efforts in terms of bringing that proposition closer to reality? What still needs to be done? And what sort of deliverables do you need to demonstrate to your customers so that they believe and give you the buy-in? Gregory Bentley: Well, I think the path to that, foreseeably, is the API consumption, the notion that agents spun up by the engineers can do more iterations in the same time, not only will deliver a better quality of design, but the engineering firms will be able to substantiate that to the owner operators to accelerate this transformation to fixed pricing. The -- what's really great about that prospect for us is the -- the more of that engineering firms and owner operators are excited about and ready to act on this transformation to a new commercial model. That's all good for our prospects. It's where everyone wins, as I say. It can't be doubted that this will happen with the AI inflection as it is happening in every other service industry, engineering is one of those. But it's been slow until now, and this notion of optimization that literally is in front of us at the moment is going to speed it up, I think. Eric Boyer: Our next question comes from Matt Hedberg from RBC. Matthew Hedberg: Great. Good start to the year. When we look at your business, you guys all highlighted a number of, I think, really interesting company-specific catalysts that seem to be moving in your favor this year. And to us, when we sit back and look at, it seems to present an opportunity that could push constant currency ARR towards that higher end of the range this year and perhaps accelerate versus last year. I guess when I sit back and think about all these opportunities, if you were to highlight the 1 or 2 things that you're like, these are the most important things that could deliver those results, what would they be? Because it seems like there's a lot of opportunity here for you guys. Nicholas Cumins: Well, I think you're characterizing it exactly the right way, Matt. There's a lot going on that is very positive for the company. We benefit from very strong tailwinds here in both infrastructure and in resources, and as I highlighted during the prepared remarks. So for us to get to the, let's say, higher part of the range, we would need both resources and mining, in particular, to continue to go strong throughout the year. And right now, everything is signaling that this is trending well. We need Bentley asset analytics to continue to grow strongly throughout the year. We need, of course, the core business infrastructure to continue to go well and then probably in order programmatic acquisition. So if you have all of that lighting up, then yes, we're talking about the higher part of the range. Eric Boyer: Next question comes from Jason Celino from KeyBanc. Jason Celino: Great. This actually goes back to Joe's question. There's growing debate among the investment community on whether to charge or not charge for access to data. It seems like Bentley is one of the only software platforms trying to monetize this way through API consumption. And frankly, might be the preferred way investors may want to see it. But do you foresee any risks from like a customer perspective on charging this way since other horizontal software companies have decided to be more open and not necessarily charge for it? Nicholas, the STAAD MCP server that you talked about, are there other MCP servers that you might going to stand up? Nicholas Cumins: Definitely. Right, so maybe a point of clarification first. When we're talking about API consumption, we're talking about an indirect usage to our engineering applications. So as opposed to having a user directly interacting with the applications, we have an AI agent that is directly interacting with the application. Now there's still a user behind the AI agent, but the AI agent, which is now being able to do with the application level of optimization, which was simply not possible for an engineer on its own, okay? Then we have Bentley Infrastructure Cloud, where the data actually resides. And here, indeed, we're not monetizing the access to that data because that data belongs to the infrastructure organization that are entrusting us with that data as part of the platform, right? So those are 2 different things. The ability to leverage AI to optimize designs or even generate parts of the design is just a fantastic value proposition. Clearly, our user base pricing right now, whether we're talking about attended consumption as part of E365 or annual subscription with Virtuoso is not going to capture the full value that is going to be created, right? So we're discussing with the representative accounts who are involved in our coinnovation initiative called infrastructure AI. We're talking about a different commercial approach where we'll be in a API consumption-based pricing, maybe token-based because that seems to be the common denominator across different AI tools. But that's really for the engineering applications. For Bentley Infrastructure cloud, at least in the foreseeable future, the pricing is indeed user based, either user-based consumption, [indiscernible] consumption or annual subscriptions. Gregory Bentley: And may I make clear that today, we only monetize attended consumption. Our strategy is to introduce and increase the API consumption and give users and accounts a chance to explore the potential of that and learn in the process what it cost us, what it could cost them and what the benefits and values are so that we can arrive at an appropriate monetization approach to that, which we are open-minded about for now. Eric Boyer: Next question comes from Siti Panigrahi from Mizuho. Sitikantha Panigrahi: Great. Just following up that AI part, Greg, you laid out really a compelling case for AI within your customer base. Wondering what sort of feedback have you got from your customer? And how should we think about the TAM expansion for Bentley or even the ARPU uplift potential as AI drives even deeper multiproduct adoption, maybe it's not near term, but how should we think about ARPU and TAM expansion? And in the same context, Werner, how are you looking about the margin and even there is a incremental engineering and computing cost implication as in Bentley start focusing on building AI products. How should we think about the investment intensity over next 12 to 18 months? Gregory Bentley: I'm going to ask Nicholas to speak about the account reaction. But I may just say a particular multi-product scenario that has me excited is during design to be able to have an agent using SYNCHRO to explore the constructability of what's being designed while it's being designed. This doesn't imply that the design firms that we talked about will be doing the construction necessarily. Someone will be doing a construction subsequent to their involvement, but they'll be able to say to the owner operator, we're going to be able to give you a design where we already know the economics of construction. We've simulated that in the course of our design. It's just an example of something not even conceivable now that AI will introduce through API consumption. But Nicholas, perhaps you can speak to the reaction of accounts to the prospects for this instrumentation. Nicholas Cumins: After that, and then I'll also get to the TAM question. So the reaction of our accounts is really validating the opportunity for this indirect usage of our applications. Now we do see a difference here between the very large infrastructure organization, in particular, the very large engineering services firms and all the others. The very large ones, by the way, exactly like it was shared with the AC adviser CEO survey of 2025, the very large ones are the ones who are really investing in their own AI-driven workflows. They are the ones who are exploring with us how exactly they will start to use our applications indirectly through AI, right? Now all of the infra organizations we talk to, all of them, whether they're big or small, are welcoming that we deliver our own AI capabilities as part of our products, right? Now back to the very large one, these are still very early days. And as we commented actually last quarter, we're much more in the mode of exploring and validating and then confirming for example, that yes, an MCP server for STAAD makes a lot of sense, and then an MCP serve for another application, another application. And we're very focused on adoption as well. The monetization will come next. Where we are doing monetization right now with AI is really through a different offering, which is Bentley Asset Analytics, which we can talk again in a moment. But now back to your question about the TAM, I think it's a great question because the time that we shared at the moment of our IPO when we became public, was all based on the number of engineers. And effectively, if we're talking about indirect usage of our applications through APIs, we are somewhat removing that natural cap of how many engineers are out there, and how much can they consume within a given day in terms of applications for Bentley? So we're very excited about that as a long -- let's say, longer-term growth opportunity for us to actually expand our TAM by having indirect users of application through AI. Unknown Executive: And Werner? Werner Andre: Yes, maybe on the margin. So I think as Nicholas said, it's early days. It's completely immaterial as of now. But I could say that gross margins will be impacted, but it's likely, and this has to be considered then in the monetization of the products. Eric Boyer: The next question comes from Dylan Becker from William Blair. Dylan Becker: Appreciate it. Maybe Greg or Nicholas here, I think the shift to outcomes obviously makes sense and kind of your ability to facilitate that efficiency gain, I think, is abundantly clear. But I was maybe wondering on the importance of kind of your services or in the direct customer relationships you have from a go-to-market perspective and how you can kind of help those customers bridge that gap from a change management perspective and kind of help maybe accelerate that push in the economic delivery model, if that makes sense. Gregory Bentley: One thing that I'll remark upon is that our dedicated teams in E365 over the past year or 18 months have discovered a new productive way to help our accounts. It's by helping them pursue new business -- it's helping join their pursuit teams to bring new ideas to owner operators. And I hope that will include, as we implement the optimization approaches, how that gets sold and communicated among things to enable fixed price, which is the beginning of that outcome-based contracting. Nicholas Cumins: Yes. At the end of the day, when it comes to the commercial model of the engineering business firms we serve, this is very much to be decided between them and their clients. And then depending on the industry, it will vary quite a lot. Some of them have already embraced fixed base pricing, others are still in time and material. The -- what we can do, besides, of course, demonstrating the part of AI and how it changes the whole value proposition. Besides that, we have a lot of high-level advocacy efforts that we're doing with governments, with the financial sector as well, with the clients. Some of them are through our infrastructure policy advancement team. Some of it is also through our services arm called [ Cohesive ], which is providing consulting to owner operators and getting insights about what else could be done. What's the art of the possible. And potentially, what does it mean for their commercial model. Gregory Bentley: When Nicholas described some have begun fixed pricing, it's primarily those that do private sector work, where private sector owner-operators are quicker to adapt and evolve than government-funded public works and utilities. Eric Boyer: The next question comes from Jay Vleeschhouwer from Griffin. Jay Vleeschhouwer: Nicholas, a quarter ago on the call, you described Bentley Infrastructure Cloud as your data foundation for AI. And I assume it's more broadly so aside from AI that in terms of the importance of infrastructure cloud. With that in mind, could you talk about perhaps some of the adoption metrics for infrastructure cloud? Do you think of it as a kind of prerequisite for or leading indicator for other business, AI or not? And then if I may have pointed to clarification given all the API discussion earlier. In a complex federated system of that kind, how do you assure what customers adopted good or better throughput or performance in a complex API system? Nicholas Cumins: So to the first question, when we're referring to Bentley Infrastructure Cloud as a data foundation for AI, we're really talking about the AI efforts of the infrastructure organizations we serve. So when they upload files, when they connect data systems into Bentley Infrastructure Cloud and all of the data from those files or the systems is not to schema, so that, that data becomes so [ equirable ], it can be analyzed, but it can also be leveraged by AI, right? Now we made it very clear that we are not using that data, which is in Bentley Infrastructure Cloud to train our own AI. That definitely sets us apart from all the software providers out there. Now data ownership is a very, very sensitive topic across all industries, for sure in infrastructure as well. We do not think it's right to be leveraging the intellectual property of some companies to train AI that will benefit other companies, right? We just don't think it's right. So we're not going to do it. So the only time we use data within Bentley Infrastructure Cloud to train AI is when we're explicitly asked by infrastructure organization to do so. And then it really is their data. And by the way, we gave full transparency of what data has been used in order to train AI. That -- it sets us apart to the extent that it really becomes a reason why infrastructure organizations also choose Bentley Infrastructure Cloud as opposed to other alternatives because they really have trust that we're going to be a good custodian of that data on their behalf, yes? Now when it comes to API throughput, indeed a point of clarification. So for example, with the demo I was showing with STAAD, we are, in a sense, in the first step of the instrumentation, where these applications are still running on the desktop. In fact, you can see it with a video. It was still running on the desktop. They're not yet platform services. That will be the next step. So the first thing we're doing is making sure that the APIs exist, that there are MCP services available, so it's easy for AI agents to interact with those applications. But all of that interaction is actually happening on the local computing station on the personal computer. When -- at some point, of course, that's why we're discussing also with the company. We're talking about the longer term here. Some of those workloads will be moved to the cloud to become true cloud services, but then we'll just make sure they are as performant as they should be, like we do for all of the cloud services that we offer. Eric Boyer: The next question comes from Alexei Gogolev from JPMorgan. Alexei Gogolev: Great to see you all. You've mentioned that it is still early days for applying AI to mission-critical engineering, and you're leading the exploration to building and drive the adoption of highest value AI workflow. So could you maybe speak about some of the initiatives on that end? What efforts you're taking? Nicholas Cumins: So we have -- if you're referring also to one of the earlier comments around we're making progress with our initiatives across the portfolio, we have both efforts to deliver our own AI capabilities as part of our products. And then efforts to instrument our applications, in particular, the engine applications, so that they can support AI-driven workflows that are being created by the infrastructure organizations that we serve, right? So those are 2. For the latter one, there is a co-innovation initiative that we've launched at our annual conference last year, YII, so towards the end of 2025, where we invited infrastructure organization to join, talk to us and explore with us what are the use cases they're going -- they would like us to be able to support in applications. And it was no surprise that the actually first case has identified was for STAAD because we had already seen STAAD, which is our flagship product for structural analysis, being used this way because it had an API in some of the submissions for the going digital awards at our annual conference over multiple years, by the way, it was clearly the first one. So no surprise that there was a very strong demand for us to create an MCP server based on that API in order to support the interaction of AI agents with STAAD. And so that's the way we're interacting with them in that context, which is understanding what are the use cases with the biggest potential, validating with them and then creating those MCP servers. And we have multiple efforts across our pretty wide portfolio of engine applications to create the MCP servers directly if the APIs already exist, if not, start to create the APIs themselves, okay. But then now for the AI capabilities that we offer. We have AI capabilities as part of the engineering applications that will automate parts of the design workflow. Typically, we go for the, let's say, mundane tasks, which are extremely time consuming like [ joins ] production that we talked about in multiple quarters ago. We have AI capacities built within Bentley Infrastructure Cloud, for example, in order to facilitate the search of engineering data using natural language. We have AI capabilities being part of Bentley Infrastructure Cloud in order to help navigate very complex construction models as part of SYNCHRO. We obviously have AI pretty much for all of our applications for Bentley Asset Analytics, whether we've developed them or we require them. And we even have AI in Seequent, which I spent time highlighting today as part of my prepared remarks, right? So there are efforts related to AI really across the portfolio. It's a wide range of initiatives. Eric Boyer: The next question comes from Daniel Jester from BMO.. Unknown Analyst: This is [ Will Hancock ] on for Dan Jester. So you hit on data ownership a few minutes ago. And I just wanted to double-click there. Are you guys seeing any shifts in customer behavior, whether that be increased willingness to use data, to train AI models or conversely more cautions around permissions? And then are you guys seeing any variance across end market or customer size? Nicholas Cumins: So what hasn't changed is the fact that it's -- let's say, the largest infrastructure organization, especially the largest engine business firms that are the most advanced in their own AI efforts, and therefore, looking into their own data on how they can train their own AI models. So that hasn't changed. What we have seen in the last few months is a very -- suddenly infrastructure organization realizing that not all software providers have a principal approach to data, and then therefore, pushing for a lot of clarification on terms and conditions and access rates, et cetera, for the data. That's what really sets us apart, which is already back in 2023, we took this very principled approach. Our commitment to data stewardship that made it very clear that our users' data is their data always. And we don't use it to train our AI, unless explicitly directed to do so by the infrastructure organizations we serve. It is a very sensitive topic. And I expect it as basically infrastructure organization become more educated about on one hand, the potential of AI, and second, the fact that there is a difference here across software providers. I do expect this topic to become even more sensitive going forward. Gregory Bentley: And I'll add that while the immediate attention is paid to training AI models, the -- I think the ultimate value of this data will be its reuse in future designs. That's never been the norm because in attended consumption, an engineer will always prefer to start with a blank screen and originate a new approach. But each firm has a very valuable archive of project data in ProjectWise Bentley Infrastructure Cloud and AI will be good at finding and suggesting and modularizing and parameterizing. And ultimately, when that reuse can be informed by the operating and maintenance performance of those designs, which the engineering firms will increasingly be in the business of improving and optimizing, that will be a virtuous cycle that will yet reinforce the valuable proprietary advantage. When I say that engineering firms can earn IP returns, I mean returns on that valuable data and knowledge, their accumulated compounding advantage with Bentley Infrastructure Cloud. Nicholas Cumins: And maybe I'll put one final point because it is such an important topic, because some of you may ask, wait a minute, the other software providers who are shamelessly leveraging the data that is stored in their platform to train their AI, do they have an advantage? And I will clearly say, no. And for 2 reasons. Number one is, because of their stance, infrastructure organizations have a higher tendency of choosing us and our platform because they can trust us. And second is, for all of the AI capabilities that we're developing that I mentioned before as part of our initiatives across the portfolio, right? We don't do it in isolation. We do it always with representative accounts. And we've never had an issue of not having enough data to train our AI models, either by using our own synthetic data or getting data from those representative accounts involved, that they deem they think is not sensitive, not differentiating and they're happy to contribute, right? So we clearly see this as a net positive for -- and a net advantage for us. Eric Boyer: The next question comes from Taylor McGinnis from UBS. Taylor McGinnis: Yes. Can you guys hear me? Gregory Bentley: Yes. Eric Boyer: Yes. Taylor McGinnis: Okay. Perfect. So if I look at your guys' constant currency net new ARR growth historically, I think it's been around $26 million to $27 million. And this quarter, it was $37 million, so up 36% and really strong. So when you just think about the drivers of what drove that strength in the quarter, could you unpack a little bit of that? And was there anything onetime or different seasonally this year compared to what you've seen in the past that might explain some of that? And then just how do we think about that in the context of what you're thinking about demand trends going forward? Werner Andre: So maybe I take that. So Q1 saw a continued strong momentum as we exited 2025. And the quarter-over-quarter growth puts us somewhat ahead of what we saw in Q1 2025. It was, I would say, predominantly let kind of the over by the continued momentum of our Seequent business and mining just doing still very well. So as we said, that puts us in a pretty good position for our full year outlook range. But it's still -- Q1 is 20% of our ARR opportunity based on contract resets, and it's going to see that the rest of the year plays out well as well. Eric Boyer: The final question comes from Joshua Tilton from Wolfe Research. Joshua Tilton: I'll give you guys a break from the AI questions. Maybe just 2 points of clarification on my end. First, you talked about Seequent being really strong last year and expectations for it to be strong again this year. Are you -- do you expect it to accelerate again in 2026? And then my second part to that question is, on the other side of that, you kind of cautioned us -- or maybe I'm reading into a little bit, but you cautioned us around Virtuoso getting big and a churn dollar amount that you have to overcome each quarter. Is there anything we should think about or be paying attention to or anything unusual around that churn that you're trying to signal to us this quarter? Nicholas Cumins: Okay. I'll try to be brief since we are at the end of the scheduled time. So on Seequent, no, we don't expect further acceleration in a sense that as part of our plans for 2026, we assume the same level of growth that we've seen towards the end of 2025, right? So clearly, in 2025, there was an acceleration. And for 2026, we just assume, is it going to continue? And Q1 basically proves us correct, yes. On Virtuoso now, we just wanted to explain that in addition to solid growth coming from new logos, we now also have growth coming from existing accounts because in previous earnings calls, we were only talking about new logos. Now clearly, we've developed a new muscle here, which, by the way, also helps for retention. There's a clear correlation, which is if we see accounts using more than one product, then they will have a higher propensity of staying with us. But the overall retention rate remains stable at a high double-digit, very similar to what we've shared in previous quarters. It's just mathematics. It's a much higher base, of course. So indeed, there is a churn amount in terms of dollars that is to be compensated for. But that's it. It was just explaining all the different puts and takes and explains why even though we have this new muscle, you can see the growth being still very consistent with Virtuoso. Gregory Bentley: Maybe I'll just say -- in closing, your first question about acceleration, there hasn't been questions, particularly about geopolitical events in the world. But the notion that each country needs to be more self-sufficient in its defense and its resources and so forth, represents a commitment to investment in infrastructure, and it's not limited to resources. You need the resources for infrastructure, you need the infrastructure for resources. And I expect that to be not a short-term phenomenon to our benefit. Thank you. Eric Boyer: Thanks. That concludes our call today. We thank you for your interest in time in Bentley Systems, and we'll talk to you again next quarter. Nicholas Cumins: Thank you.
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: Ladies and gentlemen, thank you for standing by. My name is Duncan, and I will be your conference operator for today. I would like to welcome you to Absci Corporation first quarter 2026 business update. All lines have been placed on mute to prevent any background noise, and after the speakers’ remarks, there will be a question and answer session. Now I would like to turn the conference over to Alex Khan. Please go ahead. Thank you. Alex Khan: Absci Corporation released financial and operating results for the quarter ended 03/31/2026. If you have not received this news release, or if you would like to be added to the company’s distribution list, please send an email to investorsasci.com. An archived webcast of this call will be available for replay on Absci Corporation's Investor Relations website at investors.avsci.com for at least 90 days after this call. Joining me today are Sean McClain, Absci Corporation's Founder and CEO; Zach Jonasson, Chief Financial Officer and Chief Business Officer; and Ronti Somerotne, Chief Medical Officer. Before we begin, I would like to remind you that management will make statements during the call that are forward-looking within the meaning of the federal securities laws. These statements involve material risks and uncertainties that could cause results or events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements. These include statements regarding the development and clinical progress of our pipeline programs, including ABS-201; the design, enrollment, product, and timelines of our ongoing Phase 1/2a headline trial of ABS-201 in androgenic alopecia; anticipated timing of interim proof-of-concept data readout for ABS-201 in 2026; the potential advancement of ABS-201 into Phase 3 development; anticipated initiation of a Phase 2 clinical trial of ABS-201 for endometriosis in 2026, and a potential proof-of-concept readout in 2027; the anticipated characteristics and product profile of ABS-201 as a drug product; our target product profile and its attributes; the potential for an expedited development pathway, including the possibility of advancing directly from Phase 1/2a into Phase 3; our plan to engage with the FDA regarding development strategy; and the potential market opportunity and commercial prospects for ABS-201. Certain statements may also include projections regarding potential market opportunity. These estimates are based on various assumptions, including potential regulatory approval, the final approved label, and the evolving competitive landscape, any of which could cause our actual addressable market to differ materially from these projections. In addition, certain research findings discussed today reflect participant responses to a hypothetical product profile and do not represent clinical results for ABS-201. Additional information regarding the risks and uncertainties that could affect our forward-looking statements is set forth in the press release Absci Corporation issued today, our most recent annual report on Form 10-K, subsequent documents, and reports filed by Absci Corporation from time to time with the SEC. Except as required by law, Absci Corporation disclaims any intent or obligation to update or revise any financial or product pipeline projections or other forward-looking statements because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast on 05/07/2026. With that, I will turn the call over to Sean. Sean McClain: Good afternoon, everyone. Thanks for joining us. Today, I will cover three things: where we are on ABS-201, a new addition to our prolactin pipeline, and the strategy driving both. 2026 is going to be a data-rich year for Absci Corporation with multiple readouts in front of us. Ronti will go through the headline trial and discuss early PK modeling that supports our targeted dosing frequency. At a high level, the Phase 1/2a is on track. We expect to share preliminary safety, tolerability, and PK data next month; interim 13-week hair regrowth data in the second half of this year; and full 26-week proof-of-concept data early next year. ABS-201 is not intended to compete with minoxidil. We are aiming to create a new category of hair regrowth therapy—a targeted biologic against the prolactin receptor that provides durable hair regrowth from a few injections. If successful, ABS-201 could represent the first new mechanism of action in androgenic alopecia in nearly three decades and a fundamentally different treatment paradigm for patients. In parallel, we continue to advance towards initiation of a Phase 2 endometriosis trial in the fourth quarter. We recently launched our endometriosis Clinical Advisory Board with leaders from Yale, UCSF, Duke, and Mayo Clinic. They bring deep expertise across reproductive medicine, fertility, and translational research and will help guide ABS-201’s endometriosis program. Endometriosis has the same kind of opportunity as AGA—large, underserved, and underexplored—and ABS-201 has the potential to open up a new category of therapy there as well. As Zach will discuss, our top strategic priority is using our platform to create novel, differentiated assets. ABS-201 in AGA and endometriosis is the clearest expression of that. We go after hard problems, novel biology, and large patient populations with real unmet need. Our platform is built for this, and our philosophy has always been simple: follow the science, and follow the data. One of the places this has taken us is prolactin biology. Prolactin biology is underexplored, underappreciated, and often misunderstood. Even inside the medical community, the name prolactin can read as narrow, and some still think of it as a lactation hormone. It is much more than that. The more mechanistic insight we have generated on prolactin, the prolactin receptor, and related pathways, the more opportunity we see for this target—well beyond AGA and endometriosis. We have started sharing some of these insights with the medical community as part of a broader education effort. Today, we are announcing another anti–prolactin receptor antibody, ABS-202, for an undisclosed I&I indication. ABS-201 in AGA, ABS-201 in endometriosis, and now ABS-202 in I&I are just the start of our prolactin pipeline. The reason we can do this comes back to our people and our platform, OriginOne. We figured out early that having a good platform is not good enough on its own. We need the people who know how to push it, and in this industry, you also need the assets—novel and differentiated programs that can make a real difference in patients’ lives. The places where unmet need is largest tend to be where biology is most complex and underexplored, and that is exactly where our platform and our people excel. That overlap is also where the potential return on investment is highest, both for patients as well as our shareholders. Our focus remains being an AI-native company dedicated to developing and delivering novel, differentiated therapeutic assets for patients. As we roll out our agentic AI workflows across Absci Corporation, each of our functions is scaling. Across Research, SG&A, and other functions, we are unlocking real efficiencies and new capabilities. That is the focus, and that is what we are committed to delivering. With that, I will turn it over to Ronti, who will walk through the ABS-201 clinical program. Ronti? Ronti Somerotne: Thanks, Sean, and good afternoon, everyone. As Sean mentioned, we are pleased to share that our ongoing Phase 1/2a headline trial for ABS-201 is progressing well and tracking according to plan. As a reminder, this trial is a randomized, double-blind, placebo-controlled study. The primary endpoint is safety and tolerability, while secondary endpoints include PK, PD, immunogenicity, target area hair count, target area hair width, and target area darkening or pigmentation. We will also collect patient-reported outcome data from this study. In the headline trial, we have now finished dosing all four planned healthy volunteer single-ascending-dose cohorts and initiated dosing in the first multiple-ascending-dose cohort. To date, emerging safety and tolerability data remain favorable. Additionally, preliminary PK modeling from this clinical trial supports ABS-201’s targeted dosing interval of two or three injections over a months-long period. Next month, we anticipate sharing blinded preliminary safety, tolerability, and PK data from the SAD cohorts. In that update, we plan to share clinical data that support the safety profile and anticipated ABS-201 dosing interval. In the second half of this year, we plan to disclose interim proof-of-concept data, followed by full proof-of-concept data in early 2027. The 13-week interim is, by design, a directional view. The 26-week time point is the trial’s full POC readout. Given the regenerative nature of the mechanism and our targeted dosing interval, the biology may continue to drive hair growth beyond that point, which is consistent with the long-acting profile we are working towards. Zach will speak to how this positions ABS-201 well for commercial success. We also continue to explore plans to execute our targeted, efficient clinical development strategy, which could enable expedited clinical development with the potential of advancing directly to registrational trials following this Phase 1/2a study. With that, I will pass it over to Zach to discuss our business strategy and to provide an update on our financials. Zach? Zach Jonasson: Thanks, Ronti. We remain focused on creating and developing therapeutic programs that offer the highest potential return on investment. Our strategic priority is the execution of the ABS-201 headline trial, which supports our future registrational study plans for AGA and our Phase 2 clinical trial plan for endometriosis. As Ronti mentioned, we plan to share an interim POC readout, including 13-week hair regrowth data, in the second half of this year. Based on the mechanism and our preclinical data, we anticipate the 13-week interim readout will give a directional view of hair growth, with the 26-week full POC providing the trial’s primary efficacy readout. Given the regenerative nature of the mechanism, we anticipate hair growth to continue beyond the 26-week time point. Conversations with the scientific and medical community, as well as patients, continue to affirm our view of the significant return-on-investment potential for ABS-201 in AGA and endometriosis. We estimate that the capital required to advance ABS-201 through registrational AGA trials will be a fraction of the clinical costs required for other large indications, such as oncology and IBD. Moreover, we expect to be able to leverage the SAD and MAD portions of the current headline trial to support Phase 2 initiation in endometriosis, thereby saving time and cost. Considering the significant potential market opportunities of AGA and endometriosis in conjunction with our efficient development strategy, we believe that ABS-201 offers a unique and compelling ROI. Our market research supports a significant commercial opportunity for ABS-201. In our surveys of AGA consumers and dermatologists, we evaluated a target product profile consisting of 2.5 years of hair growth following three injections of ABS-201, with a hair growth effect of approximately 35 hairs per cm² versus baseline, similar to high-dose oral minoxidil. Results from our market research support a potential total available market exceeding $25 billion annually in the U.S., with meaningful potential upside if hair growth exceeds the survey threshold. ABS-201 has the potential to significantly expand the overall AGA market as a new premium category of durable, regenerative hair growth therapy. Our market research indicates the ABS-201 target product profile would attract not only AGA consumers dissatisfied with current standard of care, but also those who elect to use ABS-201 alongside existing standard of care, such as oral minoxidil or new formulations of oral minoxidil. Similarly, in endometriosis, ABS-201 has the potential to define a new category of therapy that has the potential to address not only pain, but also underlying disease. Endometriosis is prevalent in up to 10% of women worldwide, including an estimated 9 million women in the U.S. We believe ABS-201’s differentiated profile could support potential peak sales in excess of $4 billion. As Sean mentioned earlier, our second priority is building and prioritizing an early pipeline of differentiated programs that offer the highest potential return on investment. Accordingly, today, we are pleased to announce the deepening of our pipeline with the addition of a new anti–prolactin receptor antibody, ABS-202. This program, which leverages our prolactin biology expertise and our AI platform, enables us to expand into new indications where we believe prolactin receptor inhibition will offer a novel and efficacious treatment option. Conversely, we have determined that certain programs no longer fit within our strategic scope, and so we will be deprioritizing development of ABS-301 and ABS-501. We will no longer commit internal capital or resources to further development of these programs. Our capital and resources will be directed toward programs that offer the greatest potential ROI within our strategy. In addition to the two previously discussed strategic priorities, we continue to advance partnering discussions associated with our other internal programs, which are at various stages of preclinical and clinical development. Overall, our strategy remains focused on executing the development of ABS-201 in AGA and in endometriosis, and then further building a pipeline of differentiated programs that provide optionality for internal development or partnering. Turning now to our financials. Revenue in the first quarter was $200 thousand, as we continue to progress our partnered programs. Research and development expenses were $19.3 million for the three months ending 03/31/2026, as compared to $16.4 million for the prior-year period. This increase was primarily driven by advancement of Absci Corporation’s internal programs, including direct costs associated with external preclinical and clinical development of ABS-201. Selling, general, and administrative expenses were $9.1 million for the three months ending 03/31/2026, as compared to $9.5 million for the prior-year period. This decrease was primarily due to a reduction in personnel-related costs. Cash, cash equivalents, and marketable securities as of 03/31/2026 were $125.7 million, as compared to $144.3 million as of 12/31/2025. Based on our current projections, we believe our cash, cash equivalents, and marketable securities will be sufficient to fund our operating plans into 2028. Our current balance sheet supports our execution of key upcoming catalysts, including potential proof-of-concept readouts for both AGA and endometriosis, and continued progress of our early-stage pipeline. We also remain focused on opportunities to generate additional non-dilutive cash inflows that could come from early-stage asset transactions and/or new platform collaborations with large pharma. In particular, we believe our early pipeline programs may offer attractive partnering opportunities. At the same time, we are aggressively implementing agentic AI workflows across our organization, including in business and scientific functions. These implementations are already creating meaningful efficiency gains as well as capability gains. Going forward, we expect to continue to realize cost savings and productivity gains from advancement of our agentic workflows. With that, I will now turn it back to Sean. Sean McClain: Thanks, Zach. Before we open up for questions, I want to thank the team at Absci Corporation for the work they put in each and every day. The catalysts ahead this year are: one, preliminary safety and PK data for ABS-201 next month; two, interim 13-week proof-of-concept hair regrowth data in the second half of this year; three, initiation of a Phase 2 endometriosis trial in Q4, subject to data and regulatory review; and last, continued progress on our early-stage pipeline, including our newest prolactin program, ABS-202. Looking into early 2027, we expect full 26-week proof-of-concept data for ABS-201 in AGA. We will now open the call for questions. Operator: If you would like to ask a question, please press star followed by one. Thank you. Your first question comes from the line of Brendan Smith from TD Cowen. Your line is now open. Please go ahead. Brendan Smith: Hi, guys. Apologies. Can you hear me now? Sean McClain: Yes. Brendan Smith: Thanks for taking the questions, and congrats on everything going on here. I guess maybe just a quick follow-up on the 202 conversation. Can you help us understand a little bit more, even on a mechanistic level, the most important distinctions versus 201 in terms of why it would make sense for some indications versus others, and whether there is a difference to product profile or something about actual mechanism that makes sense for that distinction? Thanks. Sean McClain: Yes, absolutely. With ABS-202, we are creating a differentiated profile, and we also want to position this outside of AGA and endometriosis for other indications where there may be pricing differences. With regard to prolactin biology, we are very interested in how prolactin is driving some autoimmune diseases. It appears to sit on a stress–inflammatory axis and is also driving some interesting B-cell biology. You see prolactin receptor expression throughout the body—bone, immune system, endothelial cells, synovium—so we are continuing to expand the biology there as well as going into other indications with ABS-202, and additionally looking at bispecifics that could be synergistic with this mechanism. Brendan Smith: That is super helpful. And then maybe just quickly on the upcoming MAD efficacy readout with 201. Appreciate the color on how you are thinking about some of this data. Given how the space has evolved in recent months, are you thinking comparable efficacy with clean safety and differentiated dosing is enough to win given how big the market is, or do you think you will need to show superior efficacy? Help us understand those dynamics. Sean McClain: Yes, absolutely. Zach can touch on this more from the consumer quant study we did, but we believe having comparable efficacy to oral minoxidil with infrequent dosing would be a home-run product. That convenience factor with equivalent efficacy is compelling, and any efficacy above that increases the overall TAM of the opportunity. Zach? Zach Jonasson: I would be happy to comment. As you know, we conducted sizable consumer surveys and surveys with dermatologists. The takeaway is that the profile of ABS-201 would establish a brand-new category of therapy based on durability, infrequent dosing, and a truly regenerative mechanism. When we test a profile with efficacy consistent with at least some reports of high-dose oral minoxidil—around 35 hairs per cm² in target area hair count—we see massive potential for adoption, and that is how we get to a potential $25 billion TAM on a TPP that looks like that. We think this product would expand the overall AGA market. Many patients dissatisfied with current standard of care would come to ABS-201, and over a third of males and females we surveyed said they would come first line, even before trying a nutraceutical. We also saw many patients would elect to use both—an oral minoxidil in combination with ABS-201. As a premium, new category of therapy, ABS-201 is very well positioned. Analyst: Good afternoon, and thanks for taking our questions. A little bit of a similar question as it relates to ABS-201 and ABS-202. Are there differences in pharmacokinetics or binding? Is there anything you can tell us about upgrades in ABS-202? And I have a follow-up on the ABS-201 program after this. Thanks. Sean McClain: At this point in time, we are not disclosing the specific profile we are looking to achieve for ABS-202, other than the fact that we are planning to take this into a different indication. Analyst: Fair enough. As it relates to the 13-week readout, another company noted “appreciable improvement” at two months. It is a qualitative measure at an early time point. Is this what we should be expecting at 13 weeks, or should we be expecting something more methodical? Thank you. Sean McClain: The 13 weeks is really a directional readout. We want to see hair growth, and the 26-week is where we expect to see the oral minoxidil hairs-per–cm² effect. That is the final readout. The 13-week is directional, and given differences in hair growth and the mechanism, we want to reserve the 26-week as the final definitive readout. Arseniy Shabashvili: Hi, this is Arseniy on for Vamil. Thanks for taking my questions, and congrats on all the progress. You previously talked about 90% receptor occupancy being necessary to achieve the full therapeutic effect with the prolactin mechanism. Has anything you have seen in the trial so far shifted that perspective in any way, and do you think it is ultimately achievable with the dosing schedule that you need? Sean McClain: So far, what we are seeing supports that as achievable. Ronti? Ronti Somerotne: We are not looking at anything like hair growth in the SAD study, and we designed the dosing paradigm conservatively. In our scaling, we are confident we can hit that 90% receptor occupancy. This is something to look forward to with the MAD data and then the hair growth data. Arseniy Shabashvili: One more follow-up. Do you expect variability in therapeutic response among patients you enrolled—because of biomarker profile, age—or is there something about this mechanism where you think essentially every patient will respond at least to some degree? Ronti Somerotne: At this point, we seem to have a balanced enrollment of the various stages of the Norwood classification. There is nothing from a biomarker perspective that I would expect to predict a variation in response in the AGA population. It is a reasonably sized, randomized study, and in terms of baseline hair characteristics, we are pleased with how patients are distributing amongst the arms. At this point, I am not worried about something else causing inter-subject variability in the mechanism of action itself. Sean McClain: We have not seen any such signals in the in vivo or ex vivo experiments we have run to date either. Analyst: Hi, how is it going? This is Alex on for Kripa. Really exciting time at Absci Corporation. Two questions from us. One, when can we expect to learn more about the mechanism and the properties and indication for ABS-202? And then also, in your consumer survey, did you specifically test for patient preference and desire for combination therapy for ABS-201 and other currently approved products? Thanks. Sean McClain: At the moment, we are not planning on disclosing more than we have on ABS-202’s mechanism of action, though we are very excited about the overall opportunities. As we get closer to the clinic, we will disclose more, but from a competitive standpoint, we are not disclosing at this time. Zach, do you want to take the second question? Zach Jonasson: Yes, absolutely. In the survey itself, we did not specifically segment by combination-therapy questions. What we did see, which was really exciting, is very high intent to seek out the product if available: 87% of men and 69% of women said extremely or very likely. In subgroups already on standard of care, such as oral minoxidil, those numbers went up dramatically—to 92% for men and 89% for women. We clearly see stronger interest among those already using standard of care, supporting the new-category definition where patients will look to ABS-201 either to replace standard care they are dissatisfied with or to use on top of standard care. Debanjana Chatterjee: Hi, thanks for taking my question. I have a question on the endometriosis program. I know pain is a very common endpoint for these trials, but historically the high placebo response has been an issue with pain studies. What structural elements would you implement in this trial to control placebo response? And I have a follow-up. Ronti Somerotne: Thanks for the question. I learned a lot in my time at Vertex overseeing the pain program there. The pain aspect of these studies is ultra important. The crux is how you execute the trial. We will spend a lot of time making sure the sites are carefully chosen, the investigators are carefully chosen, and all partners understand how to mitigate placebo response. Placebo training is really important. We will be surveilling the blinded data for evidence of a placebo response. There is a lot of operational work that is not in the protocol because these are things you have to do in execution. We have also engaged the FDA on how we are approaching mitigation of placebo response. It is really important, heavily operational, and done behind the scenes. Debanjana Chatterjee: That is helpful. For ABS-202, I know for competitive reasons you cannot share many details, but is that something for internal development, or would you partner it given pricing differences for I&I indications? Sean McClain: We are open to both options for ABS-202. The current plan is to pursue it ourselves, but given the opportunity and market size, we are considering both internal development and partnering. Analyst: Hey, guys. Can you hear me? Sean McClain: Yes, we can. Analyst: Thanks for taking my question this afternoon. When you talk about the hair growth benchmark for success, you have guided to that for the AGA MAD portion. Can you clarify whether that benchmark is what you expect at the end of the 26th week? And if it is, can you help us think about what you would expect to see at the 13-week mark based on preclinical work? Sean McClain: Great question. Where we want to be at 26 weeks is definitely where oral minoxidil sits. At 13 weeks, we are not putting an official guide on that; we want to see directional hair growth. Given the biology and the new mechanism, we do not want to set unrealistic expectations. The best lens is the 26-week readout, where we want to be around oral minoxidil with infrequent dosing. Zach Jonasson: To add, our survey shows that if we have a TPP with an effect size similar to high-dose oral minoxidil—think in the 30s—with convenient dosing and durability, that is a home-run, category-defining product. There is still a product with efficacy below that as well, but the research suggests that threshold is fantastic. Analyst: Got it. Maybe going back to the PK data you have seen so far. You said the modeling supports a few-times-a-year dosing regimen. Can you give more color on the key parameters driving that conclusion? Ronti Somerotne: We are assessing PK from all SAD cohorts. We just started dosing the MAD cohorts, so we do not have MAD PK yet, but the SAD cohorts are developing nicely. We feel pretty good about being able to dose at least every eight weeks subcutaneously. We will have more color and a more refined estimation of dosing frequency in a few weeks when we share the data. Sean McClain: From the preliminary half-life and PK, we are feeling very optimistic and look forward to sharing the full data in June. Swayampakula Ramakanth: Thank you. Good afternoon, Sean and Zach. I have a couple of questions. One, you stated that you are deemphasizing oncology products. What are the reasons behind that, and what interest are you seeing from outside for these novel drugs? Sean McClain: From a strategy standpoint, ABS-201 in AGA is a direct-to-consumer type of product, and we want to build out products that support this. I&I makes a lot of sense in that context. Oncology does not support that particular go-to-market strategy we want with AGA. We have deprioritized oncology and will not fund those programs internally, putting focus on assets that support the lead asset, ABS-201, in AGA and endometriosis. Swayampakula Ramakanth: On partnerships, you have been talking about generating partnerships, including with large-cap pharma, but the cadence has been slower than in previous years. Are large-cap companies building their own tools, or are the economics not viable for you? Sean McClain: Our focus is driving the clinical development of ABS-201. We are continuing to look for pharma partnerships around our pipeline, but they have to make sense for us. We are a limited team and want synergy, so we are selective about who we partner with and how they help build the portfolio and support ABS-201’s go-to-market strategy. It is a focus, but it has to be strategically sound. Zach? Zach Jonasson: Internally, we have the capability to generate assets, and we believe we have a leading platform focused on challenging targets, as well as leadership in areas like prolactin biology. Our internal analysis shows we can generate better economic terms on partnerships focused on an asset—even at a preclinical stage—versus tying up resources for target-based platform partnerships. We have a number of assets coming toward DC this year, and several are earmarked for partnering to generate non-dilutive cash flow. The risk-adjusted NPV from creating assets and partnering those is a multiple of what it would be for platform target-based deals on a target- or program-by-program basis. The economics point us in that direction. Analyst: Hey, guys. You mentioned adopting more agentic AI into your business. How is this impacting your drug discovery process and business operations, and any near-term cost savings you can point to? Zach Jonasson: We are aggressively implementing agentic AI workflows throughout Absci Corporation, including in Science and R&D and across SG&A. We are already seeing significant efficiency gains and expect to realize those in cost reduction as well as capability gains on a go-forward basis. Even over the next few months, we should start realizing some of those gains. Arseniy Shabashvili: Hi, it is Arseniy on for Vamil. One more on the hair repigmentation opportunity. You previously talked about it as roughly the same size as the AGA market. What do you expect to see there that would be clinically meaningful? Would you consider pursuing it as a separate indication with additional studies, or as an extra claim in the label in addition to the AGA indication? Sean McClain: We are really excited about the potential for repigmentation. We see it as creating an even bigger market opportunity. Right now, it is an exploratory endpoint, and we will see how the readouts go at 13 and 26 weeks and then determine how to proceed. Ronti Somerotne: The repigmentation data emerging elsewhere are interesting and exciting. Mechanistically, it makes sense as a potential finding. We will see what we can see and plan accordingly. Operator: We have reached the end of the question and answer session. This also concludes our call for today. Thank you, everyone, for attending this call. You may now disconnect. Goodbye.
Operator: Thank you for joining us, and welcome to the nLIGHT, Inc. first quarter 2026 earnings call. To ask a question, please press star 1. To withdraw your question, please press star 1 again. I will now hand the conference over to John Marchetti, Vice President of Corporate Development and Head of Investor Relations. John, please go ahead. John Marchetti: Good afternoon, everyone. Thank you for joining us today to discuss nLIGHT, Inc.’s first quarter 2026 earnings results. I am John Marchetti, nLIGHT, Inc.’s VP of Corporate Development and the Head of Investor Relations. With me on the call today are Scott H. Keeney, nLIGHT, Inc.’s Chairman and CEO, and Joseph Corso, nLIGHT, Inc.’s CFO. Today’s discussion will contain forward-looking statements including financial projections and plans for our business, some of which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projected on today’s call, and we undertake no obligation to update publicly any forward-looking statement except as required by law. During the call, we will be discussing certain non-GAAP financial measures. We have provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in our earnings release and in our earnings presentation, both of which can be found on the investor relations section of our website. I will now turn the call over to nLIGHT, Inc.’s Chairman and CEO, Scott H. Keeney. Scott H. Keeney: Q1 represented an exceptional quarter for nLIGHT, Inc. with total revenue, gross margin, and adjusted EBITDA comfortably beating our expectations. First quarter revenue of $80 million grew 55% year over year and was driven by aerospace and defense revenue of $55 million, which grew 69% year over year. I am particularly pleased with the continued expansion of our product gross margin and record adjusted EBITDA in the quarter. Product gross margins were a record 44%, an increase from 33% in the same quarter a year ago, and our adjusted EBITDA was a record $14 million in the quarter. The expansion in our gross margins and the record adjusted EBITDA demonstrate the leverage that is inherent in our model and reinforces our commitment to growing the business profitably. I would like to focus my prepared remarks today on important developments within our directed energy market, which continues to be the most strategic and highest growth opportunity for nLIGHT, Inc. Directed energy remains a key priority for the U.S. and allied governments, driven by the need for highly scalable, low cost per shot solutions to counter a rapidly evolving threat environment. Our focus remains on supporting customers across a broad range of power and mission profiles, and we are increasingly engaged not only as a laser supplier, but also as a system-level partner. Importantly, we are seeing growing customer demand for solutions that emphasize the three keys to success in directed energy: power scaling, high brightness, and atmospheric correction—areas where we believe our two-decade investment in laser technology provides a meaningful competitive advantage and where we have consistently delivered for our customers. Today, we officially launched our Hades portfolio of scalable beam-combined high energy lasers and effectors with integrated atmospheric correction. Production-ready Hades is designed around nLIGHT, Inc.’s vertically integrated laser technology stack encompassing semiconductor laser diodes, fiber amplifiers, beam combination, and atmospheric correction. The platform architecture enables system growth to hundreds of kilowatts while maintaining pristine beam quality through advanced atmospheric correction, providing defense customers with a common modular foundation that scales from near-term operational deployments to higher power systems capable of addressing increasingly sophisticated and demanding threats. Each system can be integrated with existing beam directors, sensors, and battle management architectures, enabling rapid deployment across a broad range of military platforms and battlefield environments. One example of this power scaling is the work we are doing on the production of the one megawatt CBC high energy laser as part of HELSI 2. We remain on track for this program, and importantly, this laser is based on the same architecture that we use across all our Hades portfolio of CBC lasers, demonstrating the scalability of the platform to deliver solutions that address a wide range of mission scenarios—counter-UAS, counter-cruise missile, and more. We also continue to make progress on the U.S. Navy’s HELL CAP program where we are combining the 300 kilowatt CBC laser that we delivered under the HELSI 1 program with a nLIGHT, Inc. advanced beam control system that incorporates our proprietary adaptive optics for atmospheric correction. This work will help accelerate the development and deployment of future multi-100 kilowatt systems over the coming years. Looking ahead, we remain encouraged by the pipeline of directed energy opportunities, including follow-on production content, upgrades to existing platforms, and new prototype programs that should position us for continued growth over the next several years. Importantly, we have seen the U.S. government follow up on these program successes with increases to budgets associated with directed energy. There is currently nearly $400 million in each of fiscal 2027 and 2028 budgeted for directed energy prototypes and procurement. The overall annual budget for directed energy laser weapons increases to approximately $1 billion in each of the two fiscal years with the inclusion of high-power multi-100 kilowatt directed energy prototypes that are expected to be funded through the science and technology portion of the budget. We continue to believe that our differentiated CBC high power laser technology, combined with our advanced atmospheric correction capabilities and our U.S.-based manufacturing, positions us favorably to win meaningful new awards in the coming months and years. The growing pipeline of opportunities in our directed energy markets was a primary driver behind our decision to raise additional capital through a follow-on equity offering during the quarter. We raised over $190 million after fees and expenses, which combined with our existing cash leaves us with approximately $330 million on our balance sheet. We intend to use a portion of these proceeds to build out and equip our new 50,000 square foot manufacturing facility in Longmont, Colorado, invest ahead of our demand and supply chain, and increase staffing to help accelerate new directed energy product development. In summary, our strategy remains consistent: leverage our vertically integrated technology platform, execute with discipline on existing programs, and invest to accelerate and support long-term growth and value creation. We believe this approach positions nLIGHT, Inc. well not only for the remainder of 2026, but for the multiyear opportunities ahead. Let me now turn the call over to Joseph to discuss our first quarter financial results. Joseph Corso: Thank you, Scott. We had a very strong first quarter. We delivered our fifth consecutive quarter of product revenue growth, and exceptional operational execution enabled us to generate record product gross margins in the quarter. Continued operating expense discipline enabled much of the incremental gross margin to fall through to adjusted EBITDA, which was also a quarterly record. At the same time, our continued focus on working capital management and targeted CapEx enabled us to generate positive operating cash flow for the third consecutive quarter. We significantly strengthened our balance sheet through a well-received equity offering in February, and we remain on healthy financial footing to pursue the growth opportunities we have in front of us. Turning to the numbers. Total revenue in the first quarter was $80.2 million, an increase of 55% compared to $51.7 million in 2025 and down 1% compared to the fourth quarter of 2025. Aerospace and defense revenue was $55.1 million in the quarter, up 69% year over year. A&D growth was driven by record A&D product revenue, which grew 98% year over year and 10% sequentially. Development revenue of $22 million grew 38% year over year as we continue to execute on multiple directed energy and laser sensing programs. The quarter-over-quarter decline of 16% was primarily due to the successful delivery of our 50 kilowatt DEM shorehead high energy laser effector in 2025, partially offset by continued increases associated with our work on HELSI 2. First quarter revenue from our commercial markets, which include industrial and microfabrication, was ahead of our expectations at $25 million, an increase of 32% year over year. Revenue from our microfabrication markets was slightly better than our expectations at $13 million. Revenue of $12 million from our industrial markets benefited from increased demand for additive manufacturing products and an increase in sales associated with last-time buys for our cutting and welding products. As we announced last quarter, we are exiting our legacy cutting and welding markets, and we do not expect to generate material revenue from these markets after the second quarter. Total gross margin in the first quarter was 33.1%, compared to 26.7% in 2025 and 30.7% last quarter. On a non-GAAP basis, excluding the costs associated with stock-based compensation, total gross margin in the first quarter was 34.4%, up from 27.8% in the same period last year and 31.6% last quarter. Product gross margin in the first quarter was a record 43.6%, compared to 33.5% in 2025 and 37.3% last quarter. First quarter product gross margin was positively impacted by favorable customer and product mix, driven by record product revenue from our A&D markets, and an overall increase in volume. Non-GAAP product gross margin in the first quarter was 44.6%, compared to 35.1% in 2025 and 38.6% last quarter. Development gross margin was 5.1%, compared to 11.5% in the same quarter a year ago and 16.8% last quarter. The variability in development gross margin is primarily the result of contract mix and the timing of program deliverables in any given quarter. Non-GAAP development gross margin in the quarter was 7.2%, compared to 11.5% in the same period a year ago and 16.8% last quarter. GAAP operating expenses were $27.2 million in the first quarter, compared to $23.4 million in 2025 and $30.4 million in the prior quarter. The year-over-year increase in GAAP operating expenses is primarily due to higher stock-based compensation. Non-GAAP operating expenses were $17.1 million in the quarter, down from $17.8 million in 2025 and down from $18.4 million last quarter. We expect non-GAAP OpEx to remain in the $17 million to $19 million range for the balance of the year. The company achieved positive GAAP net income in the first quarter of $645,000, or $0.01 per diluted share, compared to a net loss of $8.1 million, or $0.16 per share, in the same quarter a year ago and a loss of $4.9 million, or $0.10 per share, in the fourth quarter of 2025. On a non-GAAP basis, net income for the first quarter was $11.8 million, or $0.20 per diluted share, compared to a non-GAAP net loss of $1.9 million, or $0.04 per share, in 2025 and non-GAAP net income of $7.8 million, or $0.14 per diluted share, last quarter. Adjusted EBITDA for the first quarter was a record $13.9 million, compared to $116,000 in the same quarter last year and $10.7 million in the fourth quarter of 2025. We ended the first quarter with total cash, cash equivalents, restricted cash, and investments of $332.9 million, which includes approximately $191 million of net proceeds from our February follow-on offering. While revenue growth remains the primary objective for nLIGHT, Inc., we also want to manage working capital so that, over time, we can grow profitability and cash flow faster than revenue. In the first quarter, our cash flow conversion days were 97 compared to 125 days during 2025. We generated $9.7 million in cash from operations during the quarter. Turning to guidance. Based on the information available today, we expect revenue for the second quarter of 2026 to be in the range of $75 million to $81 million. The midpoint of $78 million includes approximately $58 million of product revenue and $20 million of development revenue. We expect sequential growth from our A&D markets in the second quarter. Overall gross margin in the second quarter is expected to be in the range of 29% to 33%, with product gross margin in the range of 37% to 41%, and development gross margin of approximately 8%. As we have mentioned previously, in a vertically integrated manufacturing business, gross margin is largely dependent on production volumes and absorption of fixed manufacturing costs. Finally, we expect adjusted EBITDA for the second quarter of 2026 to be in the range of $8 million to $12 million. With that, I will turn the call over to the operator. Operator: We will now open the call for questions. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please 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 standby while we compile the Q&A. Your first question comes from the line of Peter Arment with Baird. Your line is open. Please go ahead. Analyst: Good afternoon, Scott, Joe, and John. Nice results. Scott, I was wondering if you could maybe give us—you touched upon the funding environment, and you called out a few things around directed energy. How should we think about the timing of all that and how you are expecting it? I know timing around all this can be lumpy, but what are your thoughts? Scott H. Keeney: Thanks for the question. As we noted, the budget provides some insights into the importance of directed energy, and the data that we are showing is the President’s budget. It will take time to work its way through Congress, but I do think that there is signal there. Notably, we are seeing increases from OSD within the core directed energy—the Principal Director—and various programs that are going on there, and I think that we do have insights into the priorities that have been put forward that further reinforce this. As you know, the budget process takes time to work its way through Congress, and we hope to have more insights in the coming quarters there, and certainly you can read the comments from leadership with respect to directed energy. Analyst: Got it. And just as a quick follow-up, the Hades scalable high energy lasers family that you launched today—can you talk a little bit about the positioning there versus some of your other products and how you are thinking about that? Scott H. Keeney: Thanks for asking that. It is something that we have been working on, and we are very excited about this product family. It is our platform for scaling to higher power, and so we are starting with the greater-than-50 kilowatt class, but it will continue to scale, and that is one of the key benefits to coherent beam combining. It also provides for a brighter beam, a laser beam that can be focused more effectively, and then finally, it provides for the ability to correct for the atmosphere. All three of those features we believe are very important, and it also is in a form factor that is smaller than other products, and one that we have integrated into the Stryker as we have talked about, and can be integrated in other platforms. It is an exciting announcement, and we will be making further announcements as we continue to migrate that product family. Analyst: Appreciate the color. I will jump back in the queue. Thanks. Operator: Thanks. Your next question comes from the line of Louis DePalma with William Blair. Your line is open. Please go ahead. Analyst: As a follow-up to the question on Hades, can the Hades platform be integrated into aircraft, as there was a defense contractor in Israel that recently discussed the incorporation of high energy lasers into aircraft and helicopters? It would seem to be a large addressable market. You mentioned how Hades can be incorporated into the Stryker and other platforms. Could you provide some potential color on those other platforms? Scott H. Keeney: Absolutely. The platforms that we have talked about in more detail are the Army, the Stryker—and by the way, that is just one platform. What ultimately will be the right platforms is to be determined, but I think it is a challenging platform to integrate; it is a very small space. Certainly, the Navy has a number of opportunities for integration, and so the small size of Hades is important for those, but as you noted, it becomes even more important as you look at airborne applications. One of the topics that we talked a bit about is our leadership with respect to SWaP—size, weight, and power. We have leading performance in that area, and that provides a very good foundation for airborne platforms also. Obviously, you would engineer the product to be different in those platforms, but we do have leadership with respect to SWaP also. Analyst: Thanks. There also seems to have been progress with the Army’s 30 kilowatt Enduring High Energy Laser program. Is there the opportunity for you to serve as a supplier for that program or other programs below the 70 kilowatt threshold that you have established with Hades? And related to this, how do you view competition between the 70 kilowatt and above class versus the class of lasers below 70 kilowatts? Scott H. Keeney: That is a very good question. The short answer is yes. We are excited about the work that we are doing with partners in the lower power space like the 30 kilowatt, where we provide key components that go into that, and it is indeed different from Hades. It does not require the same level of sophistication with respect to the coherently combined sources for higher power. So we are partnered with others to provide those components at the lower power level, and as the requirements go up to higher power, that is where Hades comes in. I think we are uniquely positioned there to provide not only the higher power, but also the higher beam quality and the atmospheric correction for those threats that require a more sophisticated laser source. Analyst: Thanks for the color. Thanks, Scott, Joe, and John. Operator: Your next question comes from the line of Jonathan Siegmann with Stifel. Your line is open. Please go ahead. Analyst: Hey, good afternoon, Scott, Joe, and John. Thanks for taking my question. Sales and margins were fantastic. It sounds like within products, both sensing and directed energy were increasing. Just hoping to get a sense on which horse was leading the pack in the quarter, and then thinking about how margins demonstrated 500 basis points of upside relative to your own high end of your guidance range for products—should we think of that as just being the operating leverage of the higher sales, or how much was mix contributing? Thank you. Joseph Corso: Great, thanks for the question, Jonathan. We had a good quarter across the board. All of our products fared well during the quarter—from directed energy to laser sensing—and even if you look at the end markets, our industrial and microfabrication markets performed well. As you think about the upside relative to the guidance, about half of it was just volume-related—leveraging overhead and selling more through the factory and keeping the factory more occupied—and then the other half was a combination of slightly higher margin mix. There can be a pretty big mix within any given quarter, and this quarter we saw very nice mix as we continue to control costs. So I think, again, it was a good quarter that we were firing on all cylinders. Analyst: Thank you. And maybe I will slip one on Hades too, which has to be one of the best franchise names in defense right now. You have talked a lot about how coherent is differentiated and scalable over high power, but you introduced the 30 and the 10 kilowatt systems and talked about having proprietary beam quality that would not be coherent. Can you talk a little bit about what is differentiated in that class of power and what is your company’s right to win in those areas? Scott H. Keeney: Thanks for the question. Just to replay, there are only two ways to combine lasers to preserve a very bright coherent laser source: spectral beam combining and coherent beam combining. We have a very strong position that, as you go up in power, coherent beam combining is the best way to scale to higher power, to provide a brighter source, and to also more effectively allow for atmospheric correction. For lower power, we do provide spectral beam combined sources, and again, we work with other partners to provide components and combined laser sources there. We do not integrate it into the full effector with the beam director in that space. We have, as I mentioned, leading SWaP—size, weight, and power. We have high reliability. We have lasers that are serviceable. There is a whole host of differentiation that we have that is the result of 25 years of building lasers for a broad range of industrial and defense applications that allows us to serve that market well, but we do not integrate as far forward in the lower power space. Does that help answer your question? Analyst: Thank you. I think I misunderstood the website. I thought the 10 were new products. Appreciate the clarification. Operator: Your next question comes from the line of Greg Palm with Craig-Hallum. Your line is open. Please go ahead. Analyst: Good afternoon. Thanks for taking the questions. Going back to segment results, what drove—most of the upside was actually in the industrial segment. Can you just maybe talk about what surprised you there? Joe, you talked about some last-time buys. Presumably, maybe that continues into Q2. But what are we now expecting for the full year relative to that $25 million to $30 million number you gave last quarter? Joseph Corso: Thanks, Greg. The upside in industrial was a little bit better than we expected around producing revenue and taking orders for last-time buys in our cutting and welding business, but the brighter upside spot really was additive manufacturing. We had a nice quarter in additive manufacturing, and we are seeing that business continue to show better growth than we had anticipated going into the quarter and into the balance of the year. As you know, it is difficult to predict. We do not guide on a full-year basis because we do not have the amount of visibility that we do in the defense business. But I think relative to what we said during our last earnings call, things have gotten better, and so we are starting to chip away at that hole that we talked about. There is still a lot of work that we need to do as we go through the year to really close that. Analyst: Okay. And then, Scott, going back to some of the budget items—and I want to go back to some of the comments in the last call as well—talking about a number of new real prototypes that you are going after at different power levels. Can you give us maybe an update on when we should hear more on some of those programs that you alluded to last quarter? Scott H. Keeney: I would like to predict how Congress will work this year, but I have enough experience to know that there are error bars around that. The budget numbers that we provided were the President’s budget requests, and that will work its way through the appropriations process in the coming quarters. We should have more insights this fall, but those can be delayed. More specifically, there are opportunities for specific programs in the current budget that we certainly will announce when we are able to do so. The higher-level budgets will take time for that process to work itself out. Analyst: But just to be clear, the prototypes that you alluded to last quarter—was that not current fiscal year budget, or was that for 2027? Scott H. Keeney: That was for 2027. Analyst: Okay. Alright. Thanks for the color. Operator: As a reminder, if you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please 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 next question comes from the line of Troy Jensen with Cantor Fitzgerald. Your line is open. Please go ahead. Analyst: Hey, gentlemen. Congrats on the stellar numbers here. Maybe just a question for anyone. Are there any capacity constraints? What I am getting to is $81 million in revenues in December, $80 million in March. The high end of guide here is $81 million for June. What needs to happen for you to break through that level? Joseph Corso: Short answer, Troy, is we are not capacity constrained today. We have done a great job of improving both the capacity on the lasers that we are building as well as the efficiency with which we are building those lasers. We talked about what we were adding in Longmont. So today, capacity really is not an issue. What we need to continue to break through that $80 million threshold is demand signals from our customers, U.S. government, etc., which we are starting to get, but we have no concerns at all today on capacity. Analyst: Got it. So new wins will be easy to fulfill as they come in. And just, Joe, on the gross margin guidance—you started the call highlighting 44% product gross margins and it seems like it should stay around this level. What would get it down to the lower end of the guidance range, or do you think it starts to creep higher here? Joseph Corso: The primary factor of our margin is really volume—both the volume that we are putting through the factory and what we are selling through to the customer in any given quarter. Beyond that, it is really just the mix of the products as we go through the quarter. On average, as we have gotten out of China and narrowed our focus—particularly with the last-time buys with customers in cutting and welding—the overall product margins, or the band on the margins of the products that we are selling, are becoming less variable, but there is still some variability as we go quarter to quarter, and that will also have an impact. We are not talking about huge numbers here, so the margins can swing a couple hundred basis points, and there is really not all that much to read into it. We are happy that we have been able to get to a point today where we are consistent at 40% or above product gross margins. Analyst: Great. Last one here for Scott. If I remember correctly, I think the delivery date for the one megawatt laser was sometime in 2026. Correct me if I am wrong. What is the highest power you have shown to date, and thoughts on hitting the deadline? Scott H. Keeney: Thanks, Troy. You are referring to the HELSI 2 program that is targeting a megawatt-class laser. In HELSI 1, we exceeded 300 kilowatts in that program, which led to the award for HELSI 2. We are tracking to that program; however, it is not a delivery of a product—it is a demonstration of that technology. As soon as we are able to provide more insights into that, we will certainly do so. I am comfortable saying that we are on track, there is progress, and we are learning a lot from what it takes to scale to much higher power levels. Things are on track and going well. Analyst: Great. Great. Keep up the good work. Operator: There are no further questions at this time. I will now turn the call back to John Marchetti for closing remarks. John Marchetti: Thanks, everyone, for joining us this afternoon and for your continued interest in nLIGHT, Inc. We will be participating in several investor conferences over the next several weeks. We look forward to speaking with you during those events and throughout the remainder of the quarter. Have a great afternoon. Operator: This concludes today’s call. Thank you for attending. You may now disconnect.
Operator: Welcome to Sensus Healthcare, Inc. First Quarter 2026 Financial Results Conference Call. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Leigh Salvo with New Street Investor Relations. Please go ahead. Leigh Salvo: Good afternoon. And thank you all for joining today's call to discuss Sensus Healthcare, Inc.'s First Quarter 2026 Financial Results. Joining me from Sensus Healthcare, Inc. are Joseph C. Sardano, Chairman and Chief Executive Officer, Michael J. Sardano, President, Chief Commercial Officer and General Counsel, and Javier Rampolla, Chief Financial Officer. As a reminder, some of the matters that will be discussed during today's call contain forward-looking statements within the meaning of federal securities laws. All statements other than historical facts that address activities Sensus Healthcare, Inc. assumes, plans, expects, believes, intends, or anticipates, and other similar expressions such as will, should, or may occur in the future, are forward-looking statements. The forward-looking statements are management's belief based upon current available information as of the date of this conference call, 05/07/2026. Sensus Healthcare, Inc. undertakes no obligation to revise or update any forward-looking statements except as required by law. All forward-looking statements are subject to risks and uncertainties as described in the Company's Forms 10-K, 10-Q and other SEC filings. During today's call, references will be made to certain non-GAAP financial measures. Sensus Healthcare, Inc. believes these measures provide useful information for investors, yet they should not be considered as a substitute for GAAP, nor should they be viewed as a substitute for operating results determined in accordance with GAAP. A reconciliation of non-GAAP to GAAP results is included in today's press release. With that, I would like to turn the call over to Joseph C. Sardano. Joe? Joseph C. Sardano: Thank you, Leigh, and good afternoon, everybody. We appreciate you joining us today. 2026 represents an important transition period for Sensus Healthcare, Inc. With the dedicated CPT codes for superficial radiotherapy now in effect as of January 1, we are operating in a fundamentally different environment than ever before. We are tasked with the responsibility of helping our entire industry pivot to the new reality. For quite some time, two factors weighed heavily on our business: customer concentration and the absence of reimbursement clarity. Today, we believe both of those factors are beginning to shift in a meaningful way. I would like to frame our discussion around five priorities that we believe will define our progress in 2026 and provide a clear framework for tracking our execution over the course of the year. Number one, educate the market on the new reimbursement and train them on how to utilize the codes. Two, drive customer adoption following CPT code implementation. Three, grow our recurring and utilization-based revenue streams. Four, diversify and strengthen the commercial model. And last, number five, deliver sustainable profitability. Our entire first quarter was dedicated to helping existing customers and new prospects better understand the new reimbursement coding. Initial results are excellent. The coding is simple and straightforward, and for those who have billed CMS under the new coding, they are already seeing a smooth transition by the payers as our users receive reimbursements. Both physicians and patients will continue to grow in confidence that SRT is receiving full funding. Which brings us to customer adoption and CPT impact. One of our strategic priorities is converting the new reimbursement environment into broader customer adoption and a more diversified installed base. During the first quarter, we began to see the benefits of the new CPT codes move from concept to commercial reality. With reimbursement now clearly defined and physician economics significantly improved, including approximately a 300% increase in the per-fraction delivery code, we are seeing increased inquiry levels, stronger pipeline development, a growing pipeline of qualified opportunities as of quarter end, and greater engagement from dermatology practices and hospital systems. We shipped 14 SRT systems during the quarter, including 10 direct sales and four placements under the Fair Deal Agreement program as well as rental arrangements. Importantly, these shipments reflect continued progress in broadening our customer base and meaningfully reducing historical customer concentration. We were able to match our sales from Q4, which we believe we will improve upon quarter over quarter for the balance of the year and into 2027. We saw strong momentum coming out of several major dermatology conferences during the quarter where physician interest and engagement levels were among the highest we have experienced. These events continue to be a critical driver of our pipeline growth and customer education as awareness of the new reimbursement environment increases, in addition to the benefit of SRT as a non-invasive alternative to Mohs surgery. Patients are deciding more and more their preference to avoid surgery. Recurring revenue growth and the FDA plus software. Another priority is expanding recurring revenue streams tied to utilization of our installed base and new prospects. There are still groups who prefer a shared service program, as indicated by the four of 14 units shipped in Q1. We are confident this will continue to grow. Our Fair Deal Agreement program continues to be a driver of utilization-based revenue. During the quarter, treatment volumes increased 8% over 2025, and we continue to increase the number of patients. We ended the quarter with 18 active FDA sites and nine pending activations. As we have said previously, FDA placements often serve as a bridge to system ownership, and we continue to see that dynamic play out as customers better understand the economics under the new reimbursement environment. Importantly, we are now taking additional steps to expand recurring revenue through software and services. The introduction of SensusLink represents an important evolution of our model, enabling enhanced workflow, treatment documentation, and operating intelligence across our installed base, while creating a scalable recurring revenue opportunity tied to treatment activity. We view this as an important step in evolving our business model toward a more predictable and recurring revenue profile in the future. Over time, we expect recurring revenue including FDA, service, and software to represent an increasing percentage of total revenue, which historically has been about 10%. Commercial expansion and diversification. Our next priority is broadening commercial reach through access to our technology and reducing volatility by creating more ways for customers to acquire and use Sensus Healthcare, Inc. systems. We are seeing increased interest across a wider range of customers including independent dermatology practices, group networks, hospital systems, and private equity-backed platforms. To support this, we recently launched Sensus Healthcare Financial Services, which provides a streamlined pathway for customers to acquire our systems through flexible financing options. Since launch, we have begun actively engaging with prospective customers to utilize this platform and are seeing improved conversion rates on late-stage opportunities. We are also seeing a shift in customer preference towards purchase compared to prior periods where Fair Deal Agreement program participation was the primary entry point. We now have to ask the question: Why do you want to give up 50% of your revenue when one patient procedure per month represents your breakeven? Profitability. Our priority is translating stronger demand, a growing recurring revenue base, and disciplined expense management into profitability. We are entering this new phase with a strong balance sheet, including $18.3 million in cash and no debt. While our first quarter results continue to reflect transition away from historical customer concentration, we believe the combination of improved reimbursement, a more diversified customer base, expanding recurring revenue streams, and disciplined expense management positions us to deliver improved financial performance over the balance of 2026 with the objective of achieving full-year profitability. With that, I will turn the call over to Michael to provide more detail on our commercial execution and growth initiatives. Michael? Michael J. Sardano: Thanks, Joe. I will focus on how our commercial model is evolving and how we are executing against the priorities Joe just outlined. The most important change we are seeing is that reimbursement clarity has fundamentally reshaped how customers evaluate and adopt SRT. Importantly, this is shifting SRT from a considered option to a financially actionable decision for more and more practices. Customers now have multiple pathways to adoption, including outright purchase, leasing structures, and the Fair Deal Agreement program. In the first quarter, approximately 70% of systems shipped were purchased versus FDA. Average breakeven for customers is now two patients per month, and we are seeing a higher percentage of customers electing ownership earlier in the adoption cycle. From a pipeline perspective, we are seeing increased conversion activity across the board as customers move from evaluation to decision making. A key driver of this momentum has been our participation in several major dermatology conferences during the quarter. These conferences generated new leads, physician engagements and demos, and a meaningful increase in follow-up activity and site evaluations. Importantly, our decision to refine our conference and trade show strategy to prioritize high-yield events where purchasing decisions are actively being evaluated is paying off in our pipeline. Physicians are becoming more aware of the new CPT codes and improved economics of SRT. On the recurring revenue side, our focus is on increasing utilization across the installed base and expanding monetization through additional capabilities. SensusLink is an important part of this strategy, as it enables us to bring advanced functionality to both new and existing systems while also creating a pathway for ongoing service and software revenue tied to treatment workflows. On the installed base, total SRT systems now stand at approximately 965 units globally. We expect the rollout of SensusLink, which provides advanced operating capabilities to our SRT-100 installed base, to begin to take shape and increase interest in SRT significantly this year. Over time, we believe this will support increased utilization, improve customer retention, and create a recurring revenue stream tied directly to system usage. International markets continue to represent an important growth opportunity for Sensus Healthcare, Inc. We are seeing continued demand in key markets such as China and expect additional diversification over time as we expand into new regions. International sales also provide attractive margin characteristics due to lower servicing requirements. Domestically, we are taking a disciplined approach to scaling our sales organization in 2026. Our focus is on expanding selectively, increasing market education, and improving conversion efficiency. Overall, the underlying performance of our business will continue to improve as a combination of reimbursement clarity, expanded adoption pathways, and a more diversified commercial strategy positions us well for sustained growth and profitability. With that, I will turn the call over to Javier for a review of the financials. Javier Rampolla: Thank you, Michael, and good afternoon, everyone. I will briefly review our financial results for 2026, starting with revenue. Revenue for the quarter was $3.4 million compared to $8.3 million in the prior-year period. The year-over-year decrease was primarily driven by the absence of sales to our historically largest customer as well as a lower number of total units shipped. As a reminder, the prior-year period included a significant number of direct sales to that customer. In the current quarter, we had no sales to that customer, which reflects our ongoing transition towards a more diversified customer base. Importantly, excluding sales to that customer in the prior-year period, revenue increased compared to $2.7 million, demonstrating underlying growth driven by a broader mix of customers. In addition, a portion of systems shipped during the quarter were under the Fair Deal Agreement program and rental arrangements, where revenue is recognized over the term of the agreement rather than at the time of shipment. As a result, these placements contribute to revenue over time rather than upfront. Turning to cost of sales. Cost of sales was $2.4 million compared to $4.0 million in the prior-year period. The decrease was primarily driven by lower unit volumes, again reflecting the absence of sales to our historically largest customer, as well as the shift towards FDA and rental placements. Moving to gross profit and margin. Gross profit was $1.0 million compared to $4.4 million in the prior-year period, and gross margin was 29.2% compared to 52.2% in 2025. The decline in gross margin was primarily driven by product mix. This includes a higher proportion of international shipments, which carry lower average selling prices, as well as costs associated with the new system placements under our Fair Deal Agreement program. As utilization increases, these arrangements are expected to contribute more meaningfully to revenue and margin over future periods. Turning to operating expenses. General and administrative expense was $2.0 million compared to $2.2 million in the prior-year period, with the decrease primarily driven by lower professional fees. Selling and marketing expenses were $1.7 million compared to $2.2 million in the prior-year period. The decrease was primarily due to our decision to lower trade show-related spending to focus on events with the highest potential for sales generation. Research and development expense was $1.6 million compared to $2.6 million in the prior-year period. The decrease reflects lower lobbying costs related to reimbursement efforts as well as reductions in headcount and product development spending for next-generation systems. Adjusted EBITDA for 2026 was negative $4.2 million compared with negative $2.5 million for 2025. Adjusted EBITDA, a non-GAAP financial measure, is defined as earnings before interest, taxes, depreciation, amortization, and stock compensation expense. Please see our earnings release issued earlier today for a reconciliation of GAAP and non-GAAP financial measures. Other income was $0.1 million compared to $0.2 million in the prior-year period and relates primarily to interest income. Net loss for the quarter was $2.6 million, or $0.16 per share, consistent with the prior-year period. Finally, we continue to maintain a strong balance sheet, ending the quarter with $18.3 million in cash, no debt, and inventory of $16.5 million, an increase from $14.6 million as of 12/31/2025. This inventory level positions us to continue to meet demand in the coming quarters for both direct and for placements under the Fair Deal Agreement program. Before I turn the call back to Joe, I would like to provide some perspective on how we are thinking about the remainder of the year. We expect second quarter revenue to be higher than first quarter, and we also expect revenue in the second half of the year to be higher than the first half as we continue to build on the momentum we are seeing in our pipeline and customer engagement. From a margin perspective, as discussed earlier, first quarter gross profit and margin reflect the impact of product mix, including a higher proportion of international shipments, as well as costs associated with new system placements under our Fair Deal Agreement program. As utilization under these arrangements increases and revenue is recognized over time, we expect these dynamics to evolve over the course of the year. With that, I will turn the call back to Joe. Joseph C. Sardano: Thank you, Javier and Michael, for those updates. Before we open the call for questions, I want to reiterate that we believe SRT is increasingly being viewed as a compelling noninvasive treatment option that allows practices to expand patient access, improve workflow efficiency, and offer an alternative for treating patients with non-melanoma skin cancer. The new dedicated CPT codes for superficial radiotherapy significantly improve physician reimbursement and support broader adoption of our technology while benefiting patients with certainty of coverage for noninvasive treatment options. As we move through 2026, we remain focused on executing against our five priorities: education and training, accelerating customer adoption, expanding recurring revenue, broadening our commercial reach, and driving Sensus Healthcare, Inc. toward profitability. We believe we are still in the early stages of this transition and look forward to updating you on our progress throughout the year. Thank you for your continued support. Operator: We will now open the call for questions. Your first question today comes from Anthony V. Vendetti with Maxim Group. Anthony V. Vendetti: Joe, how are you doing? Hey, Mike. My first question is a two-part question. Your largest customer, which I think you had 15 units sold to in 2025, so with zero in first quarter 2026, it is not too surprising that revenue is down over 50%. When you said second quarter should be higher than first quarter, should we look at your largest customer, who is not buying any units right now, as upside if they come back? Are you internally assuming they do not come back, and if they do, it is upside? And then I have a follow-up question. Joseph C. Sardano: If they do come back, it is upside. We have not included them in our model for this year, but that does not mean they cannot figure out the new model they have to come up with so that they can remain strong in the market. Anthony V. Vendetti: Okay. So it is still a possibility. Then, with the new CPT codes that took effect January 1 and the approximately 300% increase in the per-fraction delivery code, are you seeing that translate into shorter sales cycles or a bigger pipeline of new business? If there is a pipeline, has it just not yet converted into revenue and you expect it to in time, or is it taking a while for the pipeline to build even though the code has significantly increased? Joseph C. Sardano: I will give you an overview, and then I will let Michael handle it since he was responsible for working directly with CMS to gain those codes. What we are seeing on an overall basis is that interest has increased significantly because of the dedicated and guaranteed coding system for SRT for dermatology. In the past, that did not exist. They were orphan codes that mostly came from ASTRO, and these new codes are specific to dermatology and to SRT. So we are excited for all of that. Regarding the interest from the field, more and more offices are contemplating bringing SRT into their practice because of those codes. Very clear, very obvious. Many are deciding whether they want to go with an FDA, an outright purchase, or a fair market value lease. They are taking it seriously because now all of these sites can consider this a long-term decision for their practice since those codes are in place. Michael? Michael J. Sardano: Sure. Thanks, Anthony. Great question. Joe covered most of it. The thing I will add is that on January 1, 2026, all of the codes took effect, but when it comes to coding and reimbursement, you do not know whether you are going to get paid or how the structure works until after you bill that patient and wait the four to six weeks. So people were not able to see the EOBs of these patients until mid-February to early March when you started treating patients. With those EOBs coming in, now we have actual proof, like Joe said, that we are getting paid. Private insurance, Medicare, Medicaid, CMS, etc., are paying these new codes the way they are supposed to. Now that we have that black-and-white proof, it is in our sales team’s hands, and we are giving it to the market. A big point we did not touch on is that our largest show of the year, AAD, took place March 27 to 31. Those leads could not close in Q1, so they are moving into Q2. I am very confident going into Q2 compared to Q1. As I said on the call, we expect to continue to grow and improve throughout the year, quarter over quarter. As Javier mentioned, we have more recurring revenue shipments than we have ever had before. From an FDA standpoint and also this rental model, as we get 10 rental contracts, then 30, then 40 or 50, we are quickly transitioning to a more recurring revenue base that will require patience. We are transitioning in a way investors have asked for over the last ten years—more recurring revenue, not solely focused on one revenue source—and now we are achieving that. I think we will see improvement on that. Anthony V. Vendetti: That makes sense. As best you can, can you timeline it for us? As you build this pipeline of recurring revenue and the Fair Deal Agreement, do you feel like, whether this quarter, next quarter, or sometime in 2026, you lap that pipeline and then it is easier to see revenues grow? Is there an inflection point you are looking for? Michael J. Sardano: As the education continues to roll out, for instance, we just had two or three more meetings this past April with large roll-up groups in addition to Florida-, Arizona-, and California-based meetings. As that happens, you are going to see education expand. The black-and-white codes greatly help us. This is the first time in our sixteen years that I have been able to go in a room and tell a doctor that these are black-and-white codes with no gray area. As that comes in, you will see a lot of people who were not interested over the last ten years now become interested because their accountants and lawyers can make sense of it. That is about education. The longer you give us, the more we can educate, and more people will adopt SRT. It is here to stay now. CMS has given us exclusive codes for SRT for the first time ever. We do not have to go to Washington as much anymore, which is good for time and money. We are excited. The sales team is fired up. We have already hired three more salespeople into territories—some new and some rehires. We are very excited to keep going. Joseph C. Sardano: Let me add one thing to your question about the recurring revenue piece. One of the codes involves radiation physics and the consults for radiation physics. This code has to be applied to every patient, and our introduction of SensusLink is a main focus for our customer base. They can charge that code once per week. For example, if their protocol uses 20 treatments at two treatments per week over ten weeks, this radiation physics code can be charged at an average of $93.85 per week across the country. That is ten weeks of treatment, or about $930. With our software, we will be sharing that revenue with our customers. The only way that they can access that reimbursement is through SensusLink. That is an important piece of our business that we did not have before. Anthony V. Vendetti: When did SensusLink officially go live? Joseph C. Sardano: It is live now and performing in several accounts already. Anthony V. Vendetti: Great. That was great color. Thanks. I will hop back in the queue. Appreciate it. Michael J. Sardano: Thanks, Anthony. Operator: Seeing no additional questions, this concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. Joseph C. Sardano: I think everybody heard where we are headed this year. We believe we are going to have a profitable year, with each and every quarter being better than the previous. We have a very solid start to the year and are looking for increased revenues throughout. With that being said, we look forward to a very successful second quarter and to talking to you again at the next earnings call. Thank you so much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: 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.
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: Greetings, and welcome to the Full House Resorts, Inc. First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Adam Campbell, Corporate Controller. You may begin. Adam Campbell: Thank you, and good afternoon, everyone. Welcome to our first-quarter earnings call. As always, before we begin, we remind you that today's conference call may contain forward-looking statements that we are making under the Safe Harbor provision of federal securities laws. I would also like to remind you that the company's actual results could differ materially from anticipated results in these forward-looking statements. Please see today's press release under the caption “Forward-Looking Statements” for a discussion of risks that may affect our results. Also, we may reference non-GAAP measures such as adjusted EBITDA. For reconciliations of these measures, please see our website as well as various press releases that we issue. Lastly, we are also broadcasting this conference call at fullhouseresorts.com, where you can find today's earnings release as well as all of our SEC filings. With that said, we are ready to go, Lewis. Lewis A. Fanger: Good afternoon, everyone. We will be quick with our prepared remarks today since I know there is another call about to start. We had a solid first quarter. Revenues were $74.4 million in 2026, which compares to $75.1 million in last year's first quarter. Within this, American Place was up about 7%. Also, keep in mind that last year's number included $1.3 million of revenue from Stockman's, which we sold in April 2025. So on an apples-to-apples basis, revenues grew by 0.9% in the first quarter. Adjusted EBITDA in 2026 rose to $13.2 million. That is almost 15% higher than our adjusted EBITDA in last year's first quarter, which was $11.5 million. We had growth at almost all of our properties: American Place, Chamonix and Bronco Billy's, Silver Slipper, and Rising Star all had large percentage increases in EBITDA. At Grand Lodge, which is our smallest property, we continue to be impacted by refurbishment work that, when it is done, should meaningfully upgrade the overall experience. Regarding our sports skins, last year we had an additional active skin. So the decline in 2026 reflects that fact. At American Place, our temporary casino continues to show significant growth. Revenues increased by 7% to $31.8 million in 2026. Adjusted property EBITDA rose 8% to $8.3 million in 2026. Our table games hold was 1.2 percentage points lower than in last year's first quarter. For April 2026, the state's gaming revenues just came out. We had a very good April, which you probably already saw yesterday, with total gaming revenues up almost 6% versus April 2025. Our table hold percentage was off again in April 2026. If we held as expected, our total gaming revenues would have been up almost 16% versus April 2025. Turning to Chamonix and Bronco Billy's, our revenues were down slightly to between $11.3 million and $11.6 million. Revenues were affected by several things. First, the Bronco Billy's casino was pretty torn up in January and February as we replaced carpets and installed new ceilings. The Bronco Billy's side now feels quite complementary to the Chamonix experience. Second, the unseasonably warm weather resulted in less cash business in the quarter. Two of Cripple Creek's biggest events both occur in the winter—Ice Fest and Ice Castles—both great experiences, and each one brings more than 100 thousand people to town. But warm weather hindered those experiences and adversely affected city visitation. Third, we had some unprofitable promotional activity in the prior-year period. We have an entirely new management team that joined us beginning in April, and they are working to make sure that our marketing spend is much more efficient. We had a good quarter in Colorado despite those factors. In last year's first quarter, adjusted property EBITDA was minus $2.3 million. In this year's first quarter, it was minus $1.3 million, an improvement of 42%. It is a seasonal market strongly favoring the upcoming summer months. With the new property team, we have spent a lot of time focusing not just on efficiency and cost, but also on our overall marketing efforts. That analysis continues to show a huge opportunity for us. Awareness and penetration in Colorado Springs remains extremely low. As guests visit us for the first time, they realize that we did not build a commodity product of more slot machines. They realize that we created a very unique experience. We often compare Chamonix to Monarch in Black Hawk, as both have similar levels of quality and are targeting a similar type of guest. The total Black Hawk gaming market, not including the neighboring casino town of Central City, was about $875 million over the last 12 months. Monarch has a third of the hotel product in Black Hawk, so it is reasonable to think that they have at least a third of the gaming revenue. The reality is they could be higher than that given their skew toward a higher-end guest. Using those numbers as a basis, our slot win per day at Chamonix and Bronco Billy's was about one-fourth of Monarch's slot win per day. Our table win per day was about 16% of Monarch's. Therein lies the opportunity. The numbers that Monarch is generating are not unusual when an underserved gaming market is presented with a high-quality destination. If we can improve our win-per-day figures so they are just 45% of Monarch's, then we will have earned a very good return on our investment in Chamonix. Part of that improvement will involve ramping our hotel occupancy from 41% today to the 80%+ that Monarch achieves. And so the marketing team is laser-focused on awareness. There are about 1 million people in the broader Colorado Springs area. There are another 400 thousand people that live in the southern suburbs of Denver. That is about 1.4 million people for our 300 guest rooms and 700 gaming positions. Within that geographic spread, there are several specific ZIP codes that can meaningfully move the needle, and those ZIP codes are receiving a lot of our attention in a new digital campaign that we are rolling out. Preliminarily, April had good numbers with an estimated 9% increase in net slot win and a 20% increase in net table win. On the balance sheet side, we had about $41 million of liquidity at the end of the quarter, including the undrawn portion of our revolver. The summer season tends to be our strong season. That, combined with a lack of any major construction spend right now, should benefit overall cash flow in the near term. We have been very transparent about our efforts to fund the permanent American Place casino as well as refinance our existing debt. If you recall, we mentioned on our last earnings call that we have been working with a funding source that is prepared to fully fund construction of the permanent American Place casino. We have funded the gaming license, land, slot machines, temporary casino, assembly of the workforce, and the mailing list—all at a total investment today of about $170 million. The new financing will provide the approximately $300 million needed to move into the permanent facility. That solution requires a lot of legal paperwork, which the team is diligently making its way through. We continue to feel very good about that solution and look forward to giving you more details once we can, potentially in the next few weeks. We are confident enough on that financing that we expect to commence construction within the next few weeks. The early stages of construction take time but not much capital. By starting now, we hope to open the permanent American Place about two years from now. Our earthmoving drawings were approved a couple of weeks ago by the City of Waukegan, and we are working to obtain the other government approvals needed to begin construction. We have put together a good construction team that is well-versed in building regional as well as destination casinos. They include Power Construction, which is currently building the new Hollywood Casino in Aurora, Illinois—one of the largest builders in the Chicagoland area. We have W.A. Richardson Builders, who will act in an oversight role—one of the largest construction firms here in Las Vegas with great experience developing casinos from their days at Mandalay Resort Group, including the Grand Victoria Casino in Elgin, Illinois. They also recently built the Fontainebleau and Durango resorts here in Las Vegas. And then we have WATG as architects. Their team has a long list of hospitality projects under their belts, including The Venetian in Las Vegas and the Hard Rock in Rockford, Illinois. Lastly, we are concurrently allowed to operate our temporary until August 2027. In conjunction with our anticipated financing, a bill was introduced in the Illinois legislature to extend that date by 18 months. That would ensure a smooth transition from the temporary to the permanent, including continuation of the approximately $30 million per year in gaming and other state taxes that we currently pay. Typically, items like this in the legislature are voted on late in the session, which ends on May 31. That is everything I had, Dan. What did I miss? Daniel R. Lee: I do not think you missed it. Lewis A. Fanger: Let us go to questions. We will now open the call for questions. Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. Our first question comes from the line of Jordan Bender with Citizens Bank. Please proceed with your question. Jordan Bender: Hi, everyone. Good afternoon, and thanks for the question. Maybe not the quarter that you wanted necessarily in Colorado, but on the expense side, that continues to look better. I see my math gets me to expenses down about 10% in the quarter. How much more do you think you have left to take out if we do not get any material revenue uplift from here? Daniel R. Lee: There is a lot of blocking and tackling that has happened, and we will continue to control costs. But there is stuff like we have an outsourced housekeeping service, which only cleans about nine rooms a day, and we end up paying for that. Down at the Silver Slipper, we clean 14 rooms a day. So we are looking to bring that in-house, and we have to hire about 30 housekeepers to do that. Our laundry service—we think we can get more efficient. We hired an AGM in the first quarter who has a background in hospitality and food and beverage, and he was in a similar role at the Ameristar in Council Bluffs, and before that the Ameristar in East Chicago. He is a really good guy, and he is working on that sort of thing. We also hired a finance director in the first quarter. Frankly, we are getting much better reporting out of it, and that is helpful. But to really get to where we want to be, we need to improve the revenues. We have a lot of new marketing people working on that, and it is much more sophisticated than it was a year ago. It is a constant process to try to make the marketing spend more efficient and targeted—like Lewis mentioned, digitally approaching certain ZIP codes. That is a more efficient way to do it. Of the other things we are looking at doing, the business there is very—like most casinos—slanted towards the weekend. You are trying to hire people in a somewhat difficult place to hire them up in the mountains. So we are looking at going out and offering people a $5-an-hour premium if somebody only wants to work on weekends. The backstory on that is if somebody is willing to go on our payroll working only, say, Friday and Saturday, they will not qualify for the health plan because it is less than 32 hours a week. The health plan costs us more than $5 an hour per employee. You might find somebody who is already gainfully employed, or maybe they are retired non-Medicare, but they like the idea of being a barista in our coffee place on Saturday mornings—it gets them out of the house. We would love to have that employee. We are looking at all sorts of ways to be more thoughtful, efficient, and effective. It does not happen overnight, but it is happening. Frankly, the April numbers are pretty encouraging because I feel like we have our footing on the marketing stuff, and we are starting to show really strong numbers. April was a good month. May looks pretty good so far. Hopefully we continue to build on that going into the summer. We are controlling costs, but ultimately it is about growing the revenues. Lewis A. Fanger: And those incremental revenues—you have probably heard me say this before—at this point the cost structure is pretty fully baked, so the flow-through from those incremental revenues should be pretty steep. We did just reopen a Mexican restaurant that had been closed for a while. We revamped it, promoted from within a new food and beverage manager who is a very talented chef, and he did a phenomenal job on new menus and recipes. I would argue we probably have the best Mexican restaurant in Colorado at this point. We renamed it Don Juan's—it is a fun name—and we also tied it into the elevator to get to it. We are going to start offering brunch on Saturdays and Sundays in 980 Prime, which is a wonderful venue for a brunch. We are doing it in ways where we know on Fridays, Saturdays, and Sundays there is demand for that brunch, and we are not doing it every day of the week. Jordan Bender: Great. And on the follow-up, good to hear in Waukegan that is going to get going here in the next couple of weeks. Just curious your view on the casino proposal up in Kenosha and kind of where that stands, and how you underwrite that property in relation to yours. Daniel R. Lee: First off, our customers primarily come from Lake County, and to the extent they come from outside of Lake County, it tilts towards the south. If you drive north from us to Kenosha, there is some farmland out there, so there is kind of a gap. They would have a much bigger impact on the Pottawatomis in downtown Milwaukee than they would on us. That tribe is pretty powerful. Which brings up the second question: do they ever get there? They have been working on this for 20 years. This is not an Indian tribe from Kenosha. This is the Ho-Chunk Nation. They have a small casino a couple hundred miles away in the middle of Wisconsin. They are trying to create a whole new piece of land and reservation trust strictly for commercial purposes to cut into the Pottawatomie business. So it is more of a tribal war than it is an issue for us, and I do not think it would have much impact on us. If they get there, it is going to take them a long time. If everything went smoothly for them, it would be a few years before they got open. Even when they did get open, I do not think it has much impact on us. My first guess is they never get there, because what they are trying to do is not easy. It is one thing if you are a poor Indian tribe trying to get a casino on your reservation—you are somebody that deserves empathy, if you will. This is not a poor Indian tribe trying to get a casino on their reservation. This is reservation shopping and trying to get in a commercially better spot than where their existing casino is. It takes a lot of different regulatory approvals and state approvals, and they are a long way from having it. Lewis A. Fanger: I will tell you that the legal hurdles preventing that are still a very, very long list. Daniel R. Lee: Where this really gets us is there is an analyst out there who is negative on us. He brings this up every time. If he did not have this, he would have something else. I heard yesterday that six months ago he was telling everybody to invest in the Affinity bonds instead of us, and it was with great pleasure to tell you that Affinity is shutting everything down they have in Primm. So he has some mud on his face, and that mud is getting thicker by the day. Jordan Bender: Thanks, everyone. Daniel R. Lee: Thanks. Operator: Thank you. Our next question comes from the line of Ryan Sigdahl with Craig-Hallum Capital Group. Please proceed with your question. Ryan Sigdahl: Hey, guys. Good afternoon. On the financing for American Place, good to hear the progress—should hear something in the next couple weeks—is fantastic. On the last call, Dan referred to it as acceptable terms. Lewis, you referred to it as attractive terms. Curious if you could give an update on how it is trending at the moment. Daniel R. Lee: We are not a AAA credit, and we are not borrowing money at 5%. But it is also not 15%. We think we can get our existing debt refinanced and the incremental money, and all be not a little bit higher than where our debt is today, but not much. Lewis A. Fanger: I do not have anything to add other than what we have said. I do not think you are going to have to wait too much longer. The amount of work that has happened behind the scenes has been extensive, and we continue to push forward and certainly feel better about where we are today than we did at the last earnings call. Daniel R. Lee: It is understandable. The firm on the other side of this does not want us to disclose their name or details until we have the final docs signed. We are working to do that, and that is understandable. I will look on the positive side. The world has been such a mess lately with everything going on in the Middle East, and the high-yield market has hung in there. It has been pretty stable through all this, which is somewhat remarkable and encouraging. Lewis A. Fanger: The high-yield markets have held up. Daniel R. Lee: American Place has continued to display pretty strong numbers. Chamonix is starting to hit its stride. There is a lot of good happening, so all in, I think we are sitting in a good spot. Ryan Sigdahl: Good. Chamonix is a good transition. It is good to see the scrappy nature of spending and cost efficiencies across that entire property. But ultimately, to go from losing a couple million in EBITDA to making a couple million—we want to get to tens of millions—you probably have to really start to ramp the revenue as well. Have you had any renewed thoughts around how to drive that new customer to try the property and really start to build the base of business there on the revenue side? Daniel R. Lee: We are firing on all cylinders here. We now have a four-person sales force, and we are looking for another person, focused on meetings and conventions. They are putting quite a bit on the books, but that stuff is ahead of time, so it really starts to bear fruit in 2027 and 2028. We have a new advertising agency. We have a chief marketing officer here. We have a new director of marketing at the property. We have an advertising person here that we have added. We have subscribed to some third-party research firms who are giving us much more detail on not only who our customers are, but who is out there. We are getting a lot more sophisticated in our targeting. April was the first month where we said, “Okay, this is starting to bear fruit.” Hopefully we will continue to show good results every month going forward. Some months you are going to have off win percentage or something, but I think we have a base to build on. We lost only a little bit of money through the worst part of the year seasonally, so we will end up making money this year—not as much as we would like given our investment—but I think it forms a good base this year and then better results next year. We have also been working with the City of Cripple Creek to get them more focused on how to build it as a destination. If you pull up Telluride, Colorado—believe it or not, its population is not that much more than Cripple Creek. Of course, they have a famous ski area, but they are four-and-a-half hours from any metropolitan area. They have a festival every weekend all year long—everything from a country music festival to a film festival. Our single biggest weekend of the year is Ice Festival, where the city buys blocks of ice, puts them on the street, and people carve them with chainsaws. It sounds kind of hokey, but it gives people the excuse to come up, and our biggest weekend of the year is in the middle of the winter when normally we are summer seasonal. We are now working with the city, which has hired a new director of marketing, to have more of these festivals. We just celebrated Cinco de Mayo. How do we do more of that? The city is starting to get smarter about it. This little town has the potential of being a pretty significant destination for people from Colorado Springs and Denver, but you have to get them up there. Lewis A. Fanger: People do forget sometimes—and not to make myself sound old—but if you go back to when Ameristar took over their property in Black Hawk, they relaunched a rebranded and expanded, much nicer Black Hawk casino in 2006, and opened their hotel tower in 2009. It was a multiyear process—they took over a failed Hyatt casino 100%. If you compare their revenues from 2005 to 2010, the five-year CAGR of gaming revenues was about 24%. That is phenomenal. They were the ones that reinvented that market and said, “Look, there is actually something nice in Colorado to go and gamble at.” What Monarch benefited from was that, 20 years ago, someone changed the mentality in Denver and said, “There is something nice.” When Monarch opened, people were already accustomed to a nicer building in Black Hawk. We did not have that. We are only starting to get that. When we look at penetration—when I say it is massively low, in the ZIP codes I mentioned, we have like 8% penetration. There is no reason why it should be that low. That is exactly why we are focusing the digital efforts. We are not talking about finding hundreds of thousands of new people; we are talking about finding 20,000 new people to bring into the building on a regular basis. That is what moves the needle to a very good investment. We feel very good about where the marketing sits right now. The new ad agency started late in the fourth quarter; it took a few months to get their hands around things, so their true efforts did not really launch until March. We are showing very good signs in April; May is off to a good start. Looking at the penetration stats and the win-per-day stats I mentioned earlier, I think it is harder to think that we cannot achieve those than that we can. Daniel R. Lee: Sometimes we are so used to the numbers. The American Gaming Association has a survey that shows that 30% of American adults visited a casino within the past 12 months. That is the U.S. average. Colorado Springs is less than a third of that. Ryan Sigdahl: Very good. Dan, well done—you never fail to have me learn something new, and “mushroom festival” is one. Well done, and I look forward to a 24% CAGR over the next five years, Lewis. Good luck, guys. Daniel R. Lee: Thank you. Operator: Thank you. Our next question comes from the line of John DeCree with CBRE. Please proceed with your question. Maxwell Marsh: Hey, guys. This is Max Marsh on for John. Still clearly in the early innings of GGR penetration in Colorado, but is there any difference in what you are seeing on the database side? Any insight into the database sign-up trends would be helpful. Thanks. Lewis A. Fanger: The database trends are good. If you look in the month of April as an example, new sign-ups were up 12%, rated visits were up 19%, and win per rated visit was up about 14%. Short answer: the trends are good. We continue to grow the database pretty meaningfully, and we are also bringing in a higher volume of higher-rated guests through the doors. Daniel R. Lee: By the way, I am smiling because he is reading that off a daily operating report. We hired a new finance director from outside of the casino business with a lot of experience in the hotel business, and he has gotten it organized pretty fast. A year ago, we would not have had those numbers by this point in May, and if we had them, they probably were not reliable. Now we are getting them on a daily basis, and they are quite reliable. That is one of the first steps in getting this thing going well. Maxwell Marsh: Great. Thanks for that. And could you give us a little bit more detail about what is driving the growth at Silver Slipper? I know we have a new management team there as well. Is that coming from better OpEx management, or could there be some broader tailwinds there? Lewis A. Fanger: It is a little bit of both. It is probably a little more on the OpEx side versus the revenue side, but it is a little of both. On the OpEx side, we have a new GM there. She is looking at things differently than the prior GM and is finding more efficient ways to do some of what we are doing. A big part has been on the marketing side—being smarter about the marketing dollars that go out the door. As an example, we used to have a weekly seniors day where we would give you a breakfast buffet for $0.99. We found out that a nearby senior center was bringing people in for their weekly nearly free breakfast. When we ran the numbers as to how many of those people were actually in the database and gambling in the casino, the answer was very, very few. It is about taking a fresh look at different marketing ideas and making sure there is a return there. Maxwell Marsh: Gotcha. Thank you, guys. Lewis A. Fanger: Thanks, Max. Operator: Thank you. Our next question comes from the line of Chad Beynon with Macquarie. Please proceed with your question. Sam: Hi. This is Sam on for Chad. Thank you for taking our questions. Switching over to Waukegan, now that you have made more progress toward the permanent construction of that property, any updated thoughts on the earnings power of that property? I know in the past, $90 million of EBITDA was put out there. Any update or color on the timeline to get to that point and what is needed to get to that level? Daniel R. Lee: Even the temporary continues to progress. The run rate today is in the ballpark of $40 million per year of EBITDA. If you start thinking about it, we have indicated it takes about $300 million to build the permanent, and the cost of that money is probably a little higher than our existing bonds—but use 10% for a big round number. Ten percent on $300 million is $30 million a year. The permanent casino is roughly twice the size of the temporary in terms of square footage. It has more restaurants, a much better street appeal, much better decor. In terms of slots and tables, it is not quite double, but it is up significantly. We expect the permanent to do much more business than the temporary. There are a lot of examples, like the Hard Rock in Rockford, which also went from a temporary to a permanent—their revenues doubled. You see it in the Hollywood in Joliet that moved from an old boat to a permanent building. You see it in New Orleans at Treasure Chest, and others, where people went from temporary to permanent, and in every case it has shown a big increase in revenues and profitability. So we do think it gets to $100 million—you said $90 million; I actually think it is $100 million. It does not happen overnight. It might take three years or something. If it takes us two years to build and we open two years from now, then five years from now it is doing $100 million. Lewis A. Fanger: We say it does not happen overnight—although in all the examples we threw out, it did happen overnight—but nonetheless, we assume that it does not and builds over time. Daniel R. Lee: I think even in the temporary, it continues to grow. At some point, you start to max out on weekends—our win per slot machine per day is pretty high in the temporary. We will continue to show growth even before we build the permanent, and then you will have a step to a new plateau in the permanent and then it will grow from there. Sam: Thank you. Appreciate that. And then switching over to your sports skins, wondering on the outlook for those—if you see upside or downside to the current run-rate EBITDA related to those sports contracts over the next few years. Daniel R. Lee: At this point, we only have two. In that industry, we used to have agreements with Wynn and Churchill Downs in markets, but DraftKings and FanDuel—and to a lesser extent, BetMGM—have moved in and dominated the market. A lot of these other guys have pulled away. In Indiana, we have one. They paid us in advance because for a while they had not been paying us, and we said if you want to extend the contract, fine, but you have to pay us in advance. The accountants do not let us book it all at once, but we already have the money. We are going to recognize that income over time. Lewis A. Fanger: It is the initial access fee, recognized over the life of the agreement. Daniel R. Lee: The other one is with Circa, who is a niche player. Their sportsbook here in Las Vegas is probably the biggest single sportsbook in the country, and they have a good forte with that. In Illinois, you only get one license. We had three skins for our license in Indiana, and we also had three skins in Colorado. We only have one in Illinois. The population of Illinois is much bigger, and that is by far the most valuable skin. That is with Circa, and I think they are doing okay. They know that business probably better than anybody, and they are good at it. We will have a beautiful permanent sportsbook in our new facility, which I think they are quite excited for. We continue to look for people who want to get into the sports business, but frankly, at this point there are not a lot of new companies looking to get in—it is so dominated by DraftKings and FanDuel. Lewis A. Fanger: On the flip side—not that I expect this to happen anytime soon—our agreements only include sports betting. They do not include anything for true online casinos. To the extent that were ever to happen, there is the potential for more upside as we would monetize that bit. Daniel R. Lee: I had forgotten—at Tahoe, we had a tiny sportsbook that had been run for a long time by William Hill. A former CEO of William Hill started a new company called Boomers. He came to us and made us an offer, and he is paying us significantly more in rent than we were getting. It is still not a big number, but it is roughly two times what it used to be, and he is promoting it much more than William Hill was. The sports betting companies are also having to deal with competition from prediction markets. They have started branches where they are going into prediction markets under the auspices of being commodities trading firms, offering sports betting in places like Texas and California where it is not been legal, and doing it without paying any state gaming taxes. From DraftKings and FanDuel, that is like, “If they can do it, why cannot we?” Nevada came out and said if you do that, then you cannot operate in Nevada, so they both backed away from operating in Nevada. That opened the opportunity for Boomers, who is not going to try to operate elsewhere. There is a little turmoil there, and we will see where it goes because from the gaming industry's perspective, the idea that somebody can start taking bets on the Super Bowl in Texas without any approval of the Texas legislature—given that the Texas constitution forbids gambling—is problematic. These people are offering Super Bowl bets in places like Texas—unregulated and untaxed—and not surprisingly, they are probably making pretty good money with it. Operator: Thank you. There are no further questions at this time. I would like to turn the floor back over to Full House Resorts, Inc. CEO, Daniel R. Lee, for any closing remarks. Daniel R. Lee: We are making good progress, and I think it is going to be an exciting quarter because we are going to get under construction and get this financing done. By the way, we do not take this lightly, but starting construction will cost us a couple million dollars, and you do not normally want to do that unless you are certain you have the money to finish. We are confident enough that this financing is going to come through that we are going to start, because otherwise the opening day keeps sliding. The initial stages of construction are guys driving bulldozers around—it is not a lot of money—so we are going to go ahead and start because we are pretty confident that it is all going to come together here. Lewis A. Fanger: Thank you. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Welcome to the Q1 2026 ICF International, Inc. earnings conference call. My name is Lauren Cannon, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I will now turn the call over to Lynn Morgen of Advisory Partners. Lynn, you may begin. Lynn Morgen: Thank you, Lauren. Good afternoon, everyone, and thank you for joining us to review ICF International, Inc.'s first quarter 2026 performance. With us today from ICF International, Inc. are John Wasson, Chair and CEO; Anne Cho, President; and Barry M. Broadus, Chief Operating and Financial Officer. During this conference call, we will make forward-looking statements to assist you in understanding ICF International, Inc. management's expectations about our future. These statements are subject to a number of risks that could cause actual events and results to differ materially, and I refer you to our 05/07/2026 press release and our SEC filings for discussions of those risks. In addition, our statements during this call are based on our views as of today. We anticipate that future developments will cause our views to change. Please consider the information presented in that way. We may, at some point, elect to update the forward-looking statements made today but specifically disclaim any obligation to do so. I will now turn the call over to ICF International, Inc. CEO, John Wasson, to discuss first quarter 2026 performance. John? John Wasson: Thank you, Lynn, and thank you all for joining us this afternoon to review our first quarter results and discuss our business outlook. The first quarter represented a solid start to the year. We executed well across our client set, reflecting successful strategic initiatives to diversify our business model and our track record of delivering positive outcomes for our clients. This track record is a function of ICF International, Inc.'s deep domain expertise paired with cross-cutting capabilities in technology, digital transformation, complex program management, and engagement. By going to market with this unique combination of capabilities and experience, we continue to maintain healthy win rates, record industry-leading book-to-bill ratios, and build our business development pipeline — all metrics that underpin ICF International, Inc.'s future growth potential. Key takeaways from 2026 include: First, an 8.6% sequential increase in our revenues from federal government clients, representing a strong indication that this part of the business has stabilized and is on the upswing. As we noted last quarter, we expect to see sequential improvement in our revenues from federal government clients through the third quarter of this year, with year-on-year growth in this client category anticipated for the 2026 fourth quarter. Second, a 17% year-on-year increase in revenues from international government clients, which was a strong showing tied directly to recent contract wins, many of which are single-award contracts. Third, of the total of $12 million in revenues that shifted out of the first quarter through the timing of project work for commercial and international government clients, we expect one-half to be recognized in the second quarter and the remainder to come through the second half. And lastly, we continue to win north of 90% of our recompetes. New business, including modifications, represented 65% of this quarter's awards, a strong indication of how well our qualifications are aligned with client demand. ICF International, Inc. was awarded $450 million in contracts in the first quarter, maintaining our 12-month book-to-bill ratio at a healthy 1.21. After this quarter's awards, our business development pipeline stood at $8.5 billion. Also, we were pleased with our strong margin performance in the first quarter, which we achieved while continuing to invest organically in areas we have identified as drivers of long-term growth for ICF International, Inc., namely commercial energy, disaster recovery, and federal technology modernization. There are several important secular trends supporting our growth expectations for these areas, including rapidly growing demand for electricity in North America highlighting the importance of energy efficiency and grid modernization programs; increased frequency and severity of natural disasters, including hurricanes, wildfires, and other extreme weather events, which often result in major damage to homes, businesses, and critical infrastructure; and the tremendous need for digital and AI-driven technology modernization to improve mission delivery across federal civilian agencies. ICF International, Inc. is well positioned to capture more than our fair share of growth in these markets, which supports our confidence that ICF International, Inc. will return to mid- to high-single-digit organic growth in 2027, and continued growth beyond. When you layer on the potential for accretive acquisitions, you see a clear path to return to double-digit growth. Given our expectations for continued favorable business mix and our ongoing internal efficiencies, many of which are coming from AI and other tools, we expect our earnings growth to continue to outpace revenue growth as we look forward. I know that investors are concerned about the impact of AI tools on the technology modernization work that is being done at federal government agencies. While we understand the concerns, we are doing work in this market every day, and over the last two years we have adjusted our offerings to strengthen our resilience to just that concern. For example, we focus on longer-term demand drivers including AI-augmented application development, foundational modernization, and AI governance and orchestration. Here are several insights that are relevant to ICF International, Inc. First, 80% of our technology modernization work for federal clients is fixed-price or outcome-based, and our civilian agency clients require a lot of support in this area. As AI-augmented methods enable us to complete projects in less time and at a lower cost, we will simply move on to the next project more quickly than in the past. Technology is moving quickly, and there is a substantial backlog of modernization work to be done to address the existing technical debt in the federal civilian arena. Second, as our clients move to advance AI at enterprise scale, we anticipate even greater demand for foundational data, cybersecurity, and cloud services. This is the foundation that determines whether AI deployments produce reliable, secure, and scalable outcomes or fail in production. We are prepared to help our clients continue on their journeys to improve and modernize their data and cloud architectures in order to capitalize on the promise of AI. Third, these AI capabilities also open up a larger technology market. We will see new opportunities for smarter workflow automation as agencies reimagine what is possible. Also, people will address legacy technical debt that was heretofore too expensive to address through traditional modernization. Finally, we will help our clients in addressing new challenges with AI governance, orchestration, and platform optimization that are all emerging as we speak. These areas we talk about require technology and domain expertise combined with human judgment and oversight to get it right. The upside is that the government technology market is expanding in scope, shifting in shape, and asking more of its partners than it did before AI. ICF International, Inc. is positioned to lead and grow through this evolution. Before turning the call over to Anne Cho, our President, who will provide a more detailed business review, I want to comment on M&A. Last year, we were fully concentrated on building our capabilities across our non-federal client base and on tightly managing our federal government business in light of the volatility that we experienced in 2025. This year, we are taking a more aggressive stance with respect to M&A given the substantial opportunities we see in our key growth markets, and in particular, commercial energy. We remain disciplined, but if we find an acquisition that meets our criteria for driving revenue synergies in growth areas and for being accretive soon after completion, we will move forward. Acquisitions have been an important part of ICF International, Inc.'s growth chassis over the last 25 years. We have a great track record of using free cash flow to pay down debt quickly. I will now turn the call over to Anne to discuss first quarter business performance across our client set. Anne? Anne Cho: Good afternoon, everyone. I am pleased to be presenting our business review on my first official call as President of ICF International, Inc. During my 30-year tenure, I have had the opportunity to work in many areas of the company, which makes it very exciting for me to be able to speak to you about the totality of the business. First quarter revenues were led by commercial, state and local, and international government clients, accounting for over 58% of total first quarter revenues, and are on track to exceed 60% of our full-year 2026 revenue. Taking a closer look at our client categories, I will start with commercial energy. There continues to be strong underlying demand for our utility programs, which include energy efficiency, flexible load management, and electrification. These programs represent approximately 80% of the trailing 12-month commercial energy revenue. The addressable market for these services is large, and ICF International, Inc. is a market leader. We continue to gain share, receiving plus-ups on existing contracts reflecting the results we are delivering, introducing new services, and then winning contracts from competitors. Our commercial energy advisory work delivered mid-teens growth in the first quarter. This growth reflected considerable demand for our market assessment and due diligence work, which supports client M&A; the expansion of the grid reliability and protection work; and increasing demand from data center developers. In addition, our engineering support to utilities working to accommodate data center loads continues to accelerate, as those clients expedite the development of new substations. Many of these engagements draw on our proprietary tools like Energy Insights, SightLine DER, and ClimateSite Energy Risk. We pair these model outputs with actionable decision support within the confines of the regulatory and stakeholder environment. From a Q1 perspective, as John noted, there was a timing shift affecting our work on several fixed-price energy efficiency programs that must be completed in 2026. Without this shift to the right, commercial energy revenues would have increased 8.3% in the first quarter instead of the reported 2%. Next, I am going to talk about our state and local portfolio. Q1 state and local government revenues were stable. For the full year, we expect revenues in this client category to increase at a mid-single-digit rate. ICF International, Inc. is a recognized market leader in disaster management and recovery services, which continue to account for about 45% of this client category's revenue. In February, we announced the award of a comprehensive management services contract by the State of Florida, which positions us to compete for a broad portfolio of projects that extend beyond disaster management to include habitat conservation planning and agricultural land conservation. We are also encouraged that, following the confirmation of the new Secretary of the Department of Homeland Security in late March, DHS went on to approve the obligation of $730 million Hazard Mitigation Grant Program funding, signaling the continued intent to fund rebuilding efforts that mitigate future disaster loss. DHS also recently indicated its intent to restart the FEMA Building Resilient Infrastructure and Communities, or BRIC, program that we have historically supported. The combination of these events supports our confidence that disaster management and recovery services will continue to be a driver for ICF International, Inc. over the mid and long term, and will expand our efforts well beyond the current 75 disaster recovery programs in 22 states and territories that we support today. Technology has always played an important role in our work for state and local government clients, and we have expanded our offerings there to include advanced technology solutions and services as well. As we discussed in our last call, our international portfolio is growing nicely. International government revenues increased 17.5% in the first quarter, reflecting the significant contracts that ICF International, Inc. has been awarded over the last 18 months by the European Union and UK clients. The additional $4 million that shifted into the second quarter and second half of this year represented the timing of pass-through revenues that are associated with outreach and marketing events that are under fixed-price contracts requiring the work to be completed in this year. Sales continue to be strong across our international portfolio, winning key recompetes and securing new contracts with international government clients to support growth for the next several years. Finally, I will talk about our work for U.S. federal clients. Our federal business has stabilized, and we continue to expect consecutive revenue growth in Q2 and Q3 and then year-over-year growth in Q4, as we execute on the nearly $1 billion in federal government contracts that we have won over the last 12 months. We are pleased to see procurement activity pick up in the first quarter. Some opportunities that were paused or canceled last year have re-entered the market. We have seen a restart of some of the work we were awarded in the past, such as support of a grant program for the Department of Energy. The procurement environment has changed in the last year, and we have pivoted, focusing more on rapid prototyping and demonstration of capabilities than ever before. Several sweet spots exist at the intersection of the administration's priorities, the agencies' gaps in manpower, and our expertise. These include applying AI and advanced analytics for fraud prevention and supporting child and family services, transportation safety, grid reliability, and technology modernization. A good example of how we combine deep domain expertise and advanced technology with human judgment is our work modernizing the Center for Medicare and Medicaid Quality Improvement and Evaluation System. The program involves the transition of more than 278 million clinical assessments into a national repository, enabling real-time monitoring of care standards across skilled nursing facilities, home health agencies, and hospitals. This work advances the administration's priorities around quality of care, fiscal responsibility, and system resilience. In summary, the trends underlying our business are aligned with our expectations. Our leaders are leaning in across the full portfolio with a winning mindset and eagerness to emerge as a partner of choice as our clients navigate what is a really fast-moving and exciting time. Now I will turn the call over to our Chief Operating Officer and Financial Officer, Barry M. Broadus. Barry M. Broadus: Thank you, Anne. Good afternoon, everyone. I am pleased to provide additional details on our first quarter 2026 financial performance and the factors shaping our results, as well as our outlook for the remainder of the year. At a high level, first quarter results reflect solid execution across our diversified client base. Margins remain strong, contract awards resulted in a book-to-bill above one, we continue to have a healthy pipeline of opportunities which we are pursuing, and, as Anne mentioned, procurement activity in the federal space is showing signs of improvement. In fact, in the federal space, we submitted nearly $400 billion of bids in the first quarter, the majority of which were for new opportunities. While first quarter total revenue came in below our expectation, this was entirely due to timing of certain commercial energy and international government contract work. We fully expect to recover these revenues throughout the balance of the year, with half expected in the second quarter. I would also note that our first quarter tax rate came in above our expectations, which I will address in more detail shortly, but our full-year outlook for a tax rate of 20.5% remains unchanged. Before discussing the first quarter financial metrics, I want to highlight some of the strategies that are supporting margin improvement and helping to drive shareholder value. First, cost optimization has been a key theme as we work to manage our infrastructure costs while funding growth initiatives. We continue to invest in modernizing our ERP systems and our back-office operations while implementing AI tools. These ongoing investments have and will continue to make us more efficient, providing us the ability to scale over time by offering both operational and financial benefits. From a strategic financial standpoint, we continue to focus closely on capital allocation. To that end, organic projects, share repurchases, and acquisitions are top of mind. In the first quarter, we repurchased slightly more than 217,500 shares, and we will continue to opportunistically repurchase additional shares. Further, as outlined by John, we are actively pursuing acquisitions given our strong cash flow and borrowing availability, which was expanded as part of the refinancing we completed last month. In summary, we are executing on our strategic plan and remain on track to return to growth in 2026, and deliver on our full-year top and bottom line guidance. With that context, I will now review our first quarter financial results. Total revenue in the first quarter was $437.5 million, a decline of 10.3% compared to 2025. As we discussed on our fourth quarter call, both first quarter and full-year 2026 revenue comparisons will reflect the impact of federal contract cancellations that occurred between February and May 2025. First quarter revenues were approximately $12 million below our expectations, reflecting a push to the right of roughly $8 million in project work for commercial energy clients on fixed-price contracts and $4 million in international government. The timing of the work simply shifted later in the year. We will recover all of these revenues over the balance of the year, approximately half expected in the second quarter. As a result, we are reiterating our expectation that revenues from commercial, state and local, and international clients will grow at a double-digit rate and represent over 60% of total revenues for the full year, supported by strong underlying demand from utility clients, continued ramp-up of international contract wins, and growing state and local revenues. In our federal government business, we were encouraged to see revenues grow 8.6% sequentially to $182.3 million, which was aligned with our expectations. The sequential improvement was supported by our technology modernization work, which we are well positioned to win and deliver in the current procurement environment. Subcontractor and other direct costs were $102.7 million, representing 23.5% of total revenues, up from 22.7% in the prior-year quarter due to higher pass-throughs on certain non-federal contracts. Despite the year-over-year decline in revenues, gross margin rose 10 basis points to 38.1%, highlighting our favorable business mix and a contract mix that remains largely comprised of fixed-price and time-and-materials contracts. Fixed-price and T&M contracts represented approximately 93% of first quarter revenues, with cost-reimbursable contracts accounting for only 7%. Indirect and selling expenses were $118.8 million, a decline of nearly 10% year over year and representing 27.2% of total revenues. As I mentioned previously, as we optimize our indirect spend, we will continue to invest in high-growth areas, including energy and technology modernization, while preserving our core capabilities in the programmatic side of the federal business, ensuring ICF International, Inc. is well positioned when the market recovers. First quarter EBITDA was $47.3 million compared to $52.1 million last year. Adjusted EBITDA totaled $48.9 million with an adjusted EBITDA margin of 11.2%, stable compared to the 11.3% reported in last year's first quarter, demonstrating the effectiveness of cost management initiatives and the structural improvement in our business mix. We continue to expect adjusted EBITDA margin expansion of 10 to 20 basis points for the full year. Net interest expense in the first quarter was $6.7 million, down 8.5% year over year, reflecting a meaningful reduction in our average debt balance compared to the prior-year period. Our first quarter tax rate was 25.1%, above our expectations due to less-than-expected deductible equity-based compensation expense. This compares to 10.5% in the prior-year quarter, which, as a reminder, included a one-time tax benefit. We continue to expect a full-year tax rate of approximately 20.5%, with each of the next three quarters expected to see a lower tax rate than the first quarter, the largest offsetting benefit expected to be in the third quarter. To close out on taxes, I should note that the higher-than-expected first quarter tax rate had an unfavorable impact of $0.07 on GAAP EPS and $0.09 on non-GAAP EPS in the first quarter. But given that we still expect a full-year tax rate of approximately 20.5%, the Q1 tax rate does not change our outlook as to how taxes will impact our full-year EPS guidance. Net income in the first quarter was $20.5 million, or $1.12 per diluted share, compared to $26.9 million, or $1.44 per diluted share, in the prior-year period. Non-GAAP EPS was $1.50 compared to $1.94 per diluted share in 2025. As noted, both GAAP and non-GAAP EPS for the first quarter of this year reflected the unfavorable tax item that I previously described. We remain confident in our full-year outlook, which calls for 3% revenue growth at the midpoint of our guidance range, supported by recent contract activity and the strength of our backlog and pipeline. Our backlog stood at $3.4 billion at quarter end, approximately 51% of which is funded, and our business development pipeline remains healthy at $8.5 billion. Taken together, these metrics provide good visibility for the year. Now turning to our balance sheet and cash flows. We used $3.1 million in operating cash flow during the first quarter, a meaningful improvement compared to the $33 million used in last year's first quarter, reflecting improved receivables collections and working capital management. Days sales outstanding were 74 compared to 81 days in last year's first quarter. Capital expenditures totaled $2.8 million compared to $3.5 million in the first quarter of last year. We ended the quarter with net debt of $436 million, down considerably from the $499 million at the end of last year's first quarter, and approximately 40% of our current debt is at a fixed rate. Our adjusted leverage ratio was 2.23 turns versus 2.25 turns at the end of last year's first quarter. Subsequent to the end of the first quarter, we refinanced our credit facility and remain well positioned to invest in organic growth, repurchase shares, and pursue strategic acquisitions in our key markets while maintaining our dividend. Today, we announced a quarterly cash dividend of $0.14 per share, payable on 07/10/2026 to shareholders of record as of 06/05/2026. To wrap up, we are pleased to reaffirm our guidance for a return to revenue and EPS growth in 2026, with our revenues expected to range from $1.89 billion to $1.96 billion, representing 3% growth at the midpoint; GAAP EPS from $5.95 to $6.25; and non-GAAP EPS from $6.95 to $7.25, or 5% growth at the midpoint. To further help you with your financial models, please note the following for the full year 2026: both depreciation and amortization, and amortization of intangibles are expected to continue to be $22 million and $24 million, respectively. Likewise, we continue to expect full-year interest expense to be between $27 million and $29 million. As I mentioned earlier, our full-year tax rate expectation remains unchanged at approximately 20.5%. In the second quarter, the rate is estimated to be around 23%, with a significant reduction in the third quarter. We anticipate capital expenditures to total $24 million to $26 million. Given share repurchases in the first quarter, we now expect our year-end fully diluted share count to be 18.3 million shares compared to our prior expectation of 18.5 million shares. And we continue to expect operating cash flow of $135.15 billion for the full year. With that, I will turn the call over to John for his closing remarks. John Wasson: Thank you, Barry. We are pleased that 2026 is shaping up as we expected — to be a year in which ICF International, Inc. returns to growth. In many ways, the trials of 2025 have made us a stronger company. We are more diversified, more efficient, and more agile. As we look to the future, we see a clear path to return to mid- to high-single-digit growth in 2027 and continued growth beyond. The dedication of our professional staff has been critical in helping us navigate dynamic business conditions, pivot to take advantage of new opportunities, and set the stage for ICF International, Inc.'s future growth. We appreciate their support. We will now open the call for questions. Operator: Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your questions, please press 11 again. Our first question comes from the line of Jason Tilgin with Canaccord Genuity. Your line is now open. Jason Tilgin: Good afternoon, and thanks for taking my question. I believe in the prepared remarks you talked about the advisory business for commercial energy growing mid-teens year over year in the quarter. I am wondering if you could help give us some additional color on where you are seeing the most activity today as it relates to the data center opportunity, how those conversations are evolving, and what exactly, as it relates to your skills and capabilities, is giving you an edge to continue to win business in that area. Thanks. And then one additional follow-up. High level, in terms of some of the investments that you are making today in the ERP system and other technology, I am wondering if you could help frame how much of those investments today are offsetting some of the benefits from recent cost optimization efforts, and how we should be thinking about the cadence of maybe more substantial gross or operating margin expansion over the coming quarters and years? Thanks. Anne Cho: Sure. When I mentioned the advisory side and that growth, it is important to point out the work we are doing expanding our client portfolio. A couple of years ago, we acquired a firm called CMY, which added engineering capabilities. We have been able to expand our client set in that area, providing those engineering skills to utilities, for instance, that are trying to build out capacity to support data centers in their area. Our power modeling team has been benefiting from a resurgence of work from renewable developers across a suite of technologies — not just wind, but solar, storage, etc. — and then increased demand from data center developers as well. Barry M. Broadus: Yes. This is Barry M. Broadus. From an overall perspective, we have had a program for the last few years where we are modernizing our ERP systems, and that is driving efficiencies. We do this in a balanced way whereby we are receiving benefits — becoming more efficient and able to process and work faster internally. In addition to ERP systems, we are also implementing AI in many of our back-office processes, which is continuing to drive additional efficiencies. We have the ability to deliver more margin, but we are using dollars we save to invest in long-term growth initiatives in the areas that John Wasson and Anne Cho mentioned as part of their opening comments. We do this in a balanced way, and I do not see it detracting from our ability to continue to improve margins as we move forward. Operator: Thank you. Our next question comes from the line of Samuel Kusswurm with William Blair. Your line is now open. Samuel Kusswurm: Hey, everyone. Thanks for taking our questions here. To start on the commercial energy business, it grew 2%, but I think you shared it would have grown 8% if we were to add back the $8 million in project work that got pushed out. At the start of the year, you shared you were expecting at least 10% organic growth for the year in this business. Do you still expect that, and what are you seeing in your backlog that is really supporting it? And then also, can you comment on how the residential and utility energy piece of the business performed versus more of the commercial and industrial energy piece? John Wasson: I will start off. We remain confident in 10% growth for our commercial energy business. We have a strong backlog and a strong pipeline. Those markets are growing high single digits, and we have been benefiting from plus-ups and takeaways that increased our growth rate above the market average. We remain confident that we will continue to do that. In terms of residential versus industrial and commercial, we are the market leader in residential energy efficiency programs. We have about 35% market share and think we can continue to expand that. We are also placing significantly on the commercial building side, where we have about 15% to 20% market share. Anne Cho: I do not have an update beyond what we discussed on the last call in terms of the share of residential versus commercial. One more thing to underline what John Wasson mentioned about the long-term growth trajectory: upstream of these programs we run, we also provide regulatory and consulting support to utilities, which gives us a good sense of the programs coming down the pike. That is another indicator supporting strong sales for both recompetes and wins on the program side. Barry M. Broadus: Historically, in our commercial energy business, we typically recognize roughly 47% of our annual revenues in the first half. The back half is when we typically hit certain milestones with regard to energy incentives, which creates a natural uptick in the back half versus the front half. Samuel Kusswurm: Got it. I appreciate the color. I think I will ask about the federal business next. There was something that caught my ear in the prepared remarks — capturing more of the federal opportunities aligned with the administration's priorities. Could you expand upon that more? From an operating standpoint, what does it mean to pivot in that direction? Are there any recent successes you could point to, or is it still early? Anne Cho: There is definitely a different way of selling in this environment in the federal space — more focus on showing what we can do. We come in with prototypes and good ideas that we can demonstrate, and where we can demonstrate the ability to take a client to a relatively quick win. That is an example of pivoting in capture and business development. In terms of new opportunities, we have been successful winning in new areas and offices at agencies where we have worked before — for instance, the Department of State, Department of Labor, and Department of Defense. We recently won a large BPA with the Defense Counterintelligence and Security Agency, and that is one where we incorporate AI-driven components to modernize very complex operational processes, with human oversight and deep expertise. Those are the kinds of places where our skills resonate. John Wasson: I would also add the administration wants work to be outcome-based or fixed-price, and the vast majority of our work is in that category. We are in the single digits now on cost-plus, and that has been declining. There is a real focus on AI-first. We have our ICF fathom AI platform, which allows us to do rapid prototyping and other work for federal agencies. We also have a real capability around waste, fraud, and abuse at CMS that came to us with the Semantic Bits acquisition. It is a material part of our technology business and our HHS work, and that is an area where there is a lot of focus and we are seeing a lot of opportunity. Operator: Thank you. Our next question comes from the line of Tobey Sommer with Truist. Your line is now open. Tobey Sommer: Thank you. I was hoping you could give us a sketch of what your M&A could look like given the pressures in the federal space. The valuation in your own stock and the group largely has declined. How do you think about multiples and leverage in this context? How engaged and active do you expect to be? Also, from a commercial energy perspective, I understand some work was pushed to the right. What kind of growth cadence do you expect this year, and how quickly will the year-over-year or sequential growth resume? And you talked about a resurgence of renewables — could you give us more context around that in a little more detail? John Wasson: As you know, M&A has been a key part of our strategy over the last 20 years as a public company. There have been three or four times where we have levered up and then, within a year or 18 months, paid down the debt. It has been quite successful for us in terms of both organic and inorganic growth. It remains a priority for us. Generally, we are focused on opportunities in our key growth areas. Right now, energy is first among equals, and the primary focus on the M&A front is on the commercial energy side. We would look for opportunities aligned with our core energy business — bringing us additional geographies, scale, capabilities, and clients. We will also look at adjacencies with more of an engineering focus. Anne Cho mentioned CMY, which brought grid engineering and large-load capabilities; that is an adjacency where there could be real synergies for us. At a high level, we want any acquisition to be accretive in the first year, with strategic and cultural fit, and we would need to see material revenue synergies to achieve those goals. On multiples, the energy arena for our current business retains premium multiples, so we need the right fit with the right synergies to meet our criteria. On leverage, historically when we have levered up, we have gone to about 3.0x to 3.5x — maybe 3.75x at the peak with Semantic Bits and ITG before that. I do not see us going higher than that. We want something we could pay down quickly with our strong cash flow — within a year or 18 months. Barry M. Broadus: On the commercial energy cadence, you could expect mid- to upper-single digits as we move into the next quarter or so, and then it will go beyond that and continue to ramp up as we move throughout the second half. The fourth quarter continues to be the strongest growth period as many energy incentives are realized during that time. Anne Cho: On the resurgence of renewables, there is renewed interest, and “all of the above” is really more of a thing. Hyperscalers have made commitments to provide renewable energy to support their data centers, creating opportunities for us to support the analysis. That can include stakeholder engagement and crisis communication, as well as siting and interconnection analysis. With developers, we are doing siting analysis, expanding renewable facilities, looking at brownfields repurposing with an eye on potential renewables, and gas procurement strategies are still in there. Understanding interconnection applications and speed to power is really important. Battery storage is much more in the forefront now, and that has always been part of our work, but it is now of much greater interest to our clients. Operator: Thank you. Our next question comes from the line of Kevin Steinke with Barrington Research Associates. Your line is now open. Kevin Steinke: Great, thank you. From a housekeeping perspective, can you expand on what resulted in the later timing of some revenue in both the commercial energy and international markets? And in the federal space, you mentioned you submitted $400,000,000 worth of bids in the first quarter. Can you give us more flavor around the type of work you are predominantly bidding on? John Wasson: In terms of the shift of revenue to the right, it was a confluence of events on a handful of projects where we did not ramp up the work quite as quickly as expected, both for ICF International, Inc. and our subcontractors. These are all fixed-price contracts; it is all in backlog, and it all has to be recognized in 2026, but we have to meet certain milestones to book the revenue and that was pushed out a bit. Our fees are performance-related when we meet specific energy production goals, and those were pushed out. It was just a confluence of events that pushed to the right for a handful of projects. There are no underlying challenges or problems with the projects. On federal bids, within HHS, CMS remains an area where we are seeing opportunity, and that was a key part of those figures. We are bidding more opportunities on the technology front at the Department of Defense. We have won several IDIQ contracts in the last year or 18 months, and we are seeing more opportunity for the types of skills we have. The Department of Homeland Security is also an area of opportunity that we are pursuing. We work at FEMA and other DHS agencies. Other civilian clients include NASA and EPA. Barry M. Broadus: On that most recent Department of Defense vehicle John Wasson mentioned, we recently won our first task order on that too, which was good to see. Kevin Steinke: Thanks. One more — you mentioned the target of returning to mid- to high-single-digit revenue growth in 2027. Does that contemplate a return to year-over-year growth in the federal government space? John Wasson: Yes. That would assume a return to growth in the federal space. We have 60% of our business — commercial, state and local, and international — growing 10% or more collectively, and we believe that is a long-term trend. We have indicated that our IT modernization business will return to low-single-digit growth this year. That gets 80% of our business to grow. Our guidance this year for the remaining 20% of our federal business is down mid- to high-teens given difficult comps from last year’s impacts. We think we have bottomed out and are stabilizing there. If that stabilizes and the other 80% is growing, that gets us to mid-single-digit or better organic growth. The upside would be doing better than stabilization in that remainder or higher growth in IT modernization and the other 60%. And, of course, acquisitions could move us to double-digit growth. Operator: As a reminder, to ask a question, press 11 on your telephone and wait for your name to be announced. Our next question comes from the line of Marc Riddick with Sidoti. Your line is now open. Marc Riddick: Hey, good afternoon, everyone. I wanted to touch on what you are seeing on the state and local government activity levels as far as RFPs and demand, as well as the disaster side of things. And could you also touch on what you are seeing internationally as far as the opportunity set? Anne Cho: On the state and local front, beyond disaster, our environmental services to state and local governments have been buoyed by a focus on new broadband fiber installations and opportunities in the mining sector where gold and critical minerals are in high demand. We have won some recent engagements in broadband and see more coming. For state transportation and metropolitan planning organizations, we won a suite of separate but related projects that address the resilience of transportation infrastructure to extreme weather and also focus on safety and mobility. That work is interesting, utilizes proprietary ICF International, Inc. models and deep expertise, and focuses on providing actionable, investable recommendations. We are also seeing opportunities to support states with advanced technology solutions akin to what we do for federal modernization. For a major state client, we are working on a legacy modernization project where we have the opportunity to pilot the use of generative modernization code to speed the process. That pilot is showing promise and is a new place for us to engage on the state side. On disaster, much of the work has shifted to states over the past several years, and we support state and local governments in proactive resilience. Leaning in to increase resilience before a storm is less expensive than responding after a storm. That is a priority of this administration. Programs like BRIC, and others in that proactive resilience front, are important. Internationally, we are very focused on delivery — we have won a lot in Europe and the UK in the last couple of years and are ramping up large contracts. Procurement activity there has been exciting. We continue to see strong recognition of ICF International, Inc.’s brand with UK and EU government clients. With 17.5% growth in the first quarter, there is momentum, and we continue to expect strong growth over the course of the year. John Wasson: Two points to add: our expectation is our state and local business will grow mid-single digits this year, and international will be strong double-digit growth. Marc Riddick: Thank you for the details. One follow-up: on the prioritization of federal areas like fraud prevention, do you anticipate or are you beginning to see any of that type of work at the state and local level as well, or other examples where states are moving in the same direction as federal? Anne Cho: Some states are more focused in areas that are priorities for the federal administration, and others are focused in areas that are not priorities for the administration. In both directions, we have skills that can support state agencies. Some states are trying to fill gaps they see left by the administration shifting away from certain priorities, while other states are aligning directly with administration priorities. We are following those cues accordingly. Operator: I am showing no further questions at this time. I would now like to turn it back to John Wasson for closing remarks. John Wasson: Thank you for participating in today's call. We look forward to seeing you all at upcoming conferences and meetings. Thanks again for attending. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Hello, and thank you for standing by. I will be your conference operator today. At this time, I would like to welcome everyone to the AerSale Corporation Q1 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to withdraw your question, press 1 again. I would like to now turn the call over to Christine Padron, Vice President, Global Trade and Compliance. Christine, please go ahead. Good afternoon. Christine Padron: I would like to welcome everyone to AerSale Corporation’s first quarter 2026 earnings call. Conducting the call today are Nicolas Finazzo, Chief Executive Officer, and Martin Garmendia, Chief Financial Officer. Before we discuss this quarter’s results, we want to remind you that all statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements within the meaning of the federal securities laws, including statements regarding our current expectations for the business and our financial performance. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results. Important factors that could cause actual results to differ materially from forward-looking statements are discussed in the Risk Factors section of the company’s Annual Report on Form 10-K for the year ended 12/31/2025 filed with the Securities and Exchange Commission, SEC, on 03/10/2026, and its other filings with the SEC. These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those indicated by the forward-looking statements on this call. We will also refer to non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of those non-GAAP metrics to the nearest GAAP metric can be found in the earnings presentation material made available on the Investors section of AerSale Corporation’s website at investors.aersale.com. After our prepared remarks, we will open the call for questions. With that, I will turn the call over to Nicolas Finazzo. Nicolas Finazzo: Thank you, Christine, and good afternoon, everyone. Thank you for joining us today. I will begin with an overview of our first quarter performance and key operational developments, and then discuss how we are progressing against our strategic priorities for 2026. I will then turn the call over to Martin to walk through the financials in more detail. This quarter, our team stayed focused on executing our strategy across Asset Management and TechOps: prioritizing (1) disciplined acquisition and monetization of flight equipment and used serviceable material—you will hear me say USM; (2) expanding and optimizing our MRO capabilities; and (3) building a recurring and more predictable revenue base through MRO services and leasing while maintaining our high standards for safety, quality, and on-time performance. First quarter revenue was $70.6 million, an increase of 7.4% from the prior-year period. Adjusted EBITDA also increased by $4.2 million, or 131.9%, to $7.4 million from the prior-year period. Excluding flight equipment sales, which tend to be volatile quarter to quarter, revenue increased 2.2% year-over-year, reflecting growth in leasing and increased demand across our [inaudible] compared to the prior-year period. We placed an additional Boeing 757 freighter aircraft into service, ending the quarter with three aircraft on lease and one additional aircraft under a letter of intent for lease. We continue to engage in discussions with potential customers, as increased demand for cargo continues to make us bullish on deploying the remaining four 757 freighters reconverted in 2026. We also expanded our engine lease portfolio, ending the quarter with 18 engines on lease compared to 16 engines in the prior-year period. Higher average lease rates and improved utilization contributed to stronger asset yields across both aircraft and engines, and reflect our continued progress toward building a larger and more consistent recurring revenue base. Partially offsetting the increased leasing revenue was a decrease in USM sales resulting from the internal consumption of engine material for our own engine builds. At present, we have multiple engines in work where most of the material required has come from our own inventory, and our decision to utilize this USM results from our determination that we will achieve a higher value and total dollar margin consuming this material rather than selling USM piece parts to third parties. Across our TechOps platform, we continue to make progress on several strategic growth initiatives. At our on-airport MRO facility in Millington, Tennessee, we commenced work under a recently awarded long-term, multi-line aircraft maintenance agreement for a fleet of CRJ700 and CRJ900 regional jets. In addition, operations began at our expanded facility located in Hialeah Gardens, Florida. Both initiatives contributed to higher TechOps revenue in the quarter. As expected when ramping up operations at new facilities, we incurred incremental training costs and early-stage operating inefficiencies that created margin pressure during the quarter. We view these impacts as temporary and expect margins and throughput to improve as volumes continue to increase and operations stabilize. TechOps was also impacted by lower MRO parts sales in the quarter. Lastly, our Roswell facility experienced revenue and gross profit declines due to fewer aircraft in storage during the quarter. Related to our Engineered Solutions products, AirSafe continues to remain strong in advance of a Federal Aviation Administration November 2026 compliance deadline for the Fuel Quantity Indication System airworthiness directive related to fuel tank safety systems. We closed the quarter with a backlog of $15.3 million, of which the majority will close in 2026. In addition, we continue to market our revolutionary enhanced flight vision system, AeroWare, to select interested customers. We are also continuing our efforts to educate our U.S. regulators and the agencies responsible for the safety of our air transportation system on how the unique features of AeroWare can improve safety and provide economic efficiency to the industry. During the quarter, we deployed $25.1 million in feedstock acquisitions to support future leasing and monetization opportunities. We remain disciplined in our acquisition approach and continue to focus on assets where we see strong long-term demand and attractive risk-adjusted returns. Our win rate in the quarter was 6.3% compared to 10.4% in 2025, which shows our commitment to discipline on pricing as we continue to evaluate opportunities to redeploy and monetize inventory in ways that improve velocity and cash conversion without compromising value. Looking ahead, our priorities for the remainder of 2026 remain consistent with those we have previously outlined. These include increasing the number of assets deployed in our lease pool, including the placement of the remaining four 757 freighters during this year; continuing to monetize our inventory through USM sales; filling available capacity across our MRO network; and improving overall operational profitability as recent expansion initiatives continue to gain scale. Despite the expected start-up costs incurred in the first quarter, we remain confident in our ability to deliver improved financial performance as we progress throughout the year. With a strong inventory position, an active leasing pipeline, and expanded operational capabilities, we believe AerSale Corporation is well-positioned to deliver more consistent and growing earnings. With that, I will turn the call over to our Chief Financial Officer, Martin Garmendia. Thanks, and good afternoon, everyone. Martin Garmendia: I will walk through additional details on our first quarter financial performance, then touch on cash flow, liquidity, and our outlook for the remainder of 2026. Revenue for the first quarter of 2026 was $70.6 million compared to $65.8 million in the prior-year period. Flight equipment sales totaled $5.2 million and consisted of one engine sale compared to $1.8 million from one engine sold in 2025. Excluding flight equipment sales, revenue increased 2.2% year-over-year, driven by growth in leasing activity, partially offset by lower USM and MRO parts sales. As we note each quarter, flight equipment sales can vary meaningfully from period to period. As a result, we believe performance is best assessed over time with a focus on feedstock acquisition, monetization of those investments, and profitability trends. Adjusted EBITDA for the quarter was $7.4 million, or 10.4% of revenue, compared to $3.2 million, or 4.8% of revenue, in the prior-year period. The EBITDA dollar and margin increase was primarily driven by higher leasing revenue and flight equipment sales during the quarter. Asset Management Solutions revenue increased 10% year-over-year to $43.1 million in the first quarter. Excluding flight equipment sales, revenue grew modestly, supported by an expanded lease pool and favorable engine mix, but partially offset by lower USM volumes. We ended the quarter with 18 engines and three Boeing 757 freighters on lease compared to 16 engines and one freighter on lease in the prior-year period. Technical Operations revenue increased 3.4% year-over-year to $27.5 million, driven primarily by higher on-airport MRO activity. Growth was led by increased activity at our Goodyear and Millington facilities, including the initial ramp-up of CRJ work at Millington. These gains were partially offset by lower MRO parts sales during the quarter. Gross margin for the quarter was 26.7% compared to 27.3% in the same period last year. The modest and temporary decline reflects start-up and training costs related to the CRJ line in Millington and the Aerostructures expansion, as well as higher labor costs at Goodyear as we maintained elevated staffing levels in anticipation of increased demand expected later in the year. We expect these margins to normalize and begin to improve as we increase labor and facility utilization. Selling, general, and administrative expenses were $22.2 million in the first quarter, down from $24.6 million in the prior-year period. The decrease reflects the benefits of our ongoing efficiency initiatives and the absence of one-time severance costs incurred last year. Current-year expenses included $1.8 million of share-based compensation expense compared to $1.2 million in the prior year. Net loss for the first quarter was $3.5 million compared to a net loss of $5.3 million in the prior-year period. Adjusted net income was approximately breakeven compared to an adjusted net loss of $2.7 million last year. Adjusted EBITDA for the quarter was $7.4 million compared to $3.2 million in the prior-year period, benefiting from a higher-margin product mix and lower expenses. Year-to-date cash used in operating activities was $26.7 million, primarily related to feedstock acquisitions of $25.1 million as we continue to make disciplined investments to grow the Asset Management segment. We ended the quarter with inventory of $369.5 million and aircraft and engines held for lease of $121.5 million. Available liquidity at the end of the quarter was $41.8 million, which included $2.1 million in cash and $39.7 million of availability in our $180 million asset-backed revolver, which can be expanded to $200 million. This available liquidity, growing performance, and our strong inventory position provide us with the tools needed to continue to grow our business through the remainder of 2026 and beyond. In conclusion, we remain focused on monetizing the investments that we have made. In a competitive market, we have built a strong inventory position that will allow us to continue to grow our leasing and USM activities. The commencement of a multi-line maintenance program at our Millington facility and new work commencing at our expanded Aerostructure facility put us on a positive trajectory to exceed the incremental $50 million revenue expectations for our expansion initiatives, with the expectation that margins will improve as we increase utilization of our additional capacity and start-up initiatives mature. All of this will allow us to continue to grow both our revenue and profitability in a more predictable and recurring manner quarter over quarter. With that, operator, we are ready to take questions. Operator: We will now open the call for questions. Thank you. At this time, I would like to remind everybody that in order to ask a question, please press star followed by the number 1 on your telephone keypad. Our first question comes from the line of Kevin Liu with RBC Capital Markets. Your line is open. Analyst: Hey, good afternoon, Nicolas and Martin. Thanks for taking the question. Could you talk about what you are hearing from customers in light of the ongoing conflict in the Middle East as it relates to your business, whether that is in USM, spare parts, or lease rates? Nicolas Finazzo: Hi, Kevin. Thanks for the question. We are not really hearing much from our customers at this point, and that is something we ask internally: how is the Middle East situation going to affect us in the short run? We are not seeing it yet. What do we expect? We expect that if this continues for a prolonged period of time and we see airlines park more aircraft, the result will be more aircraft in storage, which would benefit us, and there may eventually be a downturn in the demand for used serviceable material parts. However, as I have said, every quarter this question gets asked: is there enough USM out there to support demand? And the answer is, for the proper amount of USM—I do not mean every part from every engine, but the parts that sell from an airframe or engine—there continues to be more demand than available inventory. Until that eventually equalizes, if a number of airplanes are grounded—certainly during the COVID environment there were enough airplanes on the ground that there was very little requirement for USM because aircraft could be cannibalized for parts, and engines were not going into the shop because engines on wing were being cannibalized to keep other aircraft flying. Over time, if this prolongs, if fuel costs stay high, and that results in a substantial grounding of the fleet, then we expect that will have an impact. But I do not know when that would be. I believe that impact would still be years off unless you had a COVID-type event where a substantial amount of the fleet is grounded. So the short answer is we are not seeing an effect at this point, and based on the type of USM that we sell, we do not expect there to be an effect, certainly not in the short run. Analyst: Okay. Got it. Thank you. That is helpful. And then on a separate note, could you give us an update on your current capacity additions in MRO and talk about the potential impact to revenues in your business, both this year as well as in 2027? Martin Garmendia: Sure. As stated in the prepared remarks, Millington has come online and we have started a CRJ line there. We have gone through some start-up costs and a learning curve, but right now that is potentially going to expand to three aircraft that will be at full capacity at the Millington location, under a very profitable contract with a very good customer to whom we can provide multiple services. At our Goodyear facility, we continue to ramp up work, especially from the lows incurred last year after a long-term contract had finalized, and we continue to be bullish there. We continue to serve multiple operators, including Spirit, and we are seeing a ramp-up of return-to-service work for them with some of those overall aircraft. Based on the recent news, we expect that to accelerate during the remainder of the year. At our Roswell facility, we primarily do storage work. We have seen a decline in aircraft being stored, but if, for some reason, the war in the Middle East continues and there is an overall reduction in aircraft operating, we could potentially see aircraft being returned into that location from a storage perspective. On our component MRO side, our Aerostructures facility came online during the first quarter, and we are ramping up there. That is a 90 thousand-square-foot facility. We have a lot of capacity to fill. We have made a lot of inroads with customers, getting that process finalized, so we expect to quickly start ramping up demand there. Our landing gear shop has also been doing extremely well. We are starting two agreements—one with an OEM and one with an international carrier—that are expected to significantly increase our volume at that facility as we progress through the quarter. And our component shop has also seen increased demand, and we continue to pursue additional initiatives to fill that capacity because we have a good amount of available capacity there. As the market continues and there is overall demand, we are poised to grow and to fulfill some of those leads. Analyst: Got it. And just one last follow-up. As you are selling this capacity today, could you give us more color on what kind of margins you are getting on this new capacity and how we should think about the potential EBITDA contribution? Martin Garmendia: On the on-airport MRO side, there is still a need and a limited supply of available slots, so we have been seeing margin improvement in that area. Overall, as I mentioned, in the quarter margins were temporarily impacted by the Millington start-up, but as Millington comes fully online, we expect gross profit margins to be in excess of 20%. And at our Goodyear facility, as we increase return-to-service work—depending on the type of work—we definitely expect margins to be better than they have been historically. Operator: There are no further questions at this time. I would like to turn the call back over to Nicolas Finazzo, Chief Executive Officer, for closing remarks. Nicolas Finazzo: Thanks. Despite nonrecurring start-up costs from our facilities expansion projects in the first quarter, our operating business has continued to improve. These results validate our unique multidimensional and fully integrated business model, and as these units continue to develop and mature, we will be in an excellent position to achieve substantial growth in the years ahead. I want to thank Kevin for his insightful questions today, which I think provide good insight into our business model and will help our investors better understand how we are performing. To all the rest of you, I very much appreciate your interest in listening to our call today and look forward to bringing you up to date during our next earnings call. I wish you all a good evening, and thank you.
Operator: Good afternoon, everyone, and thank you for participating in today's conference call to discuss SUI Group Holdings Limited's financial and operating results for the first quarter ended 03/31/2026. Joining us today are SUI Group Holdings Limited's Chairman of the Board, Marius Barnett; Chief Investment Officer, Stephen Mackintosh; Chief Executive Officer, Douglas Polinsky; and Chief Financial Officer, Joseph Geraci. By now, everyone should have access to the company's first quarter 2026 earnings press release, which was issued this afternoon at approximately 4:05 PM Eastern Time. The release is available in the Investor Relations section of the company's website at suig.io. This call will also be available for webcast replay on the company's website. Following management remarks, we will open the call for your questions. Please be advised this conference call will contain statements that are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions, that could cause actual results to differ materially from those reflected in the forward-looking statements. These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward-looking statements, which are being made only as of the date of this call. Except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements. For important risks and assumptions associated with such forward-looking statements, please refer to the company's SEC filings. I will now turn the call over to the company's Chairman of the Board, Marius Barnett. Marius Barnett: Thank you, and good afternoon, everyone. As many of you know, markets experienced significant dislocation in the fourth quarter of last year. What began as a macro-driven shock, driven in part by unexpected tariff policy developments in October, quickly evolved into a large-scale derivatives unwind. Approximately $19 billion in leveraged crypto positions were liquidated within a very short period of time, driving a sharp repricing across crypto and equity markets. Bitcoin declined materially from its highs, and risk assets more broadly adjusted to tighter liquidity conditions and weaker sentiment—dynamics that carried into the early part of this year. We view this period as a structural reset rather than a breakdown in the system. Unlike prior cycles, particularly 2022, this volatility was not driven by institutional failures or misconduct. We believe the underlying infrastructure performed as intended. Stablecoin markets, now at a record scale of over $300 billion, remain functional, and institutional participation across ETFs, treasury strategies, and regulated derivatives provided a stabilizing presence that has not existed in previous downturns. We believe the long-term use case for digital assets is resilient. Regulatory clarity is improving, institutional engagement is increasing, and the asset class is entering a more mature phase of development. Periods like this tend to reward disciplined capital allocation, conviction in the asset, and a long-term perspective. Our decision to anchor SUI Group Holdings Limited's strategy around the SUI blockchain reflects that mindset. We believe SUI represents a meaningful advancement in blockchain architecture. Its object-centric design and the use of the Move programming language enable parallel transaction execution, allowing the network to process transactions simultaneously rather than sequentially. This results in sub-second finality, horizontal scalability, and performance characteristics that are well suited for real-world applications at scale. These capabilities are already being validated by growing activity across decentralized finance, gaming, artificial intelligence, and stablecoin infrastructure. SUI Group Holdings Limited is uniquely positioned within the ecosystem as the only publicly traded company with an official relationship with the SUI Foundation. That positioning provides differentiated access, credibility, and the ability to deploy capital alongside ecosystem growth. We are not approaching this as passive holders of an asset. We are building an operating platform that participates directly in the expansion of the network. Our objective is to grow SUI per share for our shareholders by actively deploying capital into high-quality opportunities within the ecosystem. This includes supporting leading protocols, providing liquidity, and helping scale infrastructure that generates on-chain economic activity. We have established a scalable framework that aligns our balance sheet with the growth of high-impact protocols and emerging financial infrastructure. The early initiatives we have taken are intended to demonstrate how this model can be expanded over time with an emphasis on consistency, selectivity, and long-term value creation. Bringing this together, the volatility we have seen in recent months has reinforced several key aspects of our strategy. Institutional infrastructure is proving more resilient. On-chain utility continues to grow through cycles. The latest wave of crypto hacks are short- and medium-term headwinds. Disciplined capital deployment during periods of dislocation can create meaningful long-term value. SUI Group Holdings Limited aims to be at the center of that opportunity. We hold a treasury of over 108 million SUI tokens and are actively deploying it within the ecosystem to build partnerships with protocols that are creating durable utility on one of the most scalable blockchain platforms in the market today. We are committed to increasing SUI per share in a disciplined, transparent manner with a long-term orientation that reflects the nature of this asset class. With that, I will turn the call over to Stephen to walk through our first quarter operational performance. Stephen Mackintosh: Thank you, Marius, and good afternoon, everyone. I want to begin with an update on our SUI treasury position. As of 05/04/2026, we hold approximately 108.7 million SUI, including digital asset loans. The majority of this position is actively staked, generating roughly 5,200 SUI per day. Since initiating our treasury strategy in July 2025, staking and lending activity have generated approximately $300,000 in cumulative income. While this base yield is important, we view it as the foundation of our return profile, not the upper bound. Our strategy is focused on deploying capital that can generate returns above the native staking rates. We partner with institutional-quality teams across the SUI ecosystem, structure transactions that produce incremental yield denominated in SUI, and build a portfolio of protocol-linked economics designed to compound alongside network growth. Our work with Bluefin and Ember Protocol, along with our role in launching the SUI–USDE stablecoin infrastructure, are clear examples of this approach in action. Each initiative is designed to outperform passive staking while expanding our participation in the ecosystem's financial layer. The ecosystem itself continues to evolve in meaningful ways. Total value locked on SUI increased significantly. In February, SUI became the fifth digital asset accessible through a spot exchange-traded product, joining Bitcoin and Ethereum in regulated investment vehicles, as well as recently launched trading on the CME. In March, the network introduced Hashi, a Bitcoin-native lending and borrowing protocol developed by [inaudible] Labs with participation from leading institutional players. This initiative is designed to bring institutional-grade BTC collateral into on-chain credit markets. These developments reflect a rapidly maturing ecosystem with increasing institutional relevance. I also want to detail why we believe SUI is particularly well positioned for what may be the next major phase of on-chain activity, which is agentic artificial intelligence. By the end of this year, we expect that a significant majority of enterprises will invest in autonomous software systems capable of planning, transacting, and coordinating with limited human inputs. These systems require a settlement layer with specific characteristics, including sub-second finality, parallel execution, programmable access controls, and reliable stablecoin infrastructure. SUI was designed with these capabilities in mind. We are already seeing practical applications emerge. Autonomous trading systems that operate across decentralized markets require the ability to process concurrent transactions without delay, which is enabled by SUI's parallel execution model. More complex financial workflows, where software agents manage capital allocation and settlement across multiple protocols, require clear state management and predictable execution. SUI's object-centric architecture provides that foundation. In addition, native tools such as SEAL for programmable data access and Walrus for decentralized storage support the memory and coordination requirements of these systems. Stablecoin transfer volume on SUI passed $1 trillion in the first quarter, which highlights the level of settlement activity that these applications can build upon. We believe SUI Group Holdings Limited is positioned at the intersection of these trends. We hold a scale and productive treasury on a network that is rapidly building out both financial and computational infrastructure. We are deploying that treasury into the protocols driving the most meaningful activity within the ecosystem. And we are doing so with a clear objective of compounding SUI per share over time through disciplined and transparent capital allocation. I will now turn the call over to Douglas Polinsky to provide an update on our specialty finance operations. Douglas Polinsky: Thank you, Stephen, and thank you all for joining today's call. Our legacy specialty finance platform continues to serve an important role within SUI Group Holdings Limited, even as our strategic focus has shifted toward digital assets. As we have discussed in prior periods, this business was built on a foundation of selective underwriting and structured lending. We continue to focus on opportunities where we have strong visibility into collateral, cash flow, and borrower quality while maintaining a conservative posture on how we deploy capital. At the same time, the relative contribution of this segment to our overall financial profile has evolved. As our SUI treasury strategy has scaled, digital asset-related activities have become the primary driver of both our balance sheet and our forward-looking strategy. The legacy portfolio remains in place and is now intended as a complementary component rather than the core engine of the business. The specialty finance platform is designed to provide a base level of cash generation while our digital asset strategy offers exposure to higher-growth opportunities within the SUI ecosystem. Though this quarter saw increased credit risk and uncertainty regarding borrower delinquencies, we believe the specialty finance platform can help create a balanced framework as we continue to transition SUI Group Holdings Limited toward a more integrated digital asset platform. While we are optimistic in specialty finance, our strategic center of gravity is firmly aligned with building a differentiated, institutionally oriented digital asset treasury platform anchored to the SUI blockchain. With that, I would like to turn the call over to our Chief Financial Officer, Joseph Geraci, to take you through our financial results. Joseph Geraci: Thank you, Doug. A quick reminder as we review our first quarter financial results: all comparisons and variance commentary refer to the prior-year quarter unless otherwise specified. Due to our strategic shift on 07/31/2025 from our specialty finance business toward blockchain-native treasury management, our historical financial condition and results of operations for the periods presented may not be comparable. Total adjusted revenue, including investment income and other income, for 2026 increased to $1.4 million compared to approximately $778 thousand in 2025. This increase was primarily driven by the generation of staking revenue and digital lending interest income from our SUI digital asset treasury strategy, which had not yet commenced in 2025. Our first quarter 2026 results include approximately $71 million of non-cash losses on digital assets and receivables. The unrealized loss reflects mark-to-market adjustments driven primarily by a decline in the price of SUI during the period. The realized loss relates to the transfer of SUI tokens to Galaxy Digital, in its capacity as our asset manager, resulting in derecognition of the assets and recognition of the difference between carrying value and fair value at the time of transfer. These U.S. GAAP-required accounting treatments reflect changes in estimated fair value and strategic deployment of digital assets and do not represent an actual cash outflow or impact our liquidity. As a result, total operating expenses, including net realized and unrealized (loss) on investments in Q1 2026, were $61.1 million compared to approximately $117 thousand in Q1 2025. Excluding the aforementioned unrealized and realized non-cash loss on digital assets and stock-based compensation, operating expense for 2026 was $5.6 million. Net loss for 2026 was $71 million, or $0.88 per diluted share, compared to net income of approximately [inaudible] and $[inaudible] per diluted share in Q1 2025. As of 03/31/2026, cash and cash equivalents were $15 million compared to $21.9 million as of 12/31/2025. This concludes our prepared remarks. We will now open the call for questions. Operator, back to you. Operator: Thank you. We will now be conducting a question-and-answer session. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from the line of Brian Kinstlinger with Alliance Global Partners. Please proceed with your question. Analyst: Hi, thanks for taking my questions. First, a couple of numbers questions, if I could. Could you tell us, at the end of the quarter, what cash was, what the first quarter cash used from operations was, and what the share count was? Joseph Geraci: Hi, Brian. The share count including prefunded warrants is approximately 80.9 million shares. Total cash, including all stablecoins, was approximately $15 million. Income from operations was approximately $1.6 million. [inaudible regarding tax and adjustments] Analyst: So when you add back the unrealized losses, it was an income of $1.6 million? Joseph Geraci: The $1.6 million was separate from the unrealized losses. That was income from staking and from the specialty finance business. Analyst: Got it. Okay. And then can you discuss any developments either on Google's AP2 or any other exciting development activity that is either already improving transaction volumes on the SUI blockchain or that you expect to? Stephen Mackintosh: Hi, Brian. I can answer that question. At SUI Live today in Miami, Adeni, the Chief Product Officer of SUI, announced a compelling vision for how SUI is going to be the home of agentic finance. There were a few developments related to your question. First was his keynote introducing payment intents, which is about tackling complex atomic transactions on-chain. This is very different from the crypto UX we have today, where users must choose chains, bridge assets, hold gas, understand swaps, manage slippage, and find various transactions. Payment intents remove this complexity entirely. The inspiration comes from the team's background at Facebook—WhatsApp made messaging free to everyone around the world, and SUI wants to do the same with payments so payments can be free and highly scalable globally. Payment intents are important for agents because you can scale a machine-readable economic layer that deals with atomic transactions through SUI's novel architecture and programmable transaction blocks, and allows for verifiability using a core infrastructure development that was also released in the past couple of weeks called mWOL, which is related to the Walrus protocol. This is targeted at agentic workflows. It lives within the Walrus flagship decentralized data storage protocol built on the SUI network and allows for context and reasoning retention, multi-agent collaboration, and, most importantly, verifiable and programmable data such that agents can use storage to scale complex agentic workflows. I also noticed a number of interesting industry partners, including the Google team, present today. Development is continuing, and it is a very exciting time. Analyst: Last, I know your goal is to increase the yield. Maybe you can provide a pipeline on what kind of deals you are reviewing. Are there dozens? Are there only a couple? And maybe what you hope to exit 2026 with in terms of yield. Stephen Mackintosh: That is an interesting question. First, just on DeFi at the moment, it is well documented there have been over, I believe, 18 DeFi protocols that have had hacks or been penetrated in the last few weeks. Having spoken deeply with the market and the SUI team, this is across different protocols, with major hacks on platforms like Drift, which are EVM-based protocols. There is a notion that hackers and various actors are learning to use AI to identify potential breaches. We took the precaution to remove all our SUI that were in DeFi ecosystems directly onto DeFi protocols out of an abundance of caution. We do not want any losses in pursuit of yield. We have always taken a risk-based approach. We did that over the last few weeks as soon as we saw these hacks coming through. We expect to end the year at approximately 3% to 4%. We had planned to end the year slightly higher, but there have been significant changes in the DeFi ecosystems at the moment, and we are constantly monitoring that from a yield perspective. From an investment perspective, we are constantly looking at different investments. The Bluefin loan that we did was very well structured, and we continue to see an excellent deal out of that loan. We are looking to advance a few other loans on that basis and hope to announce a few things in coming quarters of similar types of transactions. We are also looking at making some equity investments, which will not be material in terms of the greater balance sheet, but we believe they could move the needle. Those relate to the AI sector, which we believe is the greatest unlock for blockchains. Analyst: Great. Thanks, Stephen. Thanks, Marius. Stephen Mackintosh: Thank you. Operator: Our next question comes from the line of Devin Ryan with Citizens Bank. Please proceed with your question. Analyst: Hey, guys, this is Neil Eloff here for Devin. I would love to talk about what you are mentioning on partnerships. Can you give us more insights on how you decide on these partnerships and what goes into that decision-making process? Then beyond the AI target, are there any other specific parts of the chain that you are looking to invest in, whether that be loans or other aspects? Stephen Mackintosh: Sure. First of all, when we look at partnerships, the fundamental is risk—how much risk we are taking, what the risk of losses are, the right risk-reward profile, and how it fits strategically into the business on a long-term basis. On loans, we are constantly looking, but we have taken a risk-based approach. We still have some loans to institutional clients where we are taking counterparty risk that are not in DeFi ecosystems. Those continue to yield well, and with some of them we have parent guarantees where we lower the rate. It is always a risk-based approach, and we continue to look to expand that part of the business. From an equity investment perspective, we are looking at things being built in the ecosystem, and there are four main sectors we are focused on: AI, stablecoins, prediction markets, and real-world tokenization. We think those will be key areas that advance and are core fundamentals of the blockchain sector going forward. In terms of how we invest, we are looking for bold initiatives, not just another protocol. In AI, we are not only investing in AI but also in companies that are AI-centric that we can bring to blockchain and that can build on the blockchain—how they integrate with the blockchain—looking into the future and how that can evolve. We have always thought that, long term, the promise of the sector is that there is not “Web3” and “Web2,” but another technology integrated into the real world together. Analyst: Thanks. Maybe the second question is related to policy. Obviously, the big movement is the Clarity Act. Can you give us thoughts on how you expect that to be a catalyst for the industry and for SUI particularly? Marius Barnett: Steve, do you want to add to that? Stephen Mackintosh: Yes. The industry is anticipating a significant development with Clarity passing the Senate Banking Committee. I believe it is a matter of the industry pulling together and getting it signed while there is an opportunity now, and not having it pushed out into the future. I believe there is substantial institutional participation coming from asset managers and the sell-side investment banks. I experienced that specifically in the form of Bitcoin Hashi. Bitcoin Hashi is an exciting protocol that was introduced this year. It is basically for institutions and qualified custodians to put their Bitcoin to work by using MPC technology and ZK technology on the SUI blockchain, with SUI validators running Bitcoin light clients and nodes, such that stablecoins can be minted against Bitcoin holdings in qualified custody. The amount of institutional participation I have seen for this protocol, which is trying to tackle the fact that only 1% of Bitcoin is used in DeFi through wrapped Bitcoin—which is not only a security issue but also a taxable event—has been notable. The Bitcoin Hashi introduction was well received by the institutional community and continues to be widely anticipated here at SUI Live in Miami. It is a testament to the anticipation that many stakeholders in the industry have around clarity. In regard to price appreciation in the token, following the liquidation cascade last year, and with the Bitcoin price peaking in October and many of the four-year cycle believers, there is some expectation that altcoins and Bitcoin can reprice to the upside at some point in 2026. It might take a couple of months to start building momentum. We are cautiously optimistic, and we look at all the data and signals to make interesting investments from the SUI Group Holdings Limited balance sheet. Analyst: Awesome. Appreciate it, guys. Thanks. Stephen Mackintosh: Thank you. Operator: We have reached the end of the question-and-answer session, and this also concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation. Thank you, and have a great day.
Operator: Greetings, and welcome to the Stem Inc. First Quarter 2026 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Erin Reed, Head of Investor Relations. Thank you. You may begin. Erin Reed: Thank you, operator. Welcome to Stem's First Quarter 2026 Earnings Call. This is Erin Reed, Head of Investor Relations. Before we begin, please note that some of the statements we will be making today are forward-looking. These statements involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. For more information, we refer you to our latest 10-Q, 10-K, other SEC filings and supplemental presentation, which can be found on our Investor Relations website. Our comments today also include non-GAAP financial measures. Additional details and the reconciliations to the most directly comparable GAAP financial measures can be found in our first quarter 2026 earnings release and supplemental materials, which are available on the company's Investor Relations website. Arun Naryanan, CEO; and Brian Musfeldt, CFO, will start the call today with prepared remarks, and then we will conduct a question-and-answer session. And now I'll turn the call over to Arun. Arun Narayanan: Thank you, Erin. Good afternoon, everyone, and thank you all for joining us today. When I spoke with you last during our fourth quarter and full year 2025 earnings call, I framed 2025 as a transformative year and 2026 as the year to demonstrate what that transformation was designed to deliver. One quarter in, I'm encouraged by the progress we are making. Our results are moving in the right direction, and we remain on track against the commitments we've set. Q1 is historically the lightest revenue quarter for us and our industry. And yet this quarter, we delivered our fourth consecutive quarter of positive adjusted EBITDA. In fact, this was our first ever positive adjusted EBITDA in a first fiscal quarter, supported by strong gross margins and continued growth in core software, services and edge hardware revenue. This reflects a cost structure and a margin profile that are now increasingly durable. We remain on track across all 2026 financial and operating targets, and we are reaffirming full year guidance across all metrics today. Now turning to an update on our three key priorities for 2026. Our first priority is to drive operational leverage and ensure that the structural improvements we made in 2025 are sustainable and continue over time. Gross margins for the first quarter were again very strong. With no battery hardware resales in the quarter, our revenue mix was entirely software, services and edge hardware, which drove non-GAAP gross margin to 52%. As we opportunistically layer in battery hardware through the balance of the year, we expect margins to naturally compress towards the midpoint of our 40% to 50% non-GAAP gross margin guidance range. Importantly, the underlying software and services margin engine remains strong. On the operating expense side, we continue to maintain what we have characterized as permanent structural efficiency. Cash operating expenses were down significantly year-over-year and down sequentially versus the fourth quarter of 2025. We remain focused on resourcefulness and driving further efficiency wherever we can, while continuing to invest deliberately in the areas that drive longer-term growth. One area where we are seeing meaningful efficiency gains is in AI adoption. Today, nearly 70% of our employee base is actively using AI tools in their weekly workflows with tangible productivity benefits to our customers. Within our development team specifically, AI is accelerating feature delivery and improving triage and operations. These productivity gains are real, and they are helping us do more with a leaner organization. As a result of our strong execution as well as these achievements and advancements, we delivered $2 million in adjusted EBITDA, our fourth consecutive positive quarter and our first ever positive first quarter performance. This clearly evidences the operating leverage embedded in this business, and we expect it to expand as we move through the year. Operating cash flow was negative $8 million for the first quarter. This reflects expected Q1 working capital timing and scheduled interest payments. As bookings and billings increase and working capital requirements lessen throughout the year, we expect improvements in operating cash flow and remain confident in our full year guidance range of $0 million to $10 million. Now moving on to our second priority, strengthening the core PowerTrack platform. PowerTrack is a critical digital infrastructure platform, which enables our customers to go from data to insight to action. PowerTrack generates data at the customer site with our edge hardware and sends that data to the cloud and ultimately to our PowerTrack software platform, enabling our customers to make meaningful decisions about their portfolios and optimize their assets. We added approximately 1.5 gigawatts of solar assets under management in the first quarter, bringing total solar AUM to 37.5 gigawatts, and we drove 2% growth in PowerTrack ARR. We are committed to maintaining and extending our market-leading position in commercial and industrial solar asset monitoring while extending into additional customer segments, and we continue to invest in the platform's stability, performance and feature depth to achieve these goals. A key part of that investment strategy is a disciplined build or buy analysis. Our acquisition of raicoon, which we announced on April 28th, is a direct and strategic move towards building out that platform capability and improving the actionability from insights and data. raicoon is an Austrian provider of automated fault detection and event management for solar assets. This is a targeted high-impact acquisition, a natural capability extension to our platform that we believe has immediate value across our wide customer base. raicoon's technology provides enhancements to PowerTrack through automated fault detection and alert prioritization. As our customer base scales and portfolios grow more complex, the ability to surface and triage performance issues faster is increasingly important for our customers to drive meaningful actions at scale. We expect raicoon's technology will drive customers to do even more work with PowerTrack, further establishing our product as the platform of choice for solar asset managers. What's more, this is a small, focused tuck-in acquisition that we executed opportunistically and will integrate quickly. We look forward to sharing more on the benefits of this acquisition as product integration progresses. Another way in which we make data more accessible for our customers is with PowerTrack Sage. PowerTrack Sage is now live and available in PowerTrack to our broader customer base. The AI assistant synthesizes live site data, alerts, and performance analytics into plain language briefings, giving operators, performance engineers and asset managers the ability to detect, diagnose and resolve issues faster. The early adoption signals are very exciting. We are seeing consistent daily engagement across multiple customer organizations with integrations into their daily workflows. In the future, as more heterogeneous data appears in PowerTrack, the capabilities of PowerTrack Sage will become more meaningful to our customers. Turning now to managed services. Our managed services business provides software-enabled full life cycle energy storage services, covering design, procurement, commissioning and the ongoing operation and optimization of energy storage systems typically under five- to 20-year contract terms. Managed services brought in approximately $7 million in revenue during the first quarter. Customer satisfaction remains high, and our optimization service continues to exceed the performance targets we have set with our customers. Shifting now to our final strategic priority, building the foundation for accelerated growth in 2027 and beyond, which includes expanding into utility scale deployments, advancing our international footprint and unlocking new market opportunities. I'm particularly excited about bookings momentum we are seeing in the utility scale segment. Bookings more than doubled quarter-over-quarter, and our pipeline in this segment is the strongest we have ever seen. We booked new deals in four different geographies and across various asset types, including stand-alone storage, solar and new build hybrid. While PowerTrack EMS is valuable across our portfolio, including C&I, it is also a key offering for us to drive expansion in the utility scale space, both internationally and domestically. It differentiates us by providing customers with unified controls, cloud monitoring and portfolio level visibility. PowerTrack EMS also helps customers extend the value of existing solar assets by adding storage with minimal disruption. PowerTrack EMS has a longer commercial life cycle than our core C&I business because of the utility scale end market since it requires more time for commissioning. And we expect these bookings to convert to meaningful revenue in late 2026 and into 2027. Our first PowerTrack EMS bookings from Q4 2025 are developing well and are on track to convert to revenue during the second quarter of 2026. One key PowerTrack EMS booking from Q1, I'd like to highlight is with a long-standing PowerTrack solar monitoring customer operating two utility scale sites exceeding 50 megawatts in Hungary. This customer made the decision to hybridize their portfolio and selected PowerTrack EMS to manage a new 50-plus megawatt hour battery system. This is precisely the expansion dynamic we anticipated when we built PowerTrack EMS, an existing customer deepening their relationship with them as their assets evolve. It validates both the platform's ability to grow with our customers and the increasing prevalence of hybridization in the European utility scale market. Just last week, we further strengthened PowerTrack EMS with a co-marketing relationship with Nuvation Energy, a North American provider of battery management and energy control solutions. Together, we will market a cell-to-cloud BESS and hybrid control stack that is exclusively North American designed and manufactured. This collaboration will allow us to deliver real value to our customers as regulatory requirements, including FEOC tighten. Further, this agreement proves we are on our way to building a robust ecosystem of commercial and product partnerships to extend our reach. On the international front, we continue to build out our European presence, anchored by our Berlin office. International revenue represented approximately 5% of total revenue in the first quarter, and we expect that proportion to grow as PowerTrack EMS and other utility scale projects in Europe move through commissioning and into revenue recognition in late 2026 and in 2027. Beyond our core growth drivers, I'd like to briefly update you on the two new offerings we introduced during our Q4 call. Our AI services offering continues to progress with active customer conversations focused on helping organizations identify and implement practical AI use cases that streamline internal processes, improve decision-making and unlock operational efficiency. In parallel, we are exploring how our core strength in energy optimization software and deep energy market expertise can support data center developers and operators as they navigate rising power costs, grid constraints and resilience requirements. Both remain important future growth opportunities, and we will share more substantive updates as customer engagements and market validations advance. To close, I want to reinforce our confidence in the rest of the year ahead. Q1 came in as expected, strong margins, positive adjusted EBITDA and solid progress on all three priorities. As I stated earlier, we are reaffirming our full year 2026 guidance across all metrics, and I'm confident in our team's ability to execute. With that, I'll turn the call over to Brian. Brian Musfeldt: Thanks, Arun, and good afternoon, everyone. Let's walk through the results. As Arun noted, Q1 is historically the lightest revenue quarter for the company, driven by the natural sales cycle of construction projects, which typically begin to ramp in the summer and through the end of the year. Total revenue for the first quarter was $29 million, down 11% year-over-year from $32 million in the first quarter of 2025. The year-over-year decline was entirely attributable to the absence of battery hardware resales this quarter and our expectation that battery hardware resale activity will be weighted to the second half of 2026. Core revenue from software, services and edge hardware was up 4% from the first quarter of 2025. Within that, I want to highlight a few components. PowerTrack software revenue grew 16% year-over-year, reflecting continued strength in our commercial and industrial solar monitoring business and early contributions from utility scale expansion. This is the highest margin recurring revenue in our portfolio, and its growth rate is a meaningful indicator of the health of our core business. Edge hardware revenue grew approximately 1% year-over-year. Project and professional services revenue declined 5% year-over-year and managed service revenue was down 5% year-over-year. First quarter GAAP gross margin was 38% compared to 32% in the first quarter of 2025. Non-GAAP gross margin was a record 52% compared to 46% in the first quarter of 2025. The significant margin expansion reflects the increasing mix of software, services and edge hardware in our revenue base, combined with the structural cost improvements we made in 2025. As battery hardware resales volumes pick up in the second half of the year, non-GAAP gross margin percentage will trend toward the middle of our 40% to 50% full year guidance range, but the underlying software and service margins remain strong. Cash operating expenses were down 30% year-over-year and down approximately 10% sequentially. The workforce and cost optimization actions we completed in 2025 and continue to implement into 2026 have become permanent structural efficiency and the first quarter confirms that characterization. Adjusted EBITDA was $2 million, a $7 million improvement compared to a negative $5 million in the first quarter of 2025. This marks our fourth consecutive quarter of positive adjusted EBITDA and our first ever positive adjusted EBITDA in the first quarter, which has historically been our most challenging quarter for profitability given seasonal revenue patterns. This is strong evidence of the operating leverage that is now entrenched in this business. We ended the first quarter with $37 million in cash and cash equivalents. Operating cash flow was negative $8 million in the quarter, driven primarily by the timing of working capital movements and cash interest expense. I want to be clear about the working capital dynamics. The Q1 outflow reflects timing, not a change in the underlying cash generation of the business. As bookings and billings increase and working capital requirements lessen throughout the year, we expect improvement in our cash position and remain on track to achieve our full year operating cash flow guidance of $0 to $10 million. Turning now to our operating metrics. Bookings were $27 million in the first quarter compared to $33 million in the fourth quarter of 2025. The sequential decline is typical for first quarter seasonality. All bookings this quarter came from core software, services and edge hardware. As Arun noted, utility scale bookings more than doubled quarter-over-quarter, which is one of the key drivers of our long-term growth objectives. While we did not have any battery hardware bookings this quarter, we continue to expect up to $40 million in opportunistic battery hardware sales this year. The battery supply is accessible and can be delivered to customers within 90 days. Contracted backlog was $23 million at the end of the first quarter, up 8% sequentially from $21 million at the end of the fourth quarter of 2025. CARR was $67 million, flat versus the end of the fourth quarter. ARR was $61.2 million, up slightly from $61.1 million at the end of the fourth quarter. Within that, PowerTrack ARR grew 2% sequentially and managed services ARR declined 4% sequentially. Managed services ARR declined modestly, reflecting the impact of a battery supplier bankruptcy, which prevented the renewal of certain recurring warranty management and other services contracts tied to that supplier systems. Importantly, we continue to provide optimization and other core managed services to the owners of those assets and associated AUM remains on our platform. Solar operating AUM grew 4% sequentially to 37.5 gigawatts and storage operating AUM was flat sequentially at 1.7 gigawatt hours. Now turning to guidance. As Arun mentioned, we are reaffirming our full year 2026 guidance across all metrics. Total revenue of $140 million to $190 million with software, services and edge hardware expected in the range of $130 million to $150 million and battery hardware resales of up to $40 million, which, as I mentioned, we expect to be weighted to the second half of the year. Non-GAAP gross margin of 40% to 50%, with the range driven by the timing and volume of battery hardware resales. Adjusted EBITDA of $10 million to $15 million, operating cash flow of $0 to $10 million and year-end ARR of $65 million to $70 million. And I will now pass the call back over to Arun for closing remarks. Arun Narayanan: Thank you, Brian. I'd like to leave you all with three key takeaways from this quarter. First, the transformation we undertook in 2025 is delivering results. We achieved positive adjusted EBITDA in our historically weakest quarter with record high software margins and a cost structure that is both lean and durable. This is not a onetime achievement. It's the foundation we are building on. Second, our core business is strong and growing. PowerTrack software revenue grew 16% year-over-year. Our new products, PowerTrack EMS and PowerTrack Sage are gaining real traction with customers. And the raicoon acquisition demonstrates our disciplined approach to extending our platform capabilities where it matters most. Third, we are making tangible progress on the growth initiatives that will drive through 2027 and beyond. Utility scale bookings more than doubled quarter-over-quarter. Our international footprint is expanding and our partnership with Nuvation positions us to capitalize on the growing demand for secure domestically sourced energy infrastructure. We said 2026 would be the year to demonstrate what our transformation was designed to deliver. One quarter in, we are doing exactly that. We have the right strategy, the right team and the right momentum. We are executing with discipline, investing with purpose, and we remain confident in achieving all our full year commitments. I want to thank our customers for their continued partnership, our team for their exceptional execution and all of you for your support and engagement. With that, I will ask the operator to open the line for questions. Operator: [Operator Instructions] The first question comes from Justin Clare with ROTH Capital. Justin Clare: So I wanted to just start out on bookings. So you've mentioned utility scale bookings had doubled quarter-over-quarter. And so just wondering if you could speak to what drove the strength there? Is that new customer wins? Is it expansion with existing customers? Are you seeing larger project sizes? And then also, just where are you seeing the most traction with utility scale customers in your portfolio? So which products or services are you seeing the most uptake for? Arun Narayanan: Justin, good to hear from you. This is Arun. It's largely driven, I would say, by PowerTrack EMS. PowerTrack EMS is the key differentiator that allows us to provide our customers in the utility scale space with solutions. They bring unified controls, cloud monitoring as well as portfolio level visibility to our customers. And I think this is what's extending the ability to engage with us beyond solar projects into these utility scale projects. Now also one more thing. We have PowerTrack SCADA, which is another product that we offer for monitoring and control in utility-scale solar projects as well. We have a team based in Berlin. The team is working very hard, and they have done a great job in doubling bookings. There are two maybe examples I can cite. In the last quarter, we spoke about Everyray, which was a German customer. That was a 100-plus megawatt hour project. And then in the prepared remarks, we referred to a Hungarian project that went through hybridization that was 50-plus megawatt hour deal as well. And overall, I think we remain confident that this conversion continues. The first CMS bookings from the Q4 2025 cycle, we expect to start seeing that as revenue starting in Q2 of 2026. So we remain very optimistic on this, Justin. Justin Clare: Okay. Got it. Got it. I appreciate that. And then just wanted to ask on PowerTrack. So we did see a pretty good growth, I think, 16% year-over-year revenue growth for that. Though we did see the ARR was flat sequentially. And so I'm just wondering how we should think about the cadence of ARR growth as we move through the balance of the year here, given your target of $65 million to $70 million at the end of the year? And then just what are the drivers that could potentially enable you to get to the higher end of that target? Arun Narayanan: Yes, Justin, I can answer that as well. PowerTrack ARR was up 12% year-over-year, 2% sequentially. And this moderate sequential growth in PowerTrack ARR is just due to seasonality. We expect ARR to ramp up throughout the remainder of the year. And the majority of our ARR growth, as usual, will come from PowerTrack C&I customers. There will be some PowerTrack EMS and utility scale deployments in the ARR, but it won't be a significant portion of ARR this year. And we're very focused and we continue to drive ARR across our business over the long term. And as I said earlier, we're pleased to reaffirm our guidance of $65 million to $70 million for ARR. Justin Clare: Got it. Okay. Great. And then just one more. I wanted to ask on the margins here. So we just see that PowerTrack non-GAAP gross margins that continue to move higher in Q1. I think you're at 75% versus 69% a year ago, 71% in Q4. So just wondering if you could just speak to the improvements that we've seen there? What's been the biggest driver? And then how we should think about the margin profile as you continue to scale that business? Is there further potential for margins to move higher? Brian Musfeldt: Yes. Thanks, Justin. This is Brian. I'll take that one. Yes, I mean, we are always reviewing the supply chain and the macro environment for our PowerTrack product. So you're seeing good growth in a couple of ways. One, our AUM is increasing. And so that is a kind of traditional SaaS product that gains leverage as we get more volume, which is always great, and that's going to improve margin. But also, you do see us -- as we watch the environment in the supply chain this last year, we have been able to increase pricing modestly where we've needed to kind of between tariffs and other things that have kind of driven that environment. So as the volume increases, you'll continue to see margins push up on that space. And then you always -- we're always watching for places where we can increase pricing or need to increase pricing on our customers, and that's what's going to drive that kind of to keep improving. Operator: This concludes the equity research questions. I'd like to turn the floor over to Aaron for retail investor questions at this time. Erin Reed: Thank you, operator. We have a few questions here. Firstly, relating to cash flow. With 2026 operating cash flow guided from $0 to $10 million, what are the key levers that give you confidence that Stem can reach positive operating cash flow for the full year 2026? Brian Musfeldt: Yes. This is Brian again. I'll grab that one. As Arun stated in the call, Q1's negative operating cash flow was really driven by a combination of expected higher working capital requirements in Q1 and it being our traditionally lowest kind of billings and revenue quarter. When you look forward, we expect that bookings and billings will increase with our seasonality and you look at this business and how it operates. And we also expect reduced working capital requirements through the rest of the year. And the combination of that will allow us to build cash going into the second half of the year. I think it's important to note, cash operating expenses have really been optimized to the business and the size today. I think you can see that in the evidence when you see that cash operating expenses were down 30% year-over-year and another 10% sequentially. So with that, we were able to achieve positive EBITDA in our lowest revenue quarter for the first time, which is great. And I think you're just fundamentally seeing that we need significantly less cash to run this business with the new operating discipline that we have in place. So I think that's what really gives us the confidence to reiterate our guidance on all our metrics this year. Erin Reed: Thanks, Brian. The next question is on the recent acquisition of raicoon. Why did you acquire raicoon and why now? Arun Narayanan: I'll take this. This is Arun. Well, I'm very excited that raicoon is joining Stem, and I want to take this opportunity to welcome all of the raicoon employees to Stem. raicoon's technology provides significant enhancements to PowerTrack through automated false detection and prioritization. What this means is as our customer base scales and portfolios are more complex, the ability to surface and triage performance issues faster is increasingly becoming very important to customer retention and satisfaction. This acquisition directly supports our 2026 priority of strengthening our core PowerTrack business, and we saw an opportunity to bring in a proven already deployed technology rather than build it from scratch. And this brings additional value to our existing customer base as well as it's a differentiator as we try to acquire new customers. So we're very pleased that raicoon is joining us. Erin Reed: Thanks. This will be the last question, and it is related to AI. Where is Stem's AI capability creating measurable value for customers today? And how does that translate into retention, expansion or new customer wins? Arun Narayanan: I'll take this. Look, I'm always excited about AI. And I would say that our ability to bring AI to life and to bring value to our customers maybe can be thought of in two different ways. The first way is how we embed AI into our products. AI is baked into PowerTrack as PowerTrack Sage, and this AI assistant provides customers with more fluency to interpret their site data. It expands PowerTrack users beyond the technical users that we have, and it does so by providing plain language briefings to non-technical users. Secondly, we also impact customer value by using AI internally, especially if you think about our development team, their usage of the AI tools, it allows them to accelerate feature delivery. It improves triage in our operations. It allows us to roll out updates more quickly. And ultimately, what this means is we reduce friction for our customers. Erin Reed: Thanks, Arun. This concludes the retail investor question. Turning back to you now for closing remarks. Arun Narayanan: I want to thank everyone for joining our first quarter earnings call, and we look forward to speaking with you next during our second quarter 2026 earnings call this summer. Thanks, everyone. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Operator: Ladies and gentlemen, welcome to Sera Prognostics' First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please be advised that this call is being recorded today, Wednesday, May 6, 2026. I will now turn the call over to our first speaker today, Jennifer Zibuda, Investor Relations. Please go ahead. Jennifer Zibuda: Thank you, operator. Welcome to Sera Prognostics' First Quarter Fiscal Year 2026 Earnings Conference Call. At the close of market today, Sera Prognostics released its financial results for the quarter ended March 31, 2026. Presenting for the company today will be Zhenya Lindgardt, President and CEO; and Austin Aerts, our CFO. During the call, we will review the financial results we released today, after which we will host a question-and-answer session. If you've not had a chance to review our quarterly earnings release, it can be found on our website at sera.com. This call can be heard live via webcast at sera.com, and a recording will be archived in the Investors section of our website. Please note that some of the information presented today may contain projections or other forward-looking statements about events and circumstances that have not yet occurred, including plans and projections for our business, future financial results and market trends and opportunities. These statements are based on management's current expectations, and the actual events or results may differ materially and adversely from those expectations for a variety of reasons. We refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company's annual report on Form 10-K, its quarterly reports on Form 10-Q and its current reports on Form 8-K. These documents identify important risk factors that could cause the actual results to differ materially from those contained in our projections and other forward-looking statements. I will now turn the call over to Zhenya. Evguenia Lindgardt: Thank you, Jennifer, and thank you, everyone, for joining us today. Given that we reported full year results just over 6 weeks ago, I'll focus my remarks on several key developments that continue to advance our commercial strategy and expand access to PreTRM. Following the publication of the full PRIME study results in January, our primary focus in the first quarter was building awareness with both clinicians and broader stakeholders. Our education and outreach efforts were designed to broaden understanding of preterm birth risk and prevention, including among audiences that are difficult to reach through traditional health care channels. From a provider engagement standpoint, we maintained a strong presence across key clinical forums, including the SMSM Annual Meeting in February, and more recently, the ACOG Annual Clinical and Scientific Meeting. At SMSM, we highlighted key clinical evidence and engaged directly with maternal fetal medicine specialists on PreTRM's role in risk stratification and early intervention. We also engaged with SMSM leadership to discuss PRIME study outcomes. At ACOG, we built on that momentum with a targeted product theater that showcased both the PRIME data and practical implementation strategies, underscoring how PreTRM can be seamlessly integrated into routine clinical care. We have been featured in several targeted podcasts this year, which complements our presence at medical meetings and extends our reach. In March, the SHE MD podcast featured an interview with Hailey Bieber discussing her pregnancy and the PreTRM test, which she received under the care of Dr. Aliabadi, SHE MD co-host and Sera's customer. This generated a high level of awareness of PreTRM, given Hailey's global visibility and social following along with a subsequent People magazine exclusive interview. The episode surpassed 0.5 million views and continues to drive awareness. Following that, we engaged the SHE MD to record a new podcast episode releasing May 14 to coincide with National Women's Health Week. This interview will feature a conversation on the science behind Sera, the clinical evidence from PRIME and how the PreTRM test needs broad awareness and should be considered as future standard of care. The episode discusses Dr. Aliabadi's experience with PreTRM tests over the last few years and the value of prevention and evidence-based risk identification. We hope you will all tune in next week. As we look ahead, we will also be featured on Medscape Hear From Her, the Women in Healthcare Leadership podcast, engaging in conversation with the podcast host, Jelena Spyropoulos and Dr. Mollie McDonald, Maternal & Fetal Medicine Specialist at St. David's Women's Center in Austin, Texas. The episode dives into the realities of preterm birth, the need for proper intervention and what can be done to help patients. Together, these media efforts continue to drive awareness across patients and providers, policymakers and payers who play an important role in improving pregnancy outcomes. Turning to our commercial progress. Our efforts during the quarter remained focused on building sustainable access points and referral pathways that we expect to support our long-term volume and revenue. Adding to our 2 live programs, we launched our third partnership program during the quarter, further expanding education and access to PreTRM. This program is expected to reach over 350 providers across 3 states, expanding our clinical footprint and advancing earlier identification and intervention for at-risk pregnancies. Beyond these established programs, we are contracting with additional partners and expect to provide more detail as these initiatives transition from contracting into live implementation. In parallel, we are now engaged in active discussions with 13 payers across 15 states, reflecting our strategy to deepen relationships with a focused set of target markets. We believe this concentrated approach is more effective in driving meaningful implementation and adoption than pursuing broader but less integrated engagement. Across all of these efforts, our priorities remain execution, reimbursement, physician awareness, clinical integration and provider adoption. We view these steps as foundational to broader coverage and scale over time. In addition to reimbursement, we are making steady progress in our efforts to drive guideline inclusion while continuing to expand the evidence-based supporting PreTRM. As discussed in our year-end call, European expert commentary on the PRIME trial was published in the Journal of Maternal Fetal and Neonatal Medicine in March. The authors emphasized that current preterm birth prevention strategies failed to identify the majority of women who ultimately deliver preterm and highlighted the alignment of the PreTRM approach with existing European health care systems. Also in March, results from the PREPARE survey were accepted for publication in the Journal of Women's Health. This survey examined preterm birth awareness and risk perception among women across 5 European countries and identified a meaningful gap between perceived awareness and actionable understanding, reinforcing the need for earlier and more standardized risk communication. We look forward to the formal publication expected in May. Together, these publications support our stakeholder engagement efforts in Europe and underscore the global relevance of risk-based preterm birth prevention as health care systems increasingly emphasize prevention, education and cost-effective maternal care. Looking ahead, we remain on track to publish several additional PRIME sub-analyses in 2026, including a highly anticipated health economic study, Medicaid population outcomes of the PRIME study and a focused analysis of first-time moms, further strengthening the clinical and economic foundation for adoption. During the quarter, we also continued to advance our advocacy strategy. Preterm birth is not only a clinical challenge but a public health and policy issue. We're engaging with stakeholders across multiple states to monitor and, where appropriate, support legislative initiatives and policy discussions focused on earlier identification and prevention, particularly in Medicaid and value-based care settings. We also recently launched a targeted letter writing campaign designed to encourage physicians and patients to engage with state Medicaid programs on reimbursement for the PreTRM test. The initiative is intended to amplify at the local level, the existing clinical voice calling for access for its risk populations. To date, we've seen encouraging participation with multiple letters submitted across several states, reflecting growing physician advocacy and awareness. We believe these grassroots efforts will play an important role in advancing broader coverage discussions over time. Through these efforts, we continue to build awareness and alignment well in advance of formal coverage decisions and to help policymakers understand both the clinical and the economic burden of preterm birth. We view advocacy as an important complement to our commercial and scientific strategies. In Europe, we continue to make progress towards commercialization readiness. We remain on track for a midyear submission of our CE Marking dossier and have had constructive discussions with regulators and clinical stakeholders. Engagement with our European advisory group continues to reinforce alignment around clinical utility, evidence requirements and implementation considerations. On capital deployment, we have completed the next phase of our evolution from a clinical-stage company to a commercial organization driven to secure reimbursement and revenue. Following a comprehensive business review, we realigned resources, identified significant operational efficiencies and streamlined R&D and G&A functions. We are prioritizing investments in payer engagement, market access and clinical adoption of PR. As part of this realignment, we are intentionally shifting capital away from R&D and clinical operations towards commercial and medical activities that directly support access and adoption. Over time, this results in a meaningfully higher proportion of our operating spend focused on commercialization and medical engagement with R&D becoming a smaller share of our overall expense base as we move into 2027 and beyond. These actions are expected to reduce our base operating expenses by nearly $10 million annually while enhancing our ability to focus capital on commercialization efforts. At this new operating level, we expect that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements through 2029. By extending our runway by an additional year, we have positioned the company to capitalize on meaningful growth expected over the next 12 months and to achieve key access and commercialization milestones in the years to come. To wrap up, the first quarter was characterized by awareness building and intentional positioning, expanding access points, strengthening referral pathways, advancing advocacy efforts and continuing to build the scientific foundation necessary for long-term adoption. Everything we've discussed today reflects a consistent strategy focused on establishing the prerequisites for durable, scalable adoption. And while these adoption cycles take time, we remain encouraged by the level of engagement we are seeing and confident that the foundation we are laying will support meaningful long-term pull-through. With that, I'll turn the call over to Austin. Austin Aerts: Thanks, Zhenya, and good afternoon, everyone. Revenue for the quarter was $14,000 compared to $38,000 in the first quarter of 2025. As expected, revenue in the quarter remained modest, reflecting the timing and nature of our geographically targeted commercialization strategy and our ongoing effort to build advocacy and awareness following the PRIME publication. Operating expenses for the quarter were $9.4 million, up slightly from $9.3 million in the prior year period, consistent with our expectations and reflecting disciplined cost management alongside continued investment in evidence generation, regulatory preparation and advocacy activities. As discussed, following our business review, we expect to reduce our operating expense base by nearly $10 million on an annualized basis. The benefit in 2026 will be limited due to the phasing of activities and related charges with the majority of the savings expected to be realized in 2027 and beyond. Research and development expenses were $3.0 million compared to $3.3 million in 2025. With the PRIME study now published, R&D expenses will continue to decrease as we focus resources on activities that more directly drive commercialization and awareness building. Selling, general and administrative expenses were $6.3 million versus $5.9 million in the prior year, reflecting our transition from clinical stage investments toward targeted commercial initiatives and strategic headcount. Net loss for the quarter was $8.4 million compared to a net loss of $8.2 million in the first quarter of 2025. We ended March 31, 2026, with $86.8 million in cash, cash equivalents and available-for-sale securities. Based on our measured commercialization strategy and a more sustainable cost base resulting from the activities discussed earlier, we believe our capital resources will be sufficient to fund the company across significant adoption and commercial milestones through 2029. As Zhenya outlined, our strategy prioritizes building durable prerequisites for adoption. From a financial perspective, that means revenue in 2026 could remain modest and uneven as we continue pushing reimbursement, awareness and advocacy campaigns and as programs move from setup to implementation with increasing pull-through anticipated later in the year and into 2027. In summary, the first quarter reflects continued financial discipline alongside steady progress in laying the groundwork for broader adoption. We remain focused on execution as these initiatives mature. With that, let's open the line for questions. Operator? Operator: [Operator Instructions] Your question comes from Tycho Peterson from Jefferies. Unknown Analyst: This is [ Lauren ] on for Tycho. A few from me. First on the partner program. So could we get maybe a little bit of color on the kind of profile of the third partner and kind of how it compares to the first 2? And then in terms of kind of the required cadence throughout the rest of the year to hit the goal of 5 to 7 partner programs and what that's going to look like for the next couple of quarters? And then second, for the new reps, I think you've talked about before how it could take a couple of quarters to kind of see density of adoption and increased productivity. Are you measuring anything in terms of test per rep per month or other KPIs that you're targeting for the second half of the year for these reps? Evguenia Lindgardt: Lauren, thank you so much for the questions. On the programs, indeed, very exciting. The way we planned our pipeline of the potential programs is to launch roughly one a quarter to make sure that we swarm the organization and stand them up well. Each program typically is a combination of a payer and provider groups to ensure that the pull-through can happen on the ground in the offices quickly. We've learned over the last couple of years that it takes a few months to iron out how the patients who test for higher risk of preterm birth get cared for by the physician offices with the intervention bundle. So we make it as seamlessly integrated into the workflow of those offices as possible. So for us, each of these programs, that's why one a quarter roughly, and we're right on track with that with another launch this quarter. We first select how will the test get paid for, engage on reimbursement, then with the payers, figure out what is the set of providers that are going to partner with us to adopt the test and get them ready for seamless integration to their workflow and delivery of the intervention bundle. So that is critical for fast recruitment and delivery of the test to the participant, which, of course, in turn, gives the results to both payers and providers faster. So it's in all of the partners' interest in these programs to prepare well to get to -- for us to revenue, for them to impact faster. For many programs, we are engaged deeply with the state as well. So on a quarterly basis, we report out the progress of the programs to the state Medicaid agencies, and these are usually public quorums where other payers are present. And another reason why one a quarter is because there's a fair bit of follow-up with other payers in the state that have the Medicaid plans who are starting to also reach out and want to participate. So we're excited to report that our pipeline of payers that we're engaged with is growing steadily from 10 payers in 13 states, which we reported last quarter, to 13 payers in 15 states. We're still sticking to our target states. But what we're seeing happen is the payers that we're running the program with now for 6 to 9 months are introducing us to other parts of their organization that cover plans in other states, which is exactly what we were hoping for and expanding with these payers into other regions. So that's why we're pacing it one a quarter roughly, and you can certainly anticipate us announcing one per quarter. Of course, we'll go faster if we can go faster, but I described the activities so that you get a feel for what an undertaking it is to stand up these pretty substantial provider institutions who partner with us, obviously, of course, because we, with the payers, select large volume institutions so that we could get the density of test ordering after we get reimbursement to go faster and the pull-through to be clear for about once a quarter to give us 3 months to execute on the launch of the program. Does that answer the first part of your question? Unknown Analyst: Yes, that's helpful color. Evguenia Lindgardt: Perfect. And then the second question, of course, rep productivity is critical. Actually, our Chief Commercial Officer and our Head of Sales, that's exactly how they engage with Austin and me on our forecasting on the number of reps and the number of tests per month per rep that is anticipated so that we can go the reps and drive towards steady progress. And of course, we're cautiously optimistic, but we want to watch it for another few quarters. We are seeing these metrics move. Your -- the question behind the question probably is when are you guys going to report on some of these metrics? Let us see the steady progress on them internally first. And as soon as we see the steady up and up, we will start reporting on them. Operator: Your next question comes from Dan Brennan from TD Cowen. Daniel Brennan: Maybe first one, just on -- you both talked about the shift to a more direct commercial effort, maybe pulling back some resources on the R&D side, extend the cash runway. Just I guess, what prompted the shift? It kind of makes sense logically, but I'm just wondering kind of is there any feedback in the market about timing, how long it's going to take. Or was this in discussion with the Board? Just maybe a little color behind that. Evguenia Lindgardt: Dan, thank you for the question. That's a very logical one. There's actually 2 root causes that drove that happening now. First, of course, as you know, the R&D and clinical operations efforts, both of these groups were incredibly focused on PRIME. And that was a 7-year effort, if you can believe it, with very, very heavy resourcing devoted to that. As we're shifting towards now publishing as much as possible with a couple of dozen publications in the pipeline from our data, we realized that we need less capacity specifically for our PreTRM birth product, R&D and ClinOps capacity. Of course, we have a pipeline of other products that we're working on, but we had inbound interest from partners to collaborate on R&D and clinical operations efforts in developing new tests. So what you're really seeing as the first impetus is the less demand on R&D and ClinOps capacity internally and the second one is the demand externally. to continue developing the tests. And as soon as we lock in these partnerships, of course, we'll communicate all of those to you. And you can imagine our R&D proteomics platform is a great asset with a biobank of thousands and perhaps a couple of tens of thousands of samples, which will allow us to support other diagnostic and screening tests in pregnancy, perhaps also support therapeutics of screening in for eligibility for drug interventions in pregnancy. You can imagine it's a strategic move as well as just simply less demand internally for now until we pick up in this collaborative model on other assets. So that's the answer on the R&D side. Does that help? Daniel Brennan: Yes. Yes, that helps. Very logical. Maybe just a couple of other quick ones. Just on the -- I think previously, you talked about low single-digit thousand volumes this year. Is that still on track? Or just maybe kind of how should we think about that? Evguenia Lindgardt: Dan, I didn't hear you quite well. Low single-digit thousand... Daniel Brennan: Was talking about volumes for '26. Evguenia Lindgardt: I got you. That's not unreasonable. As you know, we don't report the volume of orders, but it's certainly not an unreasonable number to be thinking about. And given your question, Dan, and our conversations, of course, we'll -- as soon as we see steadiness, we'll start reporting on it. But yes, that assumption is not unreasonable. Daniel Brennan: Got it. And then maybe just on the first Medicaid program that began, I think, a little over a year ago, when can you see that program potentially turn into a positive coverage decision, do you think? Evguenia Lindgardt: Great question. And I think when we announced it, we -- I believe I even talked through the time line for that particular program. We believe it will take us -- it took us about 6 months to stand it up with EMR integration and all of the provider setup to provide care management for the patients. And actually, the set of collaborators are now piloting a digital tool with us that allows the providers to deliver care management a lot more efficiently with weekly symptom check tooling. And we're looking forward to reporting on how that goes because that is something that will remove a significant barrier in terms of taking the OB/GYN nursing capacity from the office for that care management. So it took us 6 months to do that. It will take us about 9 to 12 months to fully recruit the program; about 4 to 5 months for the patients to deliver, obviously, on a rolling basis; then a couple of months to collect data on the outcomes, NICU admissions, health of the baby, weight of the baby, all of the other outcomes we typically would monitor in these implementation studies. And then, of course, take it to the state. I will tell you the state is not waiting for it. The state already engaged with us on -- for that particular program on what would coverage mean, why is it needed. We are mobilizing our clinical advocates in that state, and that's what I meant when I said our letter writing campaign. We're asking every provider to write to the state Medicaid and advocate why this test needs to be paid for in the state for all of the pregnant moms there. So the tactical time line I laid out nets out to be about 2 years to decision time line for the state. I think that probably has plus or minus a quarter or 2 on each side of that 2-year estimate. It could go faster. It could go a little bit slower if data is messy, for example, because in some states, they assign the baby into a different Medicaid plan at birth. Don't ask me why that's done, but that's the case. And it requires us to do some data chasing to combine the mom and baby outcomes. So for that program, we expect probably beginning of 2027 to bring the decision and the results of the program to us. And of course, we'll report on that. Does that help? Daniel Brennan: Yes, that helps a lot. Operator: There are no further questions at this time. I will now turn the call over to Zhenya Lindgardt, President and CEO. Please continue. Evguenia Lindgardt: Thank you so much, operator. In summary, we're building the medical reimbursement and advocacy foundations necessary for commercialization and guideline inclusion efforts, and the engagement we're seeing across stakeholders reinforces our confidence in the opportunity ahead. Thank you so much, everyone, for your time today, and we look forward to continuing to share our progress steadily each quarter. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participation. You may now disconnect.
Operator: Welcome to GSI Technology, Inc.’s Fourth Quarter and Fiscal Year 2026 Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. At that time, we will provide instructions for those interested in joining the Q&A queue. Before we begin today’s call, the company has requested that I read the following safe harbor statement. The matters discussed in this conference call may include forward-looking statements regarding future events and future performance of GSI Technology, Inc. that involve risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties are described in the company’s Form 10-K filed with the Securities and Exchange Commission. Additionally, I have also been asked to advise you that this conference call is being recorded today, 05/07/2026, at the request of GSI Technology, Inc. Lee-Lean Shu, the company’s chairman, president, and chief executive officer will be hosting the call today. With him are Douglas M. Schirle, chief financial officer, and Didier Lasserre, vice president of sales. I would now like to turn the conference over to Lee-Lean Shu. Please go ahead, sir. Lee-Lean Shu: Good afternoon, and thank you for joining us. To review our fourth quarter and fiscal year 2026 financial results. Fiscal 2026 was a year of meaningful progress for GSI Technology, Inc., marked by strong performance in our SRAM business, continued advancement of Gemini II to commercialization, and the initiation of the PLATO design. While I am pleased with the progress we have made on several fronts, significant work remains. Our team is executing our key milestones and advancing business development for the APU, and I have had several encouraging conversations on numerous fronts in these amounts. We end fiscal 2027 with continuous momentum, promoting the APU and building our customer traction. With that, I will now hand the call over to Didier. Didier Lasserre: Thank you, Didier. Let me start by stepping back and framing where we are today. Because I think the context is important. Our SRAM business performed well in fiscal 2026 and remains the revenue foundation of the company, providing cash for APU development. For the full year, the SRAM business grew 22% year-over-year and gross margins rose to 55% from 49%. The SRAM business has benefited from increased demand from our customers that support high-performance AI chip development and manufacturing. We recently announced that we concluded our strategic review and determined that continuing to execute our standalone strategy is the best path forward for delivering long-term shareholder value. The stronger SRAM business and a strengthened balance sheet, along with non-dilutive R&D funding, are providing the resources to support our go-forward plan. With this financial foundation in place, we are now seeing real progress with Gemini II and PLATO. Over the past several months, we have reached a point where we are seeing both technical validation and early program-level engagement of Gemini II, including the Sentinel drone surveillance POC, the U.S. Army SBIR award, and a new Phase One smart city project I will discuss in a minute. On the technical side, in a bake-off for the Sentinel POC, Gemini II’s performance contributed to winning the contract award by achieving a time to first token of roughly three seconds at 30 watts of system power on Gemma 312B multimodal workloads at the edge. In this use case, time to first token is a critical metric for drone surveillance systems because it reflects how quickly the system can respond in real-world applications where response time directly affects critical decision making. We are working closely with the G2 Tech team on the Sentinel program. We have completed the software deliverables and continue to target a June demonstration of the Gemini II powered drone. This demonstration is planned for the Department of Defense and an international defense agency. In mid-April, we were notified that we had been awarded Phase One of a smart city project. The project leverages our work done for the drone-based surveillance POC and marks an important step forward towards commercial deployment. In this application, Gemini II will process inputs from distributed camera systems to provide near real-time detection of events such as fires and other public safety risks. This project demonstrates how our platform can scale across real-world infrastructure. We expect to share additional details on the smart city program around the time of a planned media event in late May hosted by the municipality. Currently, we are working on several projects in tandem. What matters most for GSI Technology, Inc. at this time is not just the number of early-stage trials and demonstrations we have, but also how these early-stage engagements are helping us identify where our APU architecture provides a clear advantage, particularly in delivering low-latency performance within a constrained power envelope. We are also leveraging our deployment work in two ways. First, we are applying what we have developed for the drone security application to a smart city application. While the end markets are different, the underlying development carries over, giving us a meaningful head start in a new use case rather than starting from scratch. Secondly, as we complete the Sentinel POC and Phase One of the smart city program, we can build on those results to pursue additional opportunities with new customers in those markets. We view this as a repeatable model where each engagement helps accelerate the next. What is exciting for us is that we see the end markets for low-latency, low-power AI at the edge expanding as AI workloads continue to move closer to where the data is generated. These applications favor the APU architecture that can deliver higher compute per watt. Gemini II is ideal for these power- and latency-constrained edge deployments, where real-time response and energy efficiency are critical. Where we are winning is where Gemini II is tested against conventional architectures requiring significantly higher system power for similar or slower responsiveness. We believe Gemini II best addresses this gap and positions us well to win as more AI loads shift towards distributed, power-constrained environments. Consistent with this, we are encouraged by our progress within defense agency programs, as evidenced by our recent U.S. Army SBIR progressing from Phase One into Phase Two. This project is about enabling real-time in-field AI deployment on small, low-power systems typically operating in challenging conditions. As part of this program, we will build and test a ruggedized node containing the Gemini II for real-world mission-critical environments. This SBIR positions us within a broader shift in defense spending, with approximately $13 billion proposed in fiscal 2026 budgeted for AI and autonomous systems, and creates a potential pathway to follow-on programs and future opportunities to supply Gemini II-based systems. So how do we move from where we are today to design wins and ultimately revenue? From a commercial standpoint, we are still in the early stages. Our focus is on advancing our current engagements and working closely with partners to integrate Gemini II into their systems, with the goal of moving into design-level discussions. Given the complexity of these deployments, we are focusing our resources on a small number of high-value opportunities where we believe we have a clear advantage. Although the number of engagements remains limited, we are seeing a meaningful increase in the depth of these engagements and our ability to leverage our prior Gemini II deployment work for new related applications. Looking ahead, our priorities are to advance current POCs and awarded programs and to leverage what we have learned from each of these engagements to drive additional design opportunities. At the edge, performance matters most when it can be delivered within real-world power and latency constraints. That is where we believe Gemini II’s advantage lies. With that, I would like to hand the call over to Doug. Go ahead, Doug. In the earnings release issued today after the close of the market, you will find a detailed summary of our financial results for the fourth quarter and full fiscal year 2026. Douglas M. Schirle: Rather than walking through the numbers again, I will focus my comments on the key drivers behind the results and provide more context and explanation to help you better understand the business. Let me start with the results for fiscal year 2026, ended 03/31/2026. As Didier mentioned, fiscal 2026 revenue increased 22.4% to $25.1 million, reflecting continued strength in our SRAM business, particularly with customers supporting chip design and simulation for AI applications. We experienced solid growth in this customer segment throughout fiscal year 2026. We do see variability in customer orders, and sales can fluctuate from quarter to quarter. However, barring any significant change in underlying AI chip demand that would affect SRAM orders from these customers, we expect this business to remain relatively stable in fiscal year 2027. The higher level of revenue and product mix helped to lift fiscal year 2026 gross margin to 54.5%, a notable gain from the prior year gross margin of 49.4%. Operating expenses in fiscal 2026 rose to $31.2 million compared to $21 million in fiscal 2025. Operating expenses increased year-over-year primarily driven by higher R&D spending on the PLATO chip design. It is also important to note that the prior year included a $5.8 million gain from the sale of assets, which makes year-over-year comparisons appear more pronounced. We also continue to offset a portion of our R&D expenses through non-dilutive funding, SBIR contract funds, and POC-related funding. The majority of our R&D is dedicated to APU. The R&D offset in fiscal 2026 and fiscal 2025 was $1 million and $1.2 million, respectively. Higher operating expenses increased the total operating loss for fiscal 2026 to $17.5 million compared to an operating loss of $10.8 million in the prior year. The fiscal 2026 net loss included interest and other income of $4.1 million, primarily from interest payments on the increased cash balance from the capital raise completed in October 2025, and $3.4 million of other income consisting of a $6.2 million non-cash gain from the change in the fair value of prefunded warrants, partially offset by $2.8 million in issuance costs associated with the registered direct offering in October 2025. Switching now to the fourth quarter. Revenue was $6.3 million with a gross margin of 52.4%. As we have seen in prior periods, quarterly gross margin can fluctuate with the product mix and revenue levels. The fourth quarter gross margin reflects slightly lower semiconductor sales sequentially compared with the prior-year quarter. From a customer perspective, we did see some variability across accounts during the quarter, including lower shipments to certain customers and higher shipments to others. At the same time, defense-related sales increased to approximately 46% of total shipments, reflecting continued demand in that segment. Again, you will find a full breakdown of sales in today’s earnings release. Operating expenses increased from the prior year primarily due to continued investment in our Gemini II and PLATO development programs. These investments align with our strategy to advance our APU roadmap while maintaining discipline in cost management. Last quarter, we expanded quarterly earnings disclosures to help investors better understand the company’s cash consumption and cash generation. This information will complement the condensed consolidated statement of cash flows included in our Forms 10-K and 10-Q. Cash flows for the quarter ended 03/31/2026 were as follows: cash and cash equivalents as of December 31 were $70.7 million; net cash used in operating activities in the quarter was $5.5 million; net cash used in investing activities was approximately $100,000; and net cash provided by financing activities was $2.1 million. Cash and cash equivalents as of 03/31/2026 were $6.2672 billion. From a cash flow standpoint, spending in the quarter continued to reflect our investment in Gemini II and PLATO development. We expect cash usage to remain elevated as we progress through this development phase. As a general reference point, we expect the cash usage to be approximately $4 million per quarter, or about $16 million annually, although this may vary depending on development timing and program activity. We ended the quarter with $67.2 million in cash and no debt. This is a notable improvement from the prior-year cash balance of $13.4 million and is associated with $46.9 million, net of fees, registered direct offering proceeds that closed in October 2025. The absence of debt and the improved cash balance provide us with the flexibility to continue investing in APU while maintaining a disciplined approach to capital allocation. We believe our current cash position provides sufficient runway to support the initial commercialization of Gemini II and the completion of the PLATO tape-out, both expected late fiscal 2027. Before I hand the call over to the operator for Q&A, I would like to provide the first quarter fiscal 2027 outlook. For the upcoming quarter, we expect net revenues in the range of $5.9 million to $6.7 million with gross margin of approximately 54% to 56%. Overall, our strong cash position and continued support from non-dilutive funding give us a runway to advance Gemini II into early commercialization and the PLATO chip design. Operator, at this point, we will open the call for questions. Operator: Thank you. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Once again, it is star 1 to ask a question. The first question is from Tony Brainard, retail investor. Analyst: Hello, gentlemen. How are you? Lee-Lean Shu: Good. Thank you. Analyst: Yes. Can you share some color on the size—like, if you do get the design wins—the size of the market we are looking at? Lee-Lean Shu: On which market? Analyst: On the Gemini II. Didier Lasserre: Okay. That is a pretty broad question. So the markets we are going after initially, you know, some of them are government, military-based, specifically these drone programs. And as we talked about, we are limited in detail now. We will give you more detail on the smart city at the end of May. But both of those markets are multibillion-dollar markets. Lee-Lean Shu: Okay. Analyst: Yep. Analyst: That is fair enough. And that is my only question for today. Thank you very much. Douglas M. Schirle: Alright. Thanks, Tony. Analyst: Thank you. Operator: The next question comes from Robert Christian, Private Investor. Robert Christian: Yes. I would like to know why the PLATO project has moved up from 2027 to late fiscal 2027. Didier Lasserre: Actually, it has not been pushed out. It might have been a mixture of calendars and fiscal quarters. When we had first talked about it, we were targeting the beginning of calendar 2027 to have the part taped out, and we are still on schedule for that. Tape-out means that the design will be done in the first quarter, and that would give us silicon because we have to make the mask sets that are used for the wafer fabs at TSMC. So we will see our first wafers in hand in summertime of calendar 2027, and I believe that has always been our schedule. Lee-Lean Shu: Yeah. I think we mentioned fiscal year 2027. That is the beginning of the 2027 calendar year. Didier Lasserre: That is a good point. So the end of fiscal 2027 is March of calendar 2027. Okay. That would be great. And the second question I have is, Gemini II taped out over two and a half years ago. Is it going to take that long to see expected sales, say, of PLATO? Didier Lasserre: So that is a great question. You have two components to sales. You have the hardware component, which is the chip and any kind of board, and you have the software side. The software side actually lagged the hardware on Gemini II. With PLATO, we are trying to align the two more closely. The good news is some of the software work that is being done for Gemini II can be used for PLATO, while with Gemini I it was a completely new effort. In that respect, we can leverage some of the work from Gemini II for PLATO, and then we are also lining up the resources to be able to bring in the software with PLATO. Robert Christian: Well, the chip is genius, and I wish you guys godspeed. Lee-Lean Shu: Thank you. Didier Lasserre: Thank you. Operator: At this time, we show no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Lee-Lean Shu for closing statements. Lee-Lean Shu: Thank you again for joining today’s call. As a reminder, Didier will be at the LD Micro Conference on May 19. Contact LD Micro if you would like to attend this presentation or take a one-on-one meeting. We are encouraged by the progress we are making with Gemini II, and we remain focused on successfully executing against the opportunities in front of us. We look forward to speaking with you again on our fiscal 2027 first quarter earnings call. Thank you. Operator: This concludes today’s conference. Thank you for attending. You may now disconnect.
Operator: Hello, everyone, and thank you for standing by, and welcome to Great-West's First Quarter 2026 Results Conference Call. [Operator Instructions] It is now my pleasure to turn the conference call over to Mr. Shubha Khan, Senior Vice President and Head of Investor Relations at Great-West. Welcome, sir. Shubha Khan: Thank you, Jim. Hello, everyone, and thank you for joining the call to discuss our first quarter financial results. Before we start, please note that a link to our live webcast and materials for this call have been posted on our website at greatwestlifeco.com under the Investor Relations tab. Turning to Slide 2. I'd like to draw your attention to the cautionary language regarding the use of forward-looking statements, which form part of today's remarks. And please refer to the appendix for a note on the use of non-IFRS financial measures and important notes on adjustments, terms and definitions used in this presentation. And turning to Slide 3. I'd like to introduce today's call participants. Joining us today are David Harney, our President and CEO; Jon Nielsen, our Group CFO; Ed Murphy, President and CEO, Empower; Fabrice Morin, President and CEO, Canada; Lindsey Rix-Broom, CEO, Europe; Jeff Poulin, CEO, Capital and Risk Solutions; Linda Kerrigan, our Appointed Actuary; and John Melvin, our Chief Investment Officer. We will begin with prepared remarks, followed by Q&A. With that, I'll turn the call over to David. David Harney: Thanks, Shubha, and good morning, everyone. Please turn to Slide 5. We delivered a strong start to 2026 with double-digit earnings growth for Great-West in each of our operating segments. These results reflect the structural progress we've made over the past several years, including our shift to a more capital-light business mix, the operating leverage across our platforms and disciplined capital deployment. This quarter, we delivered 20% year-over-year growth in base earnings and 23% growth in base EPS, driven by strong underlying business performance and the continued execution of our capital return strategy. Q1 marks another important milestone for Great-West as it is the first time we have achieved all our potential objectives we set out at our Investor Day last year. This is the direct result of our focused strategies and disciplined execution, and we are confident in the medium-term outlook for our business. Our strong cash generation and balance sheet continue to provide significant financial flexibility with over $2 billion in Holdco cash at quarter end, even after nearly $600 million of share buybacks during the period. Please turn to Slide 6. As I mentioned, we delivered base earnings per share growth of 23% year-on-year primarily owing to strong growth in our capital-efficient businesses. Notably, Empower base earnings grew 23% year-over-year in U.S. dollars, driven by strong retirement and wealth growth and operating leverage. While Capital and Risk Solutions saw 41% growth with continued momentum in its capital solutions business, highlighting our position as a leader in retirement services and wealth management. Great-West saw a 10% year-over-year growth in total client assets to $3.3 trillion, of which more than $1.1 trillion represents higher-margin assets under management or advisement. Robust capital generation continued to reinforce our strong financial position this quarter. Despite continued share buybacks, we ended with a solid capital base including a LICAT ratio of 129%, Holdco cash of over $2 billion and a stable leverage ratio. Please turn to Slide 7. At our Investor Day last year, we reiterated our objectives for base EPS growth and dividend payout, introduced a new objective for base capital generation and raised our base ROE ambition. Our first quarter results were in line with all our medium-term objectives with base ROE exceeding 19% for the first time this quarter. Our success can be attributed to the market-leading strength of our businesses, the continued shift towards capital-light growth and disciplined capital management. I am very pleased with the progress we have made as an organization over the past several years to drive stronger returns. While market conditions have been supportive in recent quarters, the structural progress we've made puts us on course to deliver 19% plus base ROE on a sustainable basis. Please turn to Slide 8. Each of our segments delivered against their growth ambitions in the first quarter. As I mentioned, Empower grew base earnings at a double-digit pace year-over-year with strong operating margins and net flows in Retirement as well as impressive growth of 65% in the Wealth business. Canada saw growth across all lines of business with double-digit growth in both retirement and wealth assets. In Europe, Retirement and Wealth and insurance earnings growth were propelled by strong client asset flows as well as strong retail annuity sales. In Capital and Risk Solutions, there continues to be solid demand across geographies and product lines for capital solutions, which coupled with strong insurance experience, drove 41% year-over-year base earnings growth. Overall, I am very pleased with the strong start to 2026. Double-digit growth across all four. business segments drives continued confidence for the remainder of 2026. Before Jon covers our first performance in more detail, I will pass it over to Ed to talk more about Empower's results and the work done by his teams this quarter to meaningfully strengthen the long-term growth profile of the Empower business. Edmund Murphy: Great. Thank you, David, and good morning, everyone. Please turn to Slide 10. Empower delivered another strong quarter with double-digit base earnings growth reflecting continued momentum across our Retirement and Wealth lines of business. This drove Empower's base ROE to 20.8%, a key contributor in achieving Great-West 19% ROE objective. In our workplace business, strong equity markets drove double-digit year-over-year growth in client assets. Net plan flows exceeded net participant outflows in the quarter and we continue to expect positive net plan flows for the full year 2026. Operating margins also improved by over 300 basis points from a year ago, helped by improved credit experience and underscoring the strong operating leverage in the business. Empower Wealth continues to see outstanding growth with base earnings up 65% year-over-year. Operating margins held steady at 39% despite increased brand investment in Q1, further demonstrating the scalability of our wealth platform. With significant momentum in our underlying businesses, we are increasingly confident that Empower can capitalize on the growing demand for Retirement and Wealth solutions in the United States. We were encouraged by recent policy developments to expand access to retirement savings and support long-term financial security, including new Department of Labor safe harbor guidance, the administration's April 30 executive order and growing momentum around solutions such as Trump accounts. Together, these efforts highlight the importance of public-private collaboration and helping more individuals build confidence in their financial futures. Turning to Slide 11. Empower has built a very strong foundation as the second largest retirement plan provider with $2 trillion in client assets and as a leading wealth manager. We are still in the early stages of deepening the relationship with our 20 million customers. A key theme at Empower is building customers for life. That means being there for our customers throughout their financial journey. We have previously highlighted the value we provide during client rollovers, and it continues to be an important lever of growth for the business. We expect nearly $1 trillion to roll off the platform over the next 5 years. A significant portion of that money in motion will be eligible for rollover, and we are the #1 destination for those assets. As we look ahead, the opportunity to create value for our customers is much broader. Customers hold roughly 3x more assets off platform than on-platform. We are increasingly focused on building trust with our customers to earn the management of those assets as well. Workplace, rollover and crossover represent highly complementary mutually reinforcing channels. For example, by strengthening engagement, while customers are still in plan and before life events occur, we can increase the likelihood that they stay with Empower when they roll their assets into an IRA or seek out additional financial solutions. Meanwhile, customers that are more actively engaged with our workplace platform are more likely to aggregate their other assets with us. Please turn to Slide 12. Our strategy is simple, engage customers earlier and more proactively, make it easier to do business with us and then earn their trust and the right to serve them across their entire financial journey. To advance our strategy, we have embarked on our journey to realign the organization to strengthening our offering for customers while ensuring the durability of Empower's growth profile. In the last few months, we established greater organizational alignment between our Retirement and Wealth businesses and started realigning teams to encourage earlier conversations with customers, drive deeper relationships that support better outcomes. These efforts position us to better serve our customers long term. Looking ahead, we're focused on executing across several levers to drive continued growth. First, we have built out our product offerings into new areas such as stock plan services and consumer directed health savings, making Empower even more relevant across a broader set of customers and needs. Secondly, we are expanding access to financial solutions through continued investment in digital and AI tools to support greater personalization and a seamless end-to-end customer experience. We are also building deeper partnerships with plan sponsors and their advisers to drive advocacy, increase engagement and do more for participants to build greater trust. We are highly confident in the outlook for the business and our ability to continue delivering on our growth agenda in the years ahead. I'll now pass it over to Jon to talk through the broader financial results for the quarter. Jon Nielsen: Thank you, Ed, and good morning. Please turn to Slide 14. Great-West delivered double-digit base earnings growth across all segments in the first quarter, demonstrating continued execution against our strategic priorities. The first quarter results were driven by strong performance across our Retirement and Wealth businesses, continued momentum in new business volume and favorable insurance experience at CRS as well as improved credit experience across our investment portfolio. These results were achieved despite heightened market volatility, underscoring the strength of our diversified, increasingly capital-light business mix as well as the benefits of disciplined capital deployment. Our capital position remains strong with stable leverage and ample liquidity to support both organic growth and capital deployment. During the quarter, we repurchased approximately $567 million of common shares contributing to the 23% growth in base earnings per share year-over-year. Great-West also delivered base ROE of 19.1%, an increase of 190 points from the prior year. As David highlighted, we achieved our medium-term objective of 19% plus for the first time. The results this quarter reflect high-quality earnings with close alignment between net and base earnings. Turning to Slide 15. We are pleased that total credit losses for the first quarter were down year-over-year and lower than our expected range of 4 to 6 basis points on an annualized basis. As a reminder, total credit experience is the aggregate of credit experience shown in our drivers of earnings disclosure as well as in our Retirement and Wealth P&L statements, all of which are included in the supplemental information package. We continue to expect under normal conditions, credit experience would be at the lower end of the range. Turning now to our results by segment, starting with Slide 16. Base earnings in our Canadian operations increased 11% year-over-year, with robust growth across all lines of business. Retirement and Wealth results were driven by higher fee income as well as improving retirement flows. Group Benefits earnings were driven by strong operating leverage and were impacted by modest insurance experience gains. Finally, insurance and annuity results were supported by higher sales than a year ago, favorable mortality experience and higher net investment results. Turning to Slide 17. In Europe, base earnings increased 10% year-over-year in constant currency, primarily driven by higher global equity markets, trading gains and strong growth of the Group Benefits in force book. Bulk annuity sales, which tend to be lumpy, did not contribute significantly to the base earnings growth this quarter. However, the second quarter pipeline is very strong, and we expect this to translate to higher insurance earnings in the coming quarters, augmenting solid underlying momentum across all the other lines of business. Turning now to Slide 18. Capital and Risk Solutions delivered another strong quarter, with base earnings up 43% on a constant currency basis. We continue to see strength in demand for our capital solutions business globally. The pipeline for these solutions remains robust, and we expect new business volume to remain strong through the remainder of 2026. The strong CRS results this quarter were also driven by favorable U.S. mortality experience. Overall, this business will likely exceed our medium-term base earnings objective in 2026. Turning now to Slide 19. As we've highlighted previously, organic capital generation remains a key strength of our businesses. In the first quarter base capital generation exceeded 80% of base earnings, while free cash flow was 85% of base earnings. We expect both these measures to continue to be strong over time, as the relative earnings contributions from our capital-light businesses grows, while attractive organic growth opportunities in our more capital supported businesses may impact capital generation in any given quarter, we expect Great-West to remain highly cash generative. Turning to Slide 20. Great-West's strong free cash flow generation continues to support ongoing share repurchases and provides capacity for further capital deployment through the year. During the first quarter, we repurchased $567 million of common shares. We expect the return of capital to shareholders to be at least in line with 2025, especially if compelling strategic M&A opportunities do not materialize in the near term. Turning to Slide 21. Our LICAT ratio stood at 129%, up from 128% at the end of the fourth quarter, driven by strong capital generation and favorable seasonality in our Reinsurance business. Looking ahead, we expect to maintain the LICAT ratio above 125% and under normal operating conditions, even with elevated Reinsurance new business volume. The robust capital position, combined with the leverage ratio that remained steady at 28% and a Holdco cash balance of $2.1 billion provides a foundation for continued growth and capital deployment. Overall, we're off to a great start to 2026 and are very excited about the continued strong performance across all of our financial metrics. With that, I will turn it back over to David for his concluding remarks. David Harney: Thank you, Jon. Please turn to Slide 23. The momentum we built in 2025 has continued into 2026, and our first quarter performance reflects the strength and durability of the portfolio we've built. We've achieved our 19% base ROE objective for the first time this quarter. And based on the structural progress we've made across the business, I'm confident in our ability to sustain strong returns in normal market conditions. Looking ahead, we remain well positioned to deliver against all our medium-term objectives. Empower is on track to again deliver double-digit base earnings growth this year as it continues to expand its leadership position in U.S. Retirement and Wealth. CRS continues to outperform its growth ambitions with strong demand for its capital solutions expected to persist through 2026. At the portfolio level, our continued shift towards capital-light businesses supports our expectation to generate 70% or more of base earnings from these businesses over the medium term. This, combined with strong organic capital generation provides us with significant flexibility to invest in the business, pursue strategic opportunities and to continue returning capital to shareholders. We've built a well-diversified, capital-efficient organization with strong growth platforms, disciplined capital management and experienced teams across all our businesses. I'm confident in our ability to continue executing on our strategy and creating long-term value as we move through 2026 and beyond. Thank you. And with that, I'll turn it over to Shubha to start the Q&A portion of the call. Shubha Khan: Thank you, David. [Operator Instructions] Jim, we are ready to take questions now. Operator: [Operator Instructions] We'll hear first from Doug Young at Desjardins. Doug Young: Question on CRS, I guess for Jeff, can you remind us what's driving the improved outlook for Capital Solutions business? And in the same vein, can you remind what percent of CRS' earnings are from Capital Solutions? I think it was 50% not long ago. I would assume it's kind of tilted more towards that. So -- and I've got a follow-up. Jeff Poulin: Thanks, Doug. To answer your last question first, the percentage has gone closer to 60% Capital Solution, 40% Risk Solution. And it's the nature of the Reinsurance business, sometimes some products are more in demand than others. And we have seen a lot of demands for products on the capital solutions side. And it's coming from different products in different jurisdictions. So we're seeing a strong demand in Asia right now because they've got new regulations that are putting more capital demand on the companies. We're seeing it in Europe, where I think the companies are a little strained and then we're seeing it in some segments of the U.S. market. So it's demand across the board, which is a good, a perfect storm from our perspective, that everybody is looking for the types of products we're offering. And it's -- 2025 was an absolute great year from a new business perspective for us and '26 is starting the same way. So the outlook is really good from a new business perspective. Doug Young: Yes. And we talked on this before. Maybe just -- when I see something growing in the insurance world really, really fast and I somewhat get a little nervous. And we've talked about the risk controls that you have internally. But what's the like simple answer that you would get for someone that would look at this and say, man this is growing really, really fast. And this is a fairly complex business. Like how are you managing this risk so that there isn't any surprises? Jeff Poulin: Yes. We've got pretty strong controls. There's lots of levels of risk management within our operation. And I think that's what made us very successful over the years. We've got at every level of a transaction, we have a review and we decide to proceed or not proceed not more than 10% of the transactions we look at get closed. So we have a very, very stringent process to look at that. We try to be flexible with the clients, but at the same time, we're very disciplined at the risk reward needs to make sense, hence the great returns we're seeing. So I think it comes in lumps, this business is like that. We've seen that before. We've wrote a large book of longevity business in the past relatively quickly, and we're still benefiting from it now. I think that it's the nature of the Reinsurance business. Sometimes the demand on a given product is really, really strong. And other times, it's not. So you need to be patient and disciplined. Doug Young: Okay. And then, Jon, can you define -- I think you did this last quarter, but can you define what you believe Great-West Life's or what you calculate Great-West Life's excess capital to be? And how much is at the Holdco because I know you've got an amount there, but I think you want to hold some liquidity. How much is that the Opco and how much is the U.S. sub? And specifically in the Canadian Opco, when you think about binding constraints, what is that binding constraint there? Jon Nielsen: Yes. Thanks, Doug. Let me walk you through the different components. First, as you rightly call out, we have about $2 billion -- $2.1 billion of cash at the holding company. We typically like to have a few hundred million of liquidity there through the cycle, but most of that cash would be readily deployable. We didn't have the regulatory excess capital across the regulated entities. I call that about $2 billion. So you're at $4 billion. In terms of the minimum, I would say you'd kind of look at it as 120%, but we typically like to operate north of there in most transactions, but we could go down to 120% for the right opportunity. So then the other thing I think that we should point out is right now, we're running below kind of a normalized 30% leverage level. So that's another, call it, $1.5 billion, so around $5 billion of capacity there. And then as you're aware, Doug, and special situations for M&A, we have in the past managed to take our leverage ratio up given the exceptional cash flow and capital generation that we have, and we've used that cash flow generation not just from the acquired business, but from our ongoing operations to quickly pay down the leverage, we could see that as another lever to pull and that would be around, call it, $3.5 billion of capacity. So we have got a lot of capacity. But I wouldn't just look at the balance sheet. Look, I would also look at the point out how strong our capital generation is. It continues to be above 80%. All of our segments are throwing off free cash flow. Our free cash flow was over 85% this year. We're exceeding kind of continue to meet and exceed that medium-term objective. It's fungible cash. You can see it come into the liquidity of the holding company. So we're in a really strong position. Operator: Our next question will come from Tom MacKinnon at BMO Capital Markets. Tom MacKinnon: Yes. The -- when we look at CRS and you see insurance experience gains aligned or that hasn't -- that's kind of just hovered around 0 and then we see $47 million in the quarter. Have you done anything different with respect to your terms and conditions with respect to what you're reinsuring here to, I guess, increase the volatility or what you might get from mortality gains, U.S. mortality gains? In other words, when you see a $47 million U.S. mortality gain, that's kind of outsized, could we get a $47 million U.S. mortality loss? Or have you -- is there anything to read in here that you've changed anything to increase the volatility associated with that line? Jeff Poulin: Thanks, Tom. I don't -- I mean, your question is pertinent, but we we've announced last year that we're not in the mortality business anymore. So we really haven't changed the contracts. It's a runoff block at this point. So I think we feel very confident about our assumptions and they should hover around zero. Having said that, I think we had an exceptional quarter from a mortality perspective. It's been very good. We saw another reinsurer -- strong reinsurer in the U.S. announcing the same sort of results yesterday. So I guess mortality was good in the U.S. overall for the quarter and trying to explain volatility on mortality is a difficult thing to do. It will happen. And -- but you should assume that I think our assumptions are legitimate. I think they -- we feel pretty strongly they are. In the last two years, we're running at about 100% of expected. So we feel pretty strong about that. So it is -- it's big volatility, but it's within the range that we estimate it could be. So no real variance there. And of the $47 million, it's only -- I think it's $35 million that is associated to mortality. There was another $12 million there that is due to our longevity block that we onboarded that have been in the books for a while, but that we have booked to expected. And so we had transacted with the company and they paid us expected cash flows for a while. And then once we trued up to the real cash flows, we got the benefit of that. So it shows that we had strong pricing on that transaction. And it was significant enough that it made a difference for $12 million this quarter. But I mean that's unusual so we don't expect that to happen again. Tom MacKinnon: Okay. And then just with respect to Empower Wealth, Jon, in the -- in your fourth quarter conference call, you had highlighted that the fourth quarter margin for U.S. Wealth at 39.4% was higher than normal on seasonality of marketing expenses. And you said an operating margin of 35% better reflects the near-term margin expectation for U.S. Wealth. So why was it not 35% here that you had sort of guided to in your last conference call? Why was it up at 39%? Was there any more marketing expense timing issue there? Jon Nielsen: I think I'll hand it over to Ed, but I think we were a little bit lighter on first quarter marketing, and we expect a little bit to come through the fourth quarter. It's not that significant terms. But maybe, Ed, do you want to give some details? Edmund Murphy: No, I think that's right. It's more deferred spending. We had -- we're embarking on a new campaign and we pushed that out somewhat. I mean I think in terms of the full year expectation will be closer to where we are today, certainly above last year. But it's more timing, Tom. Operator: [Operator Instructions] We'll go to Gabriel Dechaine at National Bank. Gabriel Dechaine: I have a couple of questions here or lines of questions rather. First, on the bulk annuities business in the Europe segment, it sounds like you're similarly bullish there on the sales outlook for Q2 anyhow. I'm just wondering how do you factor in or what comments do you have about that competitive environment where there's been a lot of write-ups about the private equity players getting into that business, and you would think that would maybe dampen your outlook, but doesn't sound like it? And sticking to that topic, just to get a sense for how important it is in that insurance and annuities piece of the pie, how much of that is comprised of bulk annuities versus payout? Lindsey Rix-Broom: Thanks, Gabriel, for the question. And as you say, there is -- there has been increased competition coming to the market over the last 12 months. However, there are still really only 11 players in the market and there's significant demand for bulk annuities, both now and for the future and for the outlook. So we are kind of pleased with where we are. The pipeline, as you say, for Q2 looks very strong and indeed for the rest of the year. So we're optimistic in the outlook for us. I think we remain disciplined in our pricing, as we've said before, and look to continue to be able to make good returns in this area going forward. In terms of individual annuities and bulk annuities, we've had a continued strong performance in individual annuities, particularly in the U.K. market. That outlook remains strong and positive as well. So looking for a balanced performance across both bulk annuities and individual annuities for the future. Jon Nielsen: I'd just add -- just a comment to add on Page 34 of the SIP, you'll be able to see the split of the two categories, individual and bulk. We've done that to be able to monitor the lumpiness of the folks. Gabriel Dechaine: Okay. Great. I was looking at the slide deck, but -- yes. So moving over to the Empower and, Ed, you were talking about the regulatory changes, the Trump IRA accounts and all that. And I mean, I don't know how -- if you could size that opportunity, if that's possible? But on the flip side to that, I'm just wondering because this is another topic that's come up is the suitability of some investment classes for retail investors, private equity and private credit, whatever. What sort of guardrails do you have in place or responsibility even for what you offer to the customers such that if there ends up being some sort of an issue with the suitability that doesn't affect you? Edmund Murphy: So your first question, we see it as a tremendous opportunity. There's different numbers that get referenced, but somewhere between 40 million, 50 million Americans don't have access to workplace savings. So clearly, under the Trump administration, there's been this bipartisan focus both in Congress, but also from a regulatory standpoint to try to drive access and improve coverage. We're right squarely in the middle of that. So we're very active in advocating for those policies. It's hard to size it because at least initially, those are going to be smaller accounts. But as you think about the matching and the compounding effect, it will grow over time. So I'm pretty sanguine about where we are in terms of coverage and expansion, I think it's very constructive. And as I said, we're very much a part of that. The second question you had, I think, is a very important one. I do want to make it clear that the role that we play is not a fiduciary role as it relates to the relationships that we have with alternative managers that are on our platform. We don't act in a fiduciary capacity, we essentially are giving access to these investments. But ultimately, the decision as whether to include any investment for that matter, whether it's public equity, the 40-Act mutual fund or whether it's an alternative asset class, that decision is ultimately being made by the plan sponsor and their adviser. And the other thing I would just add is we are not advocating for -- at this point, we're not supporting stand-alone alternative investments inside the defined contribution plans at Empower. These are all structured as a multi-asset class vehicle through a collective investment trust, and it's supported within our adviser managed account program where there is an adviser, a financial adviser that's attached to each one of these offerings and the typical cap of what might be allocated to that collective investment trust is somewhere around 15% to 20% of the assets. So there's plenty of liquidity, both inside the product itself and then outside where people would be investing in public equities and public debt. And then I would just add that we have about 1,000 plans right now that are in some form of implementation, either they have implemented a vehicle or in the process of implementing a vehicle. So it's still sort of in a nascent stage. But obviously, the directive that came from the Trump administration, I think gave some sponsors comfort that if they follow ERISA standards that and take a thoughtful and practical approach that they're comfortable in going forward. So that's what we're seeing. Gabriel Dechaine: And what about the Individual Wealth business? Are you not a fiduciary there? Is there a similar discussion to be had or differently? Edmund Murphy: Yes, in the individual wealth business, those investors have to be accredited investors. And yes, so they have to meet the credit investor standards. And in doing so, we do act in advisory capacity. We do offer products through a relationship we have with a third party. That too, I would say, is very much in its nascent stages. And the reason is that the preponderance of our client base tends to fall into that mass affluent category. So many of them don't necessarily meet the credit investor standard. So we haven't seen, at this stage, we haven't seen much in the way of adoption of alternatives inside our wealth business. I think that will change over time for sure, as people look to diversify. But at the moment, that's not the case. Operator: Our next question will come from Darko Mihelic at RBC Capital Markets. Darko Mihelic: I just wanted to revisit Empower's flow situation because it does -- it sort of does change my model when I think of it. I mean you had positive flows, which is great. But the way you had described it earlier was that just the general nature of the business is one that would typically have outflows. Maybe I think the number you used previously was like 2% and then some of your efforts and work would maybe grind away at that, but generally, you end up in a place where maybe 1% kind of outflows is like the long-term expectations. So I realize you're doing a lot of work there. Has anything changed and how I should think about the flows and how I should put that into the model? Edmund Murphy: Yes. I think -- let me start with -- I think what you're referring to is flows in our workplace business, specifically participant flows. Obviously, we saw net plan flows for the quarter, and we expect net plan flows for the full year as we experienced last year. With respect to participant flows, you do have a lot of seasonality in that first quarter because that's when you see very high contributions coming into defined contribution plans. You're seeing profit-sharing contributions and the like. So that's not unusual to see a more favorable result in the first quarter. That being said, I think as you look out to Q2 and beyond, you're going to see more normalized participant outflows consistent with the guidance that we've given you in the past. In fact, if you look at what the equity markets have done, particularly in the last 30 or 40 days, you've got higher balances. And so disbursement dollars will probably be higher, right, due to market appreciation, you'll have higher balances in those accounts. So underlying all of this is the sort of demographic dynamic that's playing out in the U.S., where you are seeing net outflows on the participant side across really every provider in the marketplace. We obviously have built what we think is a pretty compelling hetero-s-mid on the wealth side. So we aim to capture some of that money in motion for sure. But the way you should think about this is that there will be a consistent in roughly 1% or so in participant outflows. And I think that will -- you'll see that play out in Q2 and beyond. And then finally, I would just say we continue to grow the business. So we're adding billions of dollars on to the platform through our institutional sales efforts. Our year in 2026 will look very similar to what we accomplished in 2025 on that institutional side. And then when you layer in the market appreciation, you've seen what's happened to our AUA. In fact, since 2021, our assets under administration in our workplace business has grown at a compounded annual growth rate of 11.5%. I think that may be the highest in the industry. Darko Mihelic: That's a great answer. And it is -- I mean I think it's 13% year-over-year this quarter in terms of AUM growth, but the revenue growth lagged. Maybe can you touch on that? Jon Nielsen: Maybe I'll start and then hand it back to Ed. This is Jon. in the quarter, there was a refinement that we made to some data that impacted the classification of certain of the transactional fees so we implemented that in the third quarter. So what it did is it was basically a reallocation between the asset-based fees and the non-asset-based fees. It didn't impact total fees or our financials. But it did reduce asset-based fees and increase the non-asset-based fees. It was about $14 million during the quarter. This had about a 5% impact on the growth rate because we didn't adjust the prior periods. That, Darko, had we applied it. It was about the same amount in the previous -- most recent quarters. I'll hand it back to Ed to kind of give the business context of the fees as well. Edmund Murphy: Yes. Thanks, Jon. The other dynamic, and we've talked about this in prior calls, is just what I would call the mix dynamic and how the business is playing out. So if we have a disproportionate amount of large mega corporate clients, those tend to be fixed fee. They're not asset-based pricing with those plans. And that's what we've seen more recently, when we're winning these large mandates, the pricing is a fixed fee pricing versus down market, call it, plans under $50 million in assets or $75 million in assets, those tend to be asset-based fees in terms of the -- how we get paid for the services is being paid through asset-based fees. I will say in that $75 million space and below, we're #1 in the market, and we have -- we're growing 20%, 25% a year in that pace -- that space. So we're taking business away from the competition. But it does get overshadowed a bit because of the mix issue, as I say, when you win these large corporate and government mandates, which we're winning. Darko Mihelic: I see. Okay. But your sweet spot is still actually the smaller mandates. So I should be thinking of it as more or less growing in line with AUM with the occasional quarter or two where you get a massive mandate. Is that the way I should think of it? Edmund Murphy: Well, I guess the one caveat I would say is, so we're competing in all markets, the government market, the large corporate market, the mega corporate market, the small market, the Taft-Hartley Union. So you're going to see some balance there because if you win a $15 billion, $16 billion, $17 billion mandate, that's going to skew and that's a fixed fee arrangement. That's going to skew the mix, if you will, right? So it adds to your AUA, but it's not generating asset-based fees. Now there are other ways we generate asset-based fees which we can get into. But with respect to the record-keeping administration piece of it, that would be a fixed fee type arrangement. So disparity, if you will, because of the fact that we're a diversified player and we're competing in all segments of the market. Operator: And next, we'll hear from Mario Mendonca at TD Securities. Mario Mendonca: Ed, maybe I'd just stick with you for a moment. Thoroughly the goal here, which I think you've described is to move that rollover rate up to something more in line with where the leaders are, what is your -- and this may ask you to take a kind of a wild guess here, but can that rollover rate for Empower approach the mid-20s over the next couple of years? Or is this a much longer-term endeavor to get it to that level? Edmund Murphy: I'm not sure over the next couple of years. And I'll tell you why. I mean, I think -- we have 20 million customers. But one of the things that we -- there are several things we need to do. One of the things we need to do is to raise aided awareness and raise consideration to a level of some of the more entrenched players. And that's why we've made a concerted effort to invest in the brand and to invest in advertising, but also to create awareness among those 20 million installed base of clients on the workplace side because there's obviously a meaningful subset of those customers that are not necessarily fully aware of our wealth capability. So it's a work in progress. There's the branding, there's. The awareness element of it. I think in terms of the offering itself, it's very competitive vis-a-vis the competition. So it's just -- it's something that, obviously, we need to continue to work on -- but as we've said at Investor Day and we've said at other times, the opportunity here is immense. If we build the trust with the sponsors, if we serve those individual investors well while they're an active participant in the plan, they will think about us and they will give us consideration to be their adviser hopefully in perpetuity. So I think the high 20s -- in the mid- to high 20s in the near term is probably too aggressive. Mario Mendonca: Okay. And then -- and again, this might -- I'm not sure how much you want to get to this. I clearly don't expect you to name names when we're talking about potential acquisition targets and -- but the question is this, is that file sort of active? Like are there active -- are you actively looking at potential acquisitions in this space? Because there are -- there's just so much speculation around the space right now. Is it -- would you call it actively looking? Or is it dormant right now? David Harney: Yes. Maybe I'll take that question, Mario. Like yes, you're dead right, we don't comment on individual opportunities. Like obviously, we're alert and very keen on any opportunities to come to the market, and we look at all opportunities. And maybe just to take a step back, and this answer won't surprise anybody we've said it many times before. But just to reiterate, again, our sort of growth targets, our medium-term growth targets are not dependent on acquisition activity. And you can see that just in the very strong performance of the business this quarter and the growth in all of the segments, which is achieving those targets. But we have firepower as well. And if opportunities come to the market, we will certainly look at them. We've executed very well just on recent acquisitions, both in workplace retirement and on wealth acquisitions. And we're very confident of our capability to execute there again if the opportunities come along. And again, we've been very clear just on the requirements for our acquisition activity. It has to hit our return targets on where we can execute synergies, I think that makes that very possible. And then it has to sort of -- we have to be very confident on execution capabilities. And then the right targets will add scale and will add capability to our businesses, and we're keen to look for opportunities that come along. Mario Mendonca: Okay. And I'll be really brief on this one. Going back to CRS. There's mortality risk, there's CAT, there's longevity. Those are the three big ones I can think of that you're exposed to in CRS. Am I missing anything? Like is there any concentration that concentrated risk that I'm not picking up on? Jeff Poulin: I think those are the main risks that we have on the risk business. Yes. Operator: And at this time, we have no further signals from our audience. Mr. Khan, I'm happy to turn the floor back to you, sir, for any additional or closing remarks that you have. Shubha Khan: Thanks, everyone, for joining us today. Following the call, a telephone replay will be available for one week, and the webcast will be archived on our website for one year. Our 2026 second quarter results are scheduled to be released after market close on Tuesday, July 28, with the earnings call starting at 9:30 a.m. Eastern Time the following day. Thank you again, and this concludes our call for today. Operator: Ladies and gentlemen, we'd like to thank you all for joining today's Great-West First Quarter 2026 Financial Results Call. You may now disconnect your lines. We hope that you enjoy the rest of your day.