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Operator: Hello, and welcome to Vir Biotechnology, Inc. First Quarter 2026 Financial Results and Corporate Update Conference Call. As a reminder, this call is being recorded. After the speakers' presentation, there will be a question and answer session. I will now turn the call over to Kiki Patel, Head of Investor Relations. You may begin, Kiki. Kiki Patel: Thank you, operator. Welcome, everyone. Earlier today, we issued a press release reporting our first quarter 2026 financial results and corporate update. Before we begin, I would like to remind everyone that some of the statements we are making today are forward-looking statements under applicable securities laws. These forward-looking statements involve substantial risks and uncertainties that could cause our clinical development programs, collaboration outcomes, future results, performance, or achievements to differ significantly from those expressed or implied by such forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding the potential benefits of our collaboration with Astellas, the therapeutic potential of 5,500 and our PROXTEN platform, our development plans and timelines, financial terms and milestone payments, and our cash runway and capital allocation priorities. These risks and uncertainties and risks associated with our business are described in the company's reports filed with the Securities and Exchange Commission including Forms 10-K, 10-Q, and 8-K. Joining me on today's call from Vir Biotechnology, Inc. are Marianne De Backer, our chief executive officer, and Jason O’Byrne, our chief financial officer. During 2026, the Vir Biotechnology, Inc. team delivered meaningful advances across our T cell engager and hepatitis delta programs, underscoring our ability to execute towards key clinical and corporate priorities. The agenda for our call today is as follows. First, Marianne will share an update on our recent landmark global strategic collaboration with Astellas and our prostate cancer program. Next, she will provide an update on our hepatitis delta program evaluating tobevibart, an investigational neutralizing monoclonal antibody, and elebsiran, an investigational small interfering RNA. Then Jason will provide an overview of our first quarter 2026 financial results. And finally, Marianne will close the call and we will open the line for Q&A. With that, I will now turn the call over to Marianne. Marianne De Backer: Thank you, Kiki. Good afternoon, everyone, and thank you for joining us for Vir Biotechnology, Inc. first quarter 2026 earnings call. Since our last earnings call in February, we have remained highly focused on execution as we advance both our oncology and hepatitis delta programs with speed and focus. I will begin by providing a brief update on the current status of our recent collaboration with Astellas, a deal valued at up to $1.7 billion. In addition, in the U.S., commercial profits will be split 50/50 between the parties with Vir Biotechnology, Inc. having the option to co-promote alongside Astellas. As a reminder, on February 23, 2026, we announced that we entered into a collaboration with Astellas to co-develop and co-commercialize VIR-5500, our PROXTEN dual-masked PSMA-targeted T cell engager. Since then, the transaction successfully closed on April 15, 2026, marking an important transition from deal announcement to deal execution. With the deal closed, our joint teams are operational and partnering closely on a shared clinical development plan to enable rapid expansion and accelerate delivery to patients. This collaboration brings together Astellas’ global leadership in prostate cancer with our differentiated PROXTEN-enabled T cell engager. We chose to partner with Astellas because of their decade-long track record of successfully co-developing category-defining therapies, including Xtandi, the world’s number one prostate cancer drug. Metastatic castration-resistant prostate cancer, or mCRPC, remains a significant unmet need with a 5-year survival rate of only 30%, underscoring the urgency for new treatment options that can deliver even deeper, more durable disease control and improved quality of life. VIR-5500 is the most advanced dual-masked T cell engager currently under evaluation in prostate cancer. The foundational driver of the Astellas collaboration shaping our development strategy going forward is our Phase 1 data for VIR-5500. Johann de Bono shared an update from this study evaluating patients with advanced mCRPC as an oral presentation at ASCO GU in February. Today, I will highlight key takeaways from the data. For a more comprehensive update from the trial, please refer to our fourth quarter earnings call from February 23, 2026. Overall, the VIR-5500 data showed a favorable safety and tolerability profile with no observed dose-limiting toxicities. At the dose levels of 3,000 micrograms per kilogram and above, we saw mostly Grade 1 cytokine release syndrome, or CRS, defined as fever only. We did not observe any Grade 3 CRS at this dose, reinforcing the potential of the PROXTEN dual masking platform to widen the therapeutic index of our T cell engagers. We view the absence of high-grade CRS at our go-forward monotherapy dose, together with a lack of mandatory steroid premedication in our protocol, as a meaningful differentiator for 5,500. We believe that sparing steroids may help preserve T cell function and reduce treatment complexity for both patients and physicians. Collectively, these attributes support the potential for outpatient administration and could translate into significant clinical and commercial advantages over time. Importantly, this profile may support positioning 5,500 in both the pre- as well as post–radioligand therapy, or RLT, settings, offering flexibility across the treatment continuum and potential use in routine care settings relative to the specialized infrastructure required for RLT administration. Furthermore, the depth of PSA and RECIST responses we observed were particularly encouraging, with several patients sustaining responses for up to 27 weeks. Additionally, we saw emerging signs of durability up to 8 and 12 months, respectively, in patient cases with extended follow-up. One of the most compelling aspects of our data is that these deep responses were observed in heavily pre-treated patients with advanced poor-prognosis disease, including liver metastasis. This is historically the most difficult population to treat and resistant to immunotherapies, underscoring the clinical significance of the activity we are seeing. Additionally, we observed a complete response for a patient who previously relapsed on an actinium-based PSMA-directed radioligand. We view these findings as especially meaningful given historically poor outcomes and limited responsiveness of this patient population to subsequent therapies. Building on these encouraging Phase 1 dose-escalation monotherapy results, we have dosed a first patient in our Phase 1 dose expansion cohorts for VIR-5500 in late-line patients. This milestone represents an important step in evaluating VIR-5500’s best-in-class potential for people living with prostate cancer. In the monotherapy expansion cohorts, we are evaluating Q3-week 800, 2,000, and 3,500 microgram per kilogram step-up dosing. This study will measure safety and efficacy including PSA responses and objective response rate, or ORR, of VIR-5500 in patients with mCRPC who are refractory following treatment. These patients will have had exposure to multiple prior lines of therapy, including at least one second-generation androgen receptor pathway inhibitor and one taxane regimen. The expansion includes two distinct cohorts: patients who are naïve to prior RLT and patients who have previously received RLT in any treatment setting. Dose escalation of VIR-5500 in combination with enzalutamide continues in early-line mCRPC patients. We anticipate dosing the first patient in the combination dose expansion cohorts in both early-line mCRPC and metastatic hormone-sensitive prostate cancer over the coming months. Together, these cohorts highlight the potential of VIR-5500 across the prostate cancer continuum, including in the frontline setting. VIR-5500 has the potential to be a best-in-class T cell engager. We anticipate initiating our registrational Phase 3 program for VIR-5500 in 2027. These results provide validation of our broader platform, unlocking significant opportunities to develop next-generation masked T cell engagers in other solid tumor types. Turning now to the rest of our clinical-stage T cell engager programs. VIR-5818 is our PROXTEN-masked HER2-targeted T cell engager. We view this as a signal-finding study given the early stage of development and the basket design where multiple tumor types are evaluated in parallel. We expect to report preliminary response data evaluating VIR-5818 monotherapy and combination therapy with pembrolizumab in 2026. This update is intended to inform our understanding of dose and help identify which HER2-expressing populations may warrant further study, particularly in areas of high unmet medical need. For VIR-5525, our PROXTEN dual-masked EGFR-targeted T cell engager, Phase 1 study enrollment is progressing as expected. The study design incorporates learnings from 5818 and VIR-5500 to enable efficient dose escalation. We are evaluating both monotherapy and combination with pembrolizumab across multiple EGFR-expressing tumor types, including non-small cell lung cancer, colorectal cancer, head and neck squamous cell carcinoma, and cutaneous squamous cell carcinoma. We believe this program has the potential to address significant unmet medical need in these indications where existing EGFR-targeted approaches have limitations. Turning now to our hepatitis delta program. The hepatitis delta community is severely underserved, with approximately 180,000 actively viremic patients across the United States, UK, and EU based on a composite of high-quality epidemiology sources. In the U.S., the patient population is highly concentrated in major urban centers and can be supported by an efficient commercial approach with a targeted specialty sales organization focused on hepatologists, gastroenterologists, and infectious disease specialists. Overall, we expect our tobevibart plus elebsiran combination to have two clear advantages in chronic hepatitis delta versus our competitors. The first is that we are seeing potential best-in-class efficacy with a strong safety profile. The second is that our regimen is designed with once-monthly subcutaneous dosing with the potential for both at-home and in-office administration. For viral infectious diseases, clearing the virus is the key to improving long-term outcomes. KOLs in chronic hepatitis delta highlight undetectable virus as measured by “target not detected,” or TND, as the gold standard measure of viral clearance. Achieving undetectable HDV by this measure is the most stringent threshold available and means that the delta virus is completely cleared from the bloodstream. As the delta virus replicates so aggressively, patients need HDV to be completely undetectable for positive clinical outcomes and to avoid rebounds. Peer-reviewed evidence suggests that patients with hepatitis delta who achieve undetectable virus have significantly improved long-term clinical outcomes, including reduced progression to cirrhosis, hepatocellular carcinoma, liver transplantation, and death, compared with patients in whom virus remains detectable. These data support undetectable virus as a key clinically meaningful goal of antiviral therapy for patients with hepatitis delta. In January, we reported potential best-in-class efficacy in our Phase 2 SOLSTICE trial in patients with chronic hepatitis delta for a subset of patients at Week 96. Evaluable participants receiving the combination therapy of tobevibart and elebsiran showed increased and sustained viral suppression of HDV RNA versus treatment with the antibody alone. The data showed 88% of evaluable participants achieved undetectable virus, compared to 46% on tobevibart monotherapy alone. Additionally, we saw rapid onset of viral suppression, achieving 41% undetectable virus within 24 weeks. These results underscore the limited efficacy of hepatitis delta treatment with antibody monotherapy alone. In contrast, combining complementary mechanisms of action with tobevibart plus elebsiran raises the rate of undetectable virus to approximately 90%. Importantly, we see similar efficacy in cirrhotic patients, who will be a significant patient cohort at launch due to the delayed diagnosis of most hepatitis delta patients to date. The combination was well tolerated with no Grade 3 or higher treatment-related adverse events and no discontinuations. The second key differentiator is that tobevibart plus elebsiran will be administered only monthly, consisting of two subcutaneous injections administered at the same time. As a reminder, competitors’ lead regimens require either daily or weekly injections. For the hepatitis delta patient population, this frequency will be a significant challenge, so we see monthly dosing as an additional meaningful differentiator for our regimen. Additionally, due to the need for higher dosing frequency of competitive regimens, tobevibart plus elebsiran may have the potential to be the only product conveniently enabling both self-administration at home and physician administration in office. This is important because physicians have indicated that up to 20% of hepatitis delta patients might not be able to self-administer, so tobevibart plus elebsiran may be the only treatment available for this group of patients. Our hepatitis delta regimen has already been recognized by multiple global regulators with FDA Breakthrough Therapy and Fast Track designations, as well as EMA PRIME and orphan drug designation, underscoring both the unmet need and the strength of the data package. These designations provide ongoing engagement with both agencies and support a high level of confidence in our ability to achieve broad labels for our regimen. We are pleased to share that we will be presenting the complete 96-week SOLSTICE Phase 2 data in an oral presentation at the upcoming EASL 2026 annual meeting in Barcelona on May 29, 2026. We will also be presenting a poster of a 48-week subgroup analysis evaluating the impact of BMI on ALT normalization after successful viral control. As we look ahead to our ongoing registrational program, all three of our ECLIPSE studies are on track. ECLIPSE 1 enrollment is complete with approximately 120 participants randomized 2:1 to our combination therapy versus deferred treatment. The primary endpoint is a composite of undetectable virus as measured by HDV RNA TND plus ALT normalization at Week 48. We expect to report topline data from ECLIPSE 1 in the fourth quarter of this year. ECLIPSE 2 enrollment continues on track across multiple European sites. This study will enroll approximately 150 patients who are being randomized 2:1, evaluating the switch to our combination therapy in patients who have not adequately responded to bulevirtide. The primary endpoint for the trial is undetectable virus as measured by HDV RNA TND at Week 24. The strong enrollment momentum we are seeing in Europe reflects an important unmet need in patients previously treated with bulevirtide. For ECLIPSE 3, our Phase 2b head-to-head comparison, enrollment is complete, with approximately 100 patients randomized 2:1 to our combination therapy versus bulevirtide. The primary endpoint for the trial is undetectable virus as measured by HDV RNA TND at Week 48. In general, we view Gilead’s expected U.S. launch of bulevirtide as a positive for the hepatitis delta market overall and one that helps pave the way for next-generation therapies like ours. Hepatitis delta remains significantly underdiagnosed and undertreated, and the introduction of the first approved therapy in the U.S. should meaningfully raise disease awareness, expand screening, and establish treatment pathways among treating physicians. Complementing this, we have an experienced commercialization partner through our collaboration with Norgine, who holds an exclusive license across Europe, Australia, and New Zealand. Norgine’s established infrastructure in specialty pharma and hepatology positions us to maximize the commercial opportunity of our HDV regimen across these geographies. In summary, we have made exceptional progress across our entire clinical portfolio, and we believe these advancements leave us well positioned to deliver on our clinical and corporate objectives. With that, I will now hand the call over to Jason for our financial update. Jason O’Byrne: Thank you, Marianne. Before discussing the first quarter financials, I will share the latest news about our Astellas collaboration. We are pleased to report that the 5,500 global collaboration and licensing agreement closed on 04/15/2026 following expiration of the HSR waiting period. Upon closing, Vir Biotechnology, Inc. received a $75 million cash payment representing Astellas’ equity investment, and within 30 days of closing, we will receive a $240 million upfront payment. As a reminder, we are eligible to receive a $20 million manufacturing tech transfer milestone payment in 2027, will share global development costs 40% by Vir Biotechnology, Inc. and 60% by Astellas, and will split U.S. commercial profit/loss equally with Astellas. We are eligible to receive up to an additional $1.37 billion in development, regulatory, and ex-U.S. sales milestones, along with tiered double-digit royalties on ex-U.S. net sales. A portion of certain collaboration proceeds will be shared with Sanofi according to the terms of that licensing agreement. Overall, this deal provides immediate capital and significantly reduces our near-term development spend, preserving substantial long-term economic upside. The collaboration with Astellas can maximize the value of VIR-5500 through accelerated clinical development and global reach, potentially benefiting more patients and creating greater value for our shareholders. Shortly after announcing our global collaboration with Astellas and sharing updated Phase 1 data from the VIR-5500 program, we completed a follow-on equity offering. On 02/27/2026, the offering closed, and we received gross proceeds of approximately $172.5 million before deducting underwriting discounts and commissions and estimated offering expenses. We intend to use the proceeds from the offering to fund our share of the development costs for VIR-5500, to advance the broader T cell engager platform, and for working capital and other corporate purposes. Turning now to our balance sheet. We ended the first quarter with approximately $809.3 million in cash, cash equivalents, and investments, which includes the aforementioned proceeds from the follow-on offering. Subsequent to quarter end, we closed the Astellas collaboration; therefore, $315 million in proceeds from that transaction are not reflected in our 03/31/2026 cash position. Based on our current operating plan, and including the net effects of the recent Astellas agreement and capital raise, we expect our cash runway to extend into 2028, enabling multiple value-creating milestones across our pipeline. Now I will review our first quarter 2026 financial performance and overall financial position. R&D expense for the first quarter of 2026 was $108.9 million, which included $6.0 million of stock-based compensation expense. This compares to $118.6 million for the same period in 2025, which included $7.0 million of stock-based compensation expense. The year-over-year decrease was primarily driven by a $30 million payment to Alnylam in 2025, partially offset by hepatitis delta qualification batch manufacturing costs and, to a lesser extent, higher clinical expenses in 2026. SG&A expense for the first quarter of 2026 was $23.3 million, which included $6.1 million of stock-based compensation expense, compared to $23.9 million for the same period in 2025, which included $7.1 million of stock-based compensation expense. First quarter 2026 operating expenses totaled $132.3 million, representing a $10.3 million decrease compared to the same period in 2025. Net loss for the first quarter of 2026 was $125.7 million compared to a net loss of $121.0 million for the same period last year. Looking ahead, we will continue disciplined allocation of capital, prioritizing investments in those programs with the greatest potential for meaningful patient benefit and value creation. With that, I will now turn it back over to Marianne to close the call. Marianne De Backer: To close, we are exceptionally well positioned for long-term value creation at this inflection point. Since December 2025, the combination of our collaborations with Norgine and Astellas, together with a successful financing, has generated over half of $1 billion in capital, significantly strengthening our balance sheet. With the closing of our global collaboration with Astellas this quarter, we now have an established partner to advance VIR-5500 aggressively across the prostate cancer landscape while maintaining disciplined capital allocation. Overall, the combination of potent antitumor activity and a favorable safety profile underscores VIR-5500’s potential as a best-in-class T cell engager for the treatment of prostate cancer. Beyond our clinical programs, we are steadily advancing seven preclinical T cell engager assets that utilize the PROXTEN platform and broaden our pipeline’s optionality, positioning us well to generate the next wave of value creation. At the same time, our hepatitis delta program continues to generate compelling and increasingly differentiated clinical data with multiple near- and mid-term catalysts ahead across our ECLIPSE studies. Taken together with our progress in oncology, this momentum underscores the breadth of our scientific platforms and our ability to execute with focus, urgency, and discipline. Looking ahead, our priorities are clear: to deliver rapid, high-quality clinical execution, advance multiple expansion and registrational-enabling studies, and deploy capital thoughtfully in ways that maximize long-term value while keeping patients at the center of everything we do. With that, I will turn the call over to Kiki to begin the Q&A session. Kiki Patel: Thank you, Marianne. This concludes our prepared remarks. We will now open the call for questions. Joining me for the Q&A are Marianne and Jason. Please limit questions to two per person so that we can get to all of our covering analysts. I will turn it over to you, operator. Operator: Thank you. We will now begin the question and answer session. Star one to ask a question. We ask that you pick your handset up 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 roster. Our first question comes from Paul Choi with Goldman Sachs. Paul Choi: Good afternoon, everyone, and thanks for taking our questions. My first question is on 5,818 in the HER2 setting. Can you comment on your level of interest in future development, particularly in HER2-positive breast cancer? It is not listed among the tumor types in your quarterly deck here, and so I am just curious, given the number of available therapies for that particular tumor type, what is the criteria from your upcoming dataset for potential development in that tumor type? And then I had a follow-up question. Marianne De Backer: Thank you, Paul, for that question. We will be sharing data on our 5,818 program in the second half of this year, and this will be both for our monotherapy dose escalation and dose escalation in combination with pembrolizumab. As to future development, we will, at that time, be able to provide a better picture as to what future expansion cohorts could be. Specifically to your question on breast, I would say that obviously the bar is high, but do keep in mind that this drug class, for example like in HER2, has a 1% mortality rate, so there is certainly still prospect to come up with better treatments. Again, we will be sharing data in the second half of the year and will then give a prototype of where we see the program heading. Regarding your follow-up question on 5,500 and potential development in earlier treatment settings, we already have a dose escalation ongoing for early-line 5,500 combined with an ARPI. Together with Astellas, our collaboration partner, we are planning to start an expansion cohort in the same setting, a combination of VIR-5500 with enzalutamide. That is expected in the coming months. Paul Choi: Okay. Great. Thank you for that. Operator: Your next question comes from Roanna Clarissa Ruiz with Leerink Partners. Your line is open. Please go ahead. Michael Ulz: Hi. This is Michael on for Roanna. Thank you for taking our question. Regarding 5,500 late-line mCRPC monotherapy expansion cohorts, what would constitute a clear signal as a green light to initiate Phase 3 in 2027? Are you anchoring on PSA-50, PSA-90, or RECIST or PFS, something like that? And I also had a question about the underlying biology for PROXTEN protease cleavage. How tumor-specific is the protease activation profile across different tumor types? For example, are you seeing differential cleavage kinetics in prostate versus colorectal or NSCLC that might affect the therapeutic index? Marianne De Backer: We have dosed the first patient in the baseline expansion cohort for VIR-5500 monotherapy. In that expansion cohort, we are going to explore more in-depth both pre- and post–radioligand therapy; that will be additional data we will be gathering, as we only had a limited set of such patients in our initial cohort on which we reported data on February 23, 2026. It is going to be the totality of the data—PSA, RECIST, rPFS—and we will have a fuller dataset to decide on next steps. Our goal, pending data, is to start pivotal trials in 2027. Regarding PROXTEN biology and protease cleavage, one of the founders of the company that was acquired by Sanofi, from which we licensed the technology, has been working in this field for over 20 years. The protease-cleavable linker is really a promiscuous linker across different families of proteases to ensure activity across a broad set of tumor types. This design supports consistent activation and helps drive a favorable therapeutic index across indications. Operator: Your next question comes from Cory Kasimov with Evercore. Analyst: Hey. This is Josh Gazzara on for Cory. Thanks for taking our question. Maybe one on HDV. As you approach the pivotal HDV data, what are your latest thoughts on pricing there? And then a quick follow-up on 5,500: especially in the late-line castration-resistant setting, is there a minimum durability you and Astellas are looking for before you move into a Phase 3—a specific number or competitive threshold? Marianne De Backer: Thank you, Josh. Hepatitis delta is an orphan disease. There are a number of anchor points for price that we can point to. The first is the price of bulevirtide in Europe, which varies somewhere between $60,000 and $165,000 gross price. You could also look at the price of bulevirtide in Canada, which was set at, I believe, $115,000. Across your fellow analysts, I see estimated prices vary somewhere between $150,000 and $250,000. We think that is very adequate for a severe orphan disease where we would be delivering substantial patient benefit. On durability for 5,500, we will be looking at the totality of the data rather than a single threshold. Several T cell engagers have shown durable responses. Our dataset is still a little early, but we have observed a number of patients with confirmed partial responses beyond 27 weeks, and we have case examples of one patient on treatment for 8 months and another for a year and continuing. We will look for greater consistency across the broader expansion cohort. Operator: Your next question comes from Alec Stranahan with Bank of America. Your line is open. Please go ahead. Analyst: Hey, guys. This is Matthew on for Alex. Thanks for taking our questions, and congrats on the progress. Two for us on competitive landscapes. First, for HDV: just curious your thoughts on Mirum’s data that came out recently and whether that changes your thoughts on your opportunity or the competitive landscape. And secondly, for EGFR T cell engagers, a competitor recently discontinued development of their dual-masked program—what gives you confidence that your strategy will pan out where others have failed? Marianne De Backer: On your first question, as I laid out in the introduction, we and key opinion leaders in this field strongly believe that what really matters in a viral disease is to get rid of the virus, measured by HDV RNA target not detected. For our monthly regimen of tobevibart and elebsiran at 48 weeks—our primary endpoint—we achieved about 66% TND, increasing from 41% at 24 weeks to 66% at 48 weeks and then to 88% at 96 weeks. We did not see this increase for our antibody monotherapy, which was about 30% TND at 24 weeks and then plateaued around 50%. Mirum’s monthly therapy appears to show only 5% TND, which may not be viable; for their weekly 300 mg regimen, they are showing 30% TND at 24 weeks. From a viral efficacy perspective, we believe we have a potentially superior, best-in-class regimen. For ALT normalization, results across different regimens appear similar in the roughly 40–50% range; we had 47% at 24 weeks and Mirum reported between 40% and 45%. Again, we believe viral elimination to undetectable is what really matters, and there we clearly have superior data. As to EGFR, yes, Janssen discontinued their EGFR T cell engager. The musculoskeletal issues reported as dose-limiting toxicity were unexpected and something we will watch. We strongly believe our masked T cell engagers are differentiated. Our masking technology uses steric hindrance—the same PROXTEN mask across all clinical programs—so we do not need to redesign a new mask every time. We can translate learnings across programs. With VIR-5500, the masking technology allows dosing much higher, which can deliver a better therapeutic index. Our masking approach is fundamentally different. Operator: Your next question comes from Philip Nadeau with TD Cowen. Your line is open. Please go ahead. Philip Nadeau: Good afternoon. Thanks for taking our questions. Two from us. First on 5818: you referenced the dose-escalation data in the second half of the year. Can you give us some sense of what will be disclosed at that time—number of patients, duration of follow-up, measures that you will talk about, and what tumor types will be in the update? Second, on HDV, your presentation cites about 104,000 patients with HDV in the U.S. and Europe. How many of those do you estimate are diagnosed and under the care of a physician, so could be amenable for therapy shortly after launch? Marianne De Backer: For 5818, we will be sharing data from both the monotherapy dose escalation and the dose escalation in combination with pembrolizumab in the second half of the year. We will provide the number of patients at that time. The 5818 trial is different from our 5,500 trial; it is a basket trial with a wide variety of tumor types. We have already shown initial results, for example in metastatic colorectal cancer, where we had a 33% confirmed partial response. Where we have enough patients in a given tumor type, we will share information on responses and tumor shrinkage. Importantly, we view 5818 as a signal-seeking trial to inform potential expansion cohorts. On hepatitis delta, we estimate about 61,000 actively viremic patients in the United States. It is a hugely underdiagnosed disease; we believe only about 10–15% are diagnosed at this time. Once a regimen becomes available, that could change. Diagnostic testing is getting better and is relatively affordable: Medicare reimbursement rates are about $17 for an antibody test and about $43 for a quantitative RNA test. The current challenge is patients often need two or three visits: first for an HBV test, then an antibody test, then an RNA test. Streamlining can help. In Europe, reflex testing—immediately testing for hepatitis delta on the same sample when a patient tests positive for hepatitis B—has increased diagnosis rates substantially. If such guidelines are adopted in the U.S., it could drive a significant increase. Operator: Your next question comes from Etzer Darout with Barclays. Your line is open. Please go ahead. Analyst: Hi. This is Luke on for Etzer. Thanks for taking our question. For HDV, with the ECLIPSE 1 trial reading out in 4Q and then you have ECLIPSE 2 and 3 reading out in 1Q next year, assuming a positive ECLIPSE 1 trial, is that going to be enough to support a BLA filing, or do you need to wait for 2 or 3 to do that? And then on 5,500, the partnership announcement with Astellas said they will be responsible for all development activities after Phase 1. What kind of visibility will you have into those trials as they enroll? Marianne De Backer: On the collaboration with Astellas, it is a global co-development and co-commercialization agreement with significant joint governance. We have a joint development committee, joint steering committee, joint manufacturing committee, joint IP committee, joint finance committee, and so on, with equal representation and joint decision-making, with standard escalation paths. We will remain very intricately involved. We are running the Phase 1 trials now, with Astellas very involved as well. Operational ownership of a given trial matters less than pre-alignment on the clinical development plan and budget, and we are set up to make joint, swift decisions. Regarding filing requirements, our guidance is that we would need a combination of ECLIPSE 1 and ECLIPSE 2 for filing. We will have ECLIPSE 1 data in 4Q 2026, and ECLIPSE 2 in 1Q 2027. Operator: Your next question comes from Sean McCutcheon with Raymond James. Your line is open. Please go ahead. Sean McCutcheon: Hi, guys. Just one quick question from us. You talked a bit about competitor data in HDV, but could you speak to the component of a competitor running an all-comer study with a meaningful proportion of patients with elevated ALT above five times the upper limit of normal, and any potential read-through to how you are seeing the patient population? Marianne De Backer: The estimation is that maybe about 5% of delta patients have an ALT above 5x the upper limit of normal. These very high ALT levels can have a lot of different reasons. We and KOLs strongly believe that the real measure of liver damage is cirrhosis status, and that is why we have enrolled more than 50% of patients in our trial who are CPT-A cirrhotic, and we have shown really good results—similar to slightly better—in those patients. Operator: Your next question comes from Joseph Stringer with Needham. Your line is open. Please go ahead. Joseph Stringer: Hi. Thanks for taking our questions. For the Phase 3 ECLIPSE 1 trial in HDV, what is your current thinking on the bar for success on the 48-week primary composite endpoint? Would replicating the approximately 38% response rates that you saw in Phase 2 set you up for success here? Marianne De Backer: ECLIPSE 1 compares treatment with our regimen of tobevibart and elebsiran versus deferred treatment. It is almost like a placebo-controlled trial, which makes it very likely to be successful. The bar for success is really low given the endpoint is TND plus ALT normalization. For example, for bulevirtide 10 mg in Phase 3, the level of TND you can reach is about 20%, and it was 12% for the 2 mg dose. So the bar for success is not that high. We believe we have a combination of best-in-class viral efficacy and ALT normalization that appears similar across regimens. First, patients who will be on bulevirtide will have to inject themselves daily, and it is a chronic treatment. Chronically, every single day, they will need to inject themselves, and for bulevirtide 10 mg, the expected level of TND you can reach is about 20%. In contrast, our combination regimen of tobevibart and elebsiran is a monthly subcutaneous administration with a TND at 48 weeks of 66%. The chances of success for patients are much higher, and convenience is also much better. We are also running ECLIPSE 2, which looks at bulevirtide failures—patients who have not achieved adequate response—so we will be prepared at launch to have both options available for at-home and in-office administration. Kiki Patel: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good afternoon and welcome to Occidental Petroleum Corporation's First Quarter 2026 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, we will now open the call for questions. To ask a question, you may press star then 1 on your touch tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Unknown Speaker, Vice President of Investor Relations. Please go ahead. Unknown Speaker: Thank you for participating in Occidental Petroleum Corporation's first quarter 2026 earnings conference call. On the call with us today are Vicki Hollub, President and Chief Executive Officer; Sunil Mathew, Senior Vice President and Chief Financial Officer; Richard Jackson, Senior Vice President and Chief Operating Officer; and Kenneth Dillon, Senior Vice President and President, International Oil and Gas Operations. This afternoon, we will refer to slides available on the investor section of our website. The presentation includes a cautionary statement on Slide 2 regarding forward-looking statements that will be made on the call this afternoon. We will also reference a few non-GAAP financial measures today. Reconciliations to the nearest corresponding GAAP measure can be found in the schedules to our earnings release and on our website. I will now turn the call over to Vicki. Vicki Hollub: Thank you, and good afternoon, everyone. I want to take a moment to acknowledge the ongoing challenges and uncertainty in the Middle East. First and foremost, I want to thank our frontline employees in the region for their professionalism and focus under very difficult conditions. Their safety remains our top priority, and, thankfully, our teams continue to operate safely with no adverse impacts to our personnel. I also want to recognize the continued support of our partners and host governments in the UAE, Oman, and Qatar. Their collaboration and shared focus on safety and asset integrity remain critical as conditions continue to evolve. Recent developments have driven sharp price movements and increased volatility across global markets. These dynamics underscore how quickly supply expectations and trade flows can change, and why reliability, resilience, and financial strength matter. While volatility can influence near-term price, long-term value is created by companies that execute consistently across cycles while protecting their people and assets. During this period, Occidental Petroleum Corporation executed as we planned. More importantly, we demonstrated that the strategy we have built over more than a decade can perform well through disruption. Over the past ten years, we have fundamentally transformed Occidental Petroleum Corporation's portfolio to emphasize quality, balance, and durability. From the beginning, we operated with clear conviction that the world will continue to need oil for decades to come and that the Permian would play a critical role in meeting that demand. That conviction shaped a strategy grounded in subsurface capability and operational excellence to lower full-cycle cost across the portfolio. As we sharpened that focus, we exited noncore assets and redirected capital to competitive positions where our technical capabilities could create the greatest value. We invested consistently in our people, knowing that subsurface expertise and disciplined execution would be key differentiators for Occidental Petroleum Corporation over the long term. As part of that deliberate work, we shifted to a substantially more domestic portfolio. Today, 83% of our current production and 88% of our total oil and gas resources are in the United States, concentrating our operations in a more stable operating environment. Recent global events reinforce the importance of those decisions. Through this transformation, we built both scale and depth. Since 2015, we more than doubled production, going from 150 thousand BOE per day to over 1.4 million BOE per day. We also more than doubled our reserves and resources, increasing reserves from 2.2 billion BOE to 4.6 billion BOE and total resources from 8 billion BOE to approximately 16.5 billion BOE. These resources are high quality and low cost, with a runway of more than 30 years. At the same time, we diversified and balanced our mix of assets in the portfolio, with roughly half of our resources in short-cycle, unconventional assets and the other half anchored in lower-decline assets across EOR, the Gulf Of America, Oman, Abu Dhabi, and Algeria. This balance positions us to reduce our base decline to below 20% by the end of the decade and support lower sustaining capital over time. Subsurface and technical excellence have also been core to our success. Over the past decade, we have invested in data acquisition, reservoir characterization, and development design to build a superior understanding of the subsurface. This enables us to optimize development plans by basin, section, and formation rather than rely on a one-size-fits-all approach. Our teams have delivered, and the data backs it up. Quarter after quarter, we have achieved industry-leading unconventional well performance across every basin in which we operate. Since 2016, we have maintained a reserve replacement ratio above 100%. This capability continues to expand and improve our resource base, unlocking new opportunities across EOR, the Gulf Of America, and our international assets. Looking ahead, this capability will only get stronger as we combine our data and technical foundation with advanced analytics and AI to further optimize development and performance. Today, with the portfolio, resource base, and capabilities we have built, Occidental Petroleum Corporation is positioned to deliver even greater value for decades to come. In the first quarter of this year, we remained disciplined in our capital allocation, maintaining a steady development program aligned with our 2026 plan. And we continued to prioritize balance sheet strength to preserve flexibility and support sustainable shareholder returns. Our first quarter results reflect that progress. Now I want to take a minute to reflect on the leadership succession plan we announced last week. As I am sure you saw, I will be retiring as President and CEO of Occidental Petroleum Corporation on June 1, and with the approval of the Board of Directors, Richard Jackson will succeed me as President and CEO. I will continue to serve on Occidental Petroleum Corporation's Board, and Richard will join the Board as well on June 1. I have worked with Richard for almost 20 years and have always been impressed with his drive for excellence, integrity, and ethics. He brings deep experience across our business and a strong track record of execution, making him a great choice for the next phase of our strategy, which includes the development of our extensive portfolio. The Board and I have full confidence in his leadership as he carries forward the strong performance and foundation we have built at Occidental Petroleum Corporation. As Occidental Petroleum Corporation enters this next phase, I also have great confidence in our innovative leadership team and our employees who will continue to excel at what we do best, and that is oil and gas development and operations. This is our forte. Occidental Petroleum Corporation's future is in excellent hands. With that, I will now turn the call over to Richard to discuss our forward trajectory in more detail. Richard Jackson: Thank you, Vicki. I appreciate being able to speak with you all today, and I am grateful for the opportunity in front of us at Occidental Petroleum Corporation. It is a privilege to be part of our team, and I am looking forward to my new role to help support and drive value delivery. I want to start by acknowledging the strong foundation that Vicki's leadership has built over the last decade. It has been a remarkable transformation of resources and capability across Occidental Petroleum Corporation. Her vision of transformation combined with a strong drive to deliver has positioned us where we are today. More personally, all of us at Occidental Petroleum Corporation recognize and appreciate the impact Vicki has had on our team and on each of us individually. Her passion to develop our team and her people-first approach is something that will endure and shape how we grow together in the future. As we look forward, our focus now is on execution and delivery. As Vicki noted, we have a 30-plus year resource base that is high quality, right-sized, and balanced. We believe each of these are important to help drive our results across any cycle. We are operating from a well-understood resource position with significant value upside and are now set for organic development to achieve our objectives. Our focus starts with continuing to improve our advantaged resource base through sustained improvements in new well performance and base production. Today, we are a leader in U.S. unconventional well performance where much of our future resource development will occur. In 2025, we were top tier in every basin where we operate, delivering at least 10% better new well performance than industry average on a six-month oil-per-lateral-foot basis. We continue to see opportunity for further new well performance improvement across our global assets. Base production is also a key contributor to our results, where we have improved uptime in all operating areas. I want to give special recognition to our Gulf Of America team whose focus on maintenance and platform reliability has led to strong base production performance, with a record topside uptime of 98% in Q1. Beyond well performance, we will continue to improve our resources through advanced recovery across four differentiated capabilities: U.S. unconventional secondary bench development; expansion of EOR across the portfolio; low-cost development and waterflood projects in the Gulf Of America; and a focused exploration strategy in both our Gulf Of America and our international operating areas. These are all areas where our subsurface capabilities and approach are delivering results and where we have significant opportunities to unlock more value. Another key focus will be continuing to deliver cost efficiencies. Since 2023, we have delivered $2 billion in annual cost savings through operational efficiencies. And in 2026, we are on track for an additional $500 million in oil and gas cost savings across new well and facility costs, operating costs, and transportation. Looking ahead in the near term, we see a clear path to grow free cash flow and value at any price, with significant upside opportunities. Our value improvement starts with executing from a strong balance sheet, continuing to organically improve our resources, and further driving cost efficiencies. 2026 is an important first step as we are targeting more than $1.2 billion of incremental free cash flow relative to 2025 before the positive impacts of higher prices. As a next step, we are developing plans to deliver significant additional cash flow by 2029 through continued oil and gas cost efficiency and lower decline rates, improvements from midstream and LCV, and lower corporate costs driven from lower debt interest and workforce efficiency. Our forward plan gives us a clear pathway to grow value through any cycle. At lower prices, we will be able to sustain production and grow the dividend. At higher prices, we have the opportunity to further accelerate value by adding measured reinvestment and share repurchases aligned with our disciplined cash flow priorities. We will also remain leveraged to higher oil prices, enabling us to generate substantial incremental cash during these times. Simply put, advantaged resources, lower cost, and lower decline rates drive lower sustaining capital and durable free cash flow to grow value in any cycle. Now let me turn to our first quarter results and progress. In our Middle East operations, our core focus has been on the safety of our people and operations. We want to thank our teams and partners as we continue to work through the events in the region. Sunil will talk through these impacts as he covers guidance for the second quarter and total year. We exceeded the high end of guidance in both our Oil & Gas and Midstream & Marketing segments in the first quarter. We delivered 1.426 million BOE per day production, a 21 thousand BOE per day beat against the midpoint of guidance, largely driven by strong new well performance and uptime across our domestic portfolio. We also made strong progress on our U.S. onshore oil and gas cost savings this quarter, where we are delivering top-tier capital efficiency. We are building on the successful improvements we have made over the last few years, and we are on track to deliver approximately 7% new well cost improvement in our 2026 plan. Additionally, last month, we announced the Bandit discovery in the Gulf Of America. This is the third Gulf Of America exploration discovery we have had in the last three years, highlighting our subsurface capability and the success of our infrastructure-adjacent, capital-efficient exploration approach. I also want to provide an update on Stratos. The construction of Phase 2 is now complete. This is the second 250 thousand tons per year of capacity and includes the final two air contactor trains and updated pellet reactors based on the new design. We also completed commissioning of the Phase 1 unit operations, which includes operating air contactors and the central processing facility. During commissioning, the technology and process unit operations performed as expected. After these Phase 1 commissioning activities, we identified an issue related to non-process components of the facility unrelated to the technology. We are currently evaluating the repair timeline and assessing the impact on the operation schedule and will provide an update next quarter. While still early in our assessment for repair, we do not expect this to impact capital range for the year. I want to close again by thanking Vicki for her leadership and commitment to Occidental Petroleum Corporation. Many of us have grown and developed together over the years, and the team and capability we have built is one of the strengths I am most proud to be a part of. We have made important progress, but we also recognize there is more to do. Our focus will be on consistent execution of our priorities to deliver enhanced, durable value for our shareholders, employees, and partners. I will now turn the call over to Sunil to review the financials. Sunil Mathew: Thank you, Richard. In the first quarter of 2026, we generated adjusted earnings of $1.06 per diluted share, and reported earnings of $3.13 per diluted share. The difference was largely driven by the gain on the OxyChem sale, partially offset by the impact of derivative losses and early debt retirement premiums. Strong operational execution along with higher commodity prices enabled us to generate approximately $1.7 billion of free cash flow before working capital in the first quarter, and we exited the quarter with more than $3.8 billion of unrestricted cash. Even with oil prices roughly in line with 2025, we generated approximately 52% higher free cash flow from continuing operations, demonstrating our continued focus on cost and operational efficiency. We had higher first-quarter working capital use driven primarily by higher receivables associated with stronger oil prices in March. This was in addition to normal first-quarter items, including semiannual interest payments, annual property taxes, and compensation plan payments. As Vicki and Richard highlighted, our Oil & Gas and Midstream segments delivered exceptional results and exceeded our original expectations. Our production averaged 1.43 million BOE per day in the quarter, exceeding the high end of guidance. Strong base and new well performance in the Permian and Rockies, along with strong uptime in the Gulf Of America, drove domestic outperformance, exceeding the midpoint of guidance by 33 thousand BOE per day. This was partially offset by lower international production due to Middle East disruptions and PSC impacts due to higher oil prices. We also continue to deliver on our cost efficiency targets. Domestic lease operating expense outperformed at $7.85 per BOE, a 5% improvement compared to our first quarter guidance, due to maintenance schedule optimization in the Gulf Of America and higher production. Our Midstream segment outperformed in the first quarter, generating positive earnings on an adjusted basis of approximately $400 million above the midpoint of guidance. This was driven by gas marketing optimization and higher sulfur prices at Alosund, partially offset by lower sulfur sales. We also benefited from higher crude marketing margins due to timing impacts of cargo sales and fluctuations in commodity prices, which are offset in mark-to-market. While the duration of these impacts remains uncertain, our performance highlights the ability of our Midstream business to capture value during periods of volatility. We have continued to make significant progress on our deleveraging. We reduced principal debt below the $14.3 billion level announced on our last call, and today, our principal debt stands at $13.3 billion. This brings a go-forward run rate on interest payments to $845 million per year, which is approximately $550 million lower than our interest payment in 2025. This progress reflects the strength and durability of our free cash flow and our continued commitment to disciplined capital allocation. Our near-term cash flow priority is to reduce principal debt to $10 billion. Reaching this milestone will further strengthen the balance sheet and enhance our financial flexibility across cycles. As discussed on our fourth quarter call, near-term debt maturities remain low, with $450 million due through 2029. This provides meaningful support through periods of market volatility. In the current environment, higher oil prices are generating incremental cash flow that continues to support this deleveraging path. After we achieve the $10 billion principal debt milestone, we will reassess our cash flow priorities based on the macro environment, including the appropriate balance between building cash on the balance sheet ahead of preferred equity redemption in August 2029, additional principal debt reduction, and opportunistic share repurchases. Any increase in reinvestment would be driven by clear macro conditions and supported by continued cost and operating efficiency. Until these conditions are met, we intend to remain disciplined and balanced in how we deploy incremental cash flow. We are well positioned to increase reinvestment from a highly advantaged resource base at the appropriate time. Let me briefly comment on hedging. We have not historically been active in hedging as we believe we create shareholder value over the long term by maintaining exposure to commodity prices. That said, we have selectively hedged under specific circumstances. In February, prior to the conflict escalation in the Middle East, we put in place a modest amount of oil hedges using costless collars. At that time, we saw increased downside oil price risk and an opportunity to take measured action to preserve operational momentum and support our 2026 capital plan with a steady development program and without using the balance sheet. We hedged 100 thousand barrels of oil per day from March through December 2026 with a floor of $55 WTI and a volume-weighted average ceiling of approximately $76 WTI. This was primarily an operational decision and not a change in our hedging strategy. As volatility increased and prices moved higher, we stopped adding new hedges and do not intend to do more. Looking ahead to the second quarter, we expect performance to remain strong, reflecting disciplined execution and durable efficiency gains across our domestic portfolio. Our forward outlook incorporates a few discrete impacts driven primarily by two factors. First, in the Middle East, modest operational constraints at Alosan are expected to impact volumes. These began in mid-March and are anticipated to normalize before the end of the second quarter. In addition, higher prices under PSC terms will result in lower net production. Second, we executed transactions to further optimize our EOR portfolio, increasing working interest in our core operated floods while divesting scattered noncore fields and associated facilities. While this lowers our EOR production modestly, these actions are free cash flow accretive, shifting the portfolio toward higher-margin, oilier production and meaningfully lower operating costs. Overall, this improves both the quality and durability of our EOR asset base. Strong U.S. onshore execution is expected to partially offset the impact of our EOR portfolio optimization. In the Permian, unconventional production is expected to increase in the second quarter, supported by higher activity and resilient base performance. In the Rockies, second quarter volumes are expected to be roughly flat excluding prior-period adjustments. In the Gulf Of America, second quarter volumes are expected to decline modestly, reflecting planned facility maintenance and the beginning of tropical weather season. As a result of the Middle East disruptions and strategic EOR actions, we are adjusting the midpoint of full-year production guidance to 1.44 million BOE per day. We are maintaining our previous guidance for domestic lease operating expense, as increasing CO2 cost pressure related to higher oil prices is offset by the benefits of the EOR optimization transactions. Turning to Midstream, we expect earnings to remain strong in the second quarter, driven by gas marketing optimization opportunities, given the wide Waha-to-Gulf Coast natural gas spread seen quarter to date. Our guidance assumes impacts to sulfur sales in the quarter due to disruption in logistics from the ongoing Middle East conflict. We expect sales to normalize in the second half of the year, recognizing conditions in the region can change quickly. Given strong performance year to date, we are raising the midpoint of full-year Midstream guidance to $1.1 billion, an increase of approximately $800 million from the full-year guidance provided on our last call. We continue to expect the Waha-to-Gulf Coast spread to narrow later this year as additional pipeline capacity comes online, and we believe we remain well positioned to capture marketing optimization opportunities as they emerge. Capital spending in the first quarter was in line with our 2026 plan, with activity weighted toward the first half of the year. We are maintaining our full-year capital guidance range of $5.5 billion to $5.9 billion, with second quarter capital expected to be higher than the first quarter. Even in a highly dynamic macro environment, our outlook remains strong. Our short-cycle U.S. onshore portfolio continues to be a key competitive advantage, with low breakevens enabling efficient, stable activity while providing significant capital flexibility in extreme price scenarios. We complement our U.S. unconventional onshore investments with selective lower-decline, mid-cycle investments that reduce sustaining capital and strengthen cash flow durability across price environments. Together with continued balance sheet progress and disciplined capital allocation, we are well positioned for the future, delivering strong, consistent operational results, providing resilience through volatility, and the ability to opportunistically return capital. I will now turn the call back to Vicki. Vicki Hollub: Thank you, Sunil. Since becoming CEO in 2016, I have worked with our Board and management team to operate with integrity and discipline, and we have invested in technical capabilities that differentiate Occidental Petroleum Corporation. And we built a portfolio designed to endure. The progress we have made reflects that focus and, above all, the expertise and commitment of our people. I again want to thank our leadership team and our employees throughout the company for their performance over the past ten years. They consistently exceeded my expectations with incredible passion, perseverance, and loyalty. I also want to thank our Board for their strong guidance and support. In addition, I want our owners to know that I very much appreciated your trust and long-term perspective. I found our one-on-one meetings to be very valuable and informative. It has been a privilege to spend my 45-year career at Occidental Petroleum Corporation and to lead this company alongside such talented and dedicated employees. With that, we will be happy to take your questions. As well, Unknown Speaker and Kenneth Dillon will join us today for the Q&A. We will now open the call for questions. Operator: To ask a question, you may press star then 1 on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Please limit questions to one primary question and one follow-up. If you have further questions, you may reenter the question queue. At this time, we will pause momentarily to assemble our roster. The first question today comes from Doug Leggate with Wolfe Research. Please go ahead. Doug Leggate: Thanks. Good afternoon, I think it is, everybody. Vicki, it has been fun watching you reposition the company. I am sure you are not going to miss us, but we are all going to miss you. So congratulations, and good luck to you. Now, Richard, you are taking the seat, obviously, and I think the obvious question to ask is, if anything, how do you see things for Occidental Petroleum Corporation strategically? I do not know if you are able to give your top priorities, but as CEO what does the strategy look like under Richard Jackson's tenure? I have a follow-up, please. Richard Jackson: Great to be with you, Doug. Appreciate the question. I will start with a couple of perspectives. Near term, there are several things that we are very focused on in terms of delivery, and I think that is a key thing that I will continue to repeat. First, execution of our current program—2026 as we go into 2027—is critical. We came out this year very proud of the program that we put together; I think it really highlights the efficiency that we have in the program and the quality of the resources that we have been talking about. So we certainly want to spend time with our teams making sure that we have those put together with our partners as we extend those opportunities to our global operations. So focusing on near-term execution is critical. The second piece maybe gets a bit more strategic. One thing we have been working on—and we mentioned it in our script—is free cash flow improvement near term. This year was a big step with the free cash flow that we identified, but over the next several years, we feel like there are some very clear drivers that, at any price, will significantly improve our cash flow outlook: continuing cost efficiency; our lower decline of production that is coming forward—having the opportunity this year to invest in things like the Gulf waterfloods and even EOR is significantly contributing to lower decline as we go over the next few years; improvements in our Midstream and LCV; and, of course, debt interest as we continue to make great progress on deleveraging. Being very clear on that free cash flow plan is important, and then that turns into a value plan. For us, it is simple: drive sustainable cash flow up—both free cash flow and cash from operations—and drive our sustaining capital down through lower cost and lower decline. When we do that, we are built to generate significant cash flow at any price. At lower prices, we can continue to grow our dividend; at higher prices, we get the opportunity to further grow our dividend, reinvest in this high-quality resource base, and look at opportunistic share repurchases. We want to be aligned on those plans, articulate the clear drivers, and engage to help our investors understand when and how these improvements show up. The last thing I will say is our people. We have great people, and these are opportunities to work on growth, succession planning, and how we continue to develop. We have been doing quite a bit of work on workforce—whether that is technologies like AI or relooking at our processes and priorities—to make sure we are focused on the delivery I am describing. Those are the big ones that we will be focused on initially. We look forward to delivering in the near term as well. Doug Leggate: Well, congratulations to you as well, Richard. It has been fun watching you evolve as well. My follow-up, if you do not mind: I am looking at Slide 20. Sunil, you talked about getting to the $10 billion principal debt milestone. Obviously, your net debt is sitting a little over $11 billion, at least it was before you paid down the May bonds. But the next line item on Slide 20 says ongoing net debt reduction. I really want to understand what that means. Are you prepared to take this balance sheet to a level that essentially prepositions to redeem the prefs when they come due? That would essentially mean zero net debt. What are you signaling? Thank you. Sunil Mathew: Hi, Doug. Just to put things in context, let me first walk through the progress we have made with respect to deleveraging in the last six months. At the end of Q3 last year, our principal debt was approximately $20.8 billion, and since December, we have paid down $7.5 billion. Today, principal debt is $13.3 billion, which is below the target we set in Q4 last year of $14.3 billion. We want to further strengthen our balance sheet, so near-term focus in terms of cash flow priority is to reduce principal debt to $10 billion. Once we get to the $10 billion of principal debt, we will reassess based on the macro, and we have multiple options. One is build cash on the balance sheet to redeem the preferred in August 2029, when we can redeem the preferred without the $4 per share return of capital trigger. Like you mentioned, that is the option of reducing net debt and being ready to redeem the preferred in August 2029. The other option is reduce principal debt beyond $10 billion. And the third is opportunistic share repurchases if there is a major dislocation between share price and oil price. We do not have a specific net debt target; ultimately, it is going to depend on the macro, and we will take the appropriate action at that point based on what we believe maximizes shareholder value. As we also think about potential reinvestment opportunities—once we have clarity on the macro and supported by continued cost and operating efficiency—that is something we would consider because of the portfolio that we have and our operational performance. The last thing I want to highlight is what Richard mentioned about having a sustainable and growing dividend even at low oil price. In 2029, after we have redeemed the preferred—and even if you were to assume no principal debt reduction after $10 billion—the cash flow improvement between preferred dividend and interest payment will be approximately $1.2 billion better compared to 2025. Our current common dividend payment is approximately $1 billion. That implies a significant opportunity to have a sustainable and growing dividend even at lower oil prices. Operator: The next question comes from Nitin Kumar with Mizuho. Please go ahead. Nitin Kumar: Hi. Good afternoon, everyone. Vicki, first of all, congratulations on the milestone, and thanks for your support over the years. Richard, you have been very clear about this new $10 billion target—that is the first priority. A lot of your peers have formulaic return-of-cash programs in place. You are still talking about opportunistic buybacks. What is the hesitation in adopting something like that? Is it because you feel the macro is too volatile, or are there any other reasons for not adopting something like that? Richard Jackson: Thank you for that. You are right—we have preferred not to have a formula-based approach to our returns. For us, the cash flow priorities lay out how we think about, and then—as I walked through—the value proposition of how we turn what we do into shareholder value. Having flexibility through uncertainties has given us advantages to be able to move and do that. What does not change are the fundamentals of driving the cost efficiency into our program. If you think about how we create additional cash—capital efficiency, lower operating expense, and lower decline—that is where we are fundamentally focused. In terms of our cash flow priorities, bigger picture, dividend—as Sunil mentioned—is where we go. If we think about share repurchases, we do want to be able to create those opportunities, but as we look to the future, especially as we build an even stronger balance sheet, continuing share repurchases through the cycles gives us opportunity and it even helps our dividend growth as we are able to do that on a consistent basis. So, for us, a lot of what we do focuses on the opportunity to grow the dividend as we put these pieces together. Nitin Kumar: Thank you for that clarity. And then just, you talked about discipline and maybe staying the course on at least 2026 and not chasing growth. One of your peers talked about increased nonoperated activity in the Delaware Basin. Anything that you are seeing on the ground—you have a big position and a big operation there—in terms of others chasing growth? Richard Jackson: I think we are managing that. That was one of the uncertainties we had early in terms of our capital range for the year. Our teams have been continuing to work that and have not seen anything that has put us out of our plan. The teams have done, even after the EOR optimization that we talked about, strong work—the core components of our production were strong, with over 9 thousand barrels per day on the total year that we improved. In the Permian, we are growing; Gulf Of America, we are growing. As we have been able to think through the current price environment, within our plan and within our spend, we are seeing time-to-market optimization. We are seeing opportunities in our operating expense categories, both in Gulf Of America and EOR, to accelerate. These have been the controllables that we have been really focused on—staying within plan for the year. Operator: The next question comes from Arun Jayaram with JPMorgan. Please go ahead. Arun Jayaram: Vicki, I also wanted to express my best to you as you move into the next chapter. And Richard, congratulations to you as well. My question is: you are targeting principal debt to reach a $10 billion number this year, given the improvement in strip pricing. How are you thinking about capital allocation post reaching this objective? Richard, you mentioned the potential to shift into some measured reinvestment to deliver a modicum of growth. Walk us through how that pivot into a little bit more reinvestment could look like for Occidental Petroleum Corporation. Is this a 2026 opportunity or more longer dated? And talk to us about between short cycle and long cycle where your thought process is. Richard Jackson: Appreciate that. This year, we know delivery is critical—it always is—but we really wanted to demonstrate the capital efficiency that we have in the program, and certainly the milestone of $10 billion and what we are able to deliver this year is helping. For reinvestment conditions, a few things: the macro being more clear is important. Obviously, the dollar we spend today does not turn into production—or at least peak production—until next year. The efficiencies that we are delivering this year are largely built on what I call development efficiencies—more wells per pad, longer laterals, more simul-frac. These take integrated development planning to put together. While we are always looking to improve the program and optimize, these are things that are more difficult to change without impacting that efficiency, so clear macro support before we add is important. Decline rate is another. We like what we are doing this year in terms of investment into EOR and the Gulf waterfloods. Being able to go from mid‑20s toward 20% or less over the next few years in terms of decline rate reduces our sustaining capital by hundreds of millions of dollars, which gives us more headroom for return of capital. At low prices, that is important to establish. When we do feel like reinvestment comes, we want to provide clear outcomes—returns, cash flow timing, decline rate. We want to demonstrate that everything we do improves the value proposition we talk about. When I say measured, it is taking that approach. With that said, we have an amazing resource base, very balanced, and we have the opportunity to accelerate value over the long term whether we are sustaining or growing production. Getting that balance right between short-cycle and mid-cycle is really important. Sunil Mathew: I just want to add, in the last quarter we mentioned that for 2027, you can use $5.9 billion as a starting point for sustaining capital. The assumptions behind that $5.9 billion were: U.S. onshore capital assumed to be flat compared to this year, with growth largely driven by capital efficiency—like what we have been demonstrating for the last few years—and the balance between unconventional and conventional to manage base decline and reduce sustaining capital. In Gulf Of America next year, related to the on‑mountain waterflood projects, we will be drilling two injectors, so you will see some increase in Gulf Of America next year. Exploration—we typically participate in three wells with around 30% working interest. This year, we reduced exploration activity, so that might go back to on average around $150 million, which is what we have done over the last few years. And then you have the roll-off of the LCV capital. So $5.9 billion would be a starting point in terms of sustaining capital. Any increase in reinvestment is largely going to be driven by the macro, but we are well positioned to do it at the appropriate time. Arun Jayaram: That is super clear. For my follow-up: service companies are talking about pushing some price on rigs, frac, and consumables. You reiterated your CapEx range at $5.5 to $5.9 billion for the full year. Can you talk about these inflationary pressures, and does it change where you expect to land within that range? Richard Jackson: I will start, but invite Kenneth to add. Our approximately 7% new well cost improvement is largely driven by efficiencies today. We have seen some ups and downs in pricing but are largely holding flat. We work closely with our service partners on performance—addressing their needs in terms of utilization or pricing while ensuring our performance is delivered. We are more levered to the cost of the well, so we have worked with them to continue to drive our cost down. Diesel and other items are playing a role, but not a major role. We do not see inflation impacting our range, and our cost improvement is intact through efficiencies. Kenneth? Kenneth Dillon: Middle East supply chain has been a huge success during this period. Everyone has worked really well, so we have not had any shortages in production due to material deliveries or costs. All of our vendors have really stuck with us. We have seen increases in some areas offset by others. We still see vendors really interested in market share as opposed to individual line-item wins. Given our scale and mass in each of our locations, that is paying off for us, especially as we concentrate activities on one pad. Utilization becomes really clear for the vendors. Overall, a very good story by supply chain. Operator: The next question comes from Analyst with Barclays. Please go ahead. Analyst: Hi, team. I want to share my congratulations to Vicki and Richard as well. My first question is a bigger picture one. Your Slide 3 really laid out what Occidental Petroleum Corporation was focused on in the last ten years versus where the next ten years could look like. You already have built the foundation for the portfolio today. Where do you think is the biggest opportunity to extract value from the current portfolio from here in the next phase—this execution phase? The free cash flow expansion we can clearly see, but where are you most excited—whether that is the resource expansion or from the cost efficiency side? Richard Jackson: Great question. There is a lot to be excited about. Our advanced recovery—whether in the Gulf Of America with waterfloods, CO2 EOR, our conventional opportunities, and now our unconventional even internationally—will be a distinct advantage over the next ten years. This has been building for some time. It translates to lower sustaining capital and more value for our shareholders. Operational excellence continues—we have a great team that understands how to put things together not only for CapEx but also operating expense and base production. One of the best things we demonstrated over the last year was production uptime in the base. Workforce efficiency is another—being innovative and deploying technology. AI is taking on a larger role across all disciplines. Partnership does not change—we have done a great job internationally creating win-wins, like our exploration program. Oman is a great example of how we are different in exploration: taking more difficult new reservoirs and growing them to scale near existing facilities. All of these come together to drive the value proposition, starting with the resource—we are in an outstanding position today. Analyst: That sounds great. Maybe digging a bit more into the base optimization—I appreciate the focus on mitigating decline. Can we get an update on the unconventional EOR projects? What do you need to see to scale these projects, and what are some of the limiting factors longer term? Richard Jackson: We have the three commercial projects that we talked about starting. Most of this year is getting early construction and long-lead items moving—mainly compression. Those are expected online in 2028. We have continued demo work, including in the Midland Basin around Barnett—we are happy about our primary production and now excited about CO2 EOR there, seeing very good results on our first cycle. Proof points continue on CO2 EOR. Another item in EOR: we have had success with some sidetracks in San Andres on the Central Basin Platform edge and in the Platform. We optimized the program to actually add production this year. One advantage of the EOR divestment and acquisition optimization is concentrating our working interest where these opportunities lie. Today, EOR is about 100 thousand barrels per day. We are concentrated with the right low-cost structure and advantages to take into both our conventional and unconventional assets. Operator: The next question comes from Neil Singhvi Mehta with Goldman Sachs. Please go ahead. Neil Singhvi Mehta: Congratulations, Vicki, and congratulations, Rich, as well. Maybe, Vicki, give you an opportunity to share your perspective. The last ten years have been very volatile for the energy sector. Any perspective on the decade ahead—what leaves you optimistic, and what are the biggest concerns that we as an investment community should be spending time on? Vicki Hollub: Volatility is going to be with us forever. It has always been volatile and will continue to be. It seems more volatile now because we see the numbers as they change daily. A lot of things have happened in the history of our industry—going back to the Suez Crisis, Yom Kippur, Iranian Revolution, Iran-Iraq war, price wars, and more. When oil prices changed dramatically in real terms was around the PDVSA strike in Venezuela, the Iraq war, Asian growth, and a weaker dollar—that is when WTI prices started being driven up. Through all the volatility, some things are consistent. From January 1974 to today, WTI averaged $76.32 in real prices. If you look at this century—from 2001 to now—the average real price was $81.67. If you take out the nine years in this century that prices were above $100, that still takes prices to a healthy level at $66.76. We tend to remember the bad prices and times versus when things were okay, and that is why we built our portfolio to last through cycles and be able to create value for our shareholders now and going forward. Two big things are important. First, pricing—I think if you are built to last and make it with cash flow generation through the cycles and a dividend that you can support in years when prices are lower, you must be prepared to pay the dividend through cycles. Second, in the U.S., we expect that between 2027 and 2030, the U.S. is going to hit a plateau; production will then start to decline. Where we sit today is with a better inventory than any company with respect to our U.S. base. We will be prepared in the U.S. to help offset that decline because we not only have great assets in the United States, we have the ability—as Richard described—to apply EOR to get more oil out of the reservoirs we have, and we will do that internationally as well. Internationally, we are in places where we have great relationships with the government—Oman, Abu Dhabi, and Algeria. Now that resources are becoming a real issue for some companies—because 80% of the current oil reserves in the world are held by NOCs or governments—trying to get reserves if you do not have a strong and large inventory today is getting more challenging. Going to international locations where we decided, as part of this transformation, not to go to may offer better contracts in bad places, but that usually does not end with a better result. We believe that for decades to come, oil is going to be needed, and peak supply will occur before peak demand—not just for the United States, but for the world. We are perfectly positioned with where we are today—the capabilities and the portfolio—to help address that. Neil Singhvi Mehta: Really great perspective, Vicki. The follow-up: you are now long inventory through M&A and good reserve replacement, so the probability of needing to do large M&A is diminished. Richard, I would love your perspective as well. Is that the view the leadership team shares—really an organic story? Vicki Hollub: We did not go through what we went through to build this portfolio to let it sit there for 30 years. Richard, to you. We are very focused on organic development. Richard Jackson: What has been done has put us in an outstanding place. Our responsibility now is to extract value from it. We are laser-focused on the fundamentals—capital efficiency, operating efficiency, and subsurface work. There will be opportunities around assets to continue to improve—trades and other things—but we could not be more excited about the balance and what I like to call the right-sized resource base that we have. We work to deliver the most value. We look at a lot of scenarios—we are put together to deliver the most value. That is clearly what we are focused on. We are excited to do that and appreciative of what we have to work with. Vicki Hollub: Thank you, Neil, for the question and helping us to clarify that. And with that, we are done with the Q&A. Thank you all for joining us and for your questions, and have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Talos Energy Inc. First Quarter 2026 Earnings Call Conference. Following the presentation, we will conduct a question and answer session. This call is being recorded on Wednesday, 05/06/2026. I would now like to turn the conference over to Clay P. Jeansonne. Please go ahead. Clay P. Jeansonne: Thank you, operator. Good morning, everyone, and welcome to our first quarter 2026 earnings conference call. Joining me today to discuss our results are Paul Goodfellow, President and Chief Executive Officer, and Zachary Dailey, Executive Vice President and Chief Financial Officer. For our prepared remarks, please refer to our first quarter 2026 earnings presentation that is available on the Talos Energy Inc. website under the Investor section for a more detailed look at our results and operations. Before we start, I would like to remind you that our remarks will include forward-looking statements subject to various cautionary statements identified in our presentation and earnings release. Actual results may differ materially from those contemplated by the company. Factors that could cause these results to differ materially are set forth in yesterday's press release and our Form 10-Ks for the period ending 12/31/2025 filed with the SEC. Forward-looking statements 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 this call, we may present GAAP and non-GAAP financial measures. A reconciliation of certain non-GAAP to GAAP measures is included in yesterday's press release, which was furnished with our Form 8-Ks filed with the SEC and is available on our website. And now I would like to turn the call over to Paul. Paul Goodfellow: Thanks, Clay, and good morning to everyone joining us on the call today. To start, I want to thank our employees for their hard work, dedication, and unwavering commitment to safety and environmental stewardship in delivering the results Zachary and I have the privilege of discussing today, especially during these dynamic times. Before turning to our results, I would like to briefly provide some context on the current energy market. Recent geopolitical tensions have reminded global markets of a couple of fundamental truths. Energy security is not guaranteed, and reliable and affordable hydrocarbons remain essential to meeting the world's energy needs. We believe Talos Energy Inc., as part of the vibrant U.S. energy industry, plays a clear and increasingly important role in delivering reliable Gulf of America oil that the world requires. Our strategy is designed to build Talos Energy Inc. into a leading pure play offshore E&P company by delivering high-margin production through disciplined execution, a resilient cost structure, and building a long-lived portfolio that creates durable value across the cycle. Today, I would like to focus on three key takeaways from our results, where outstanding execution across the business drove another quarter of strong financial outcomes, generating adjusted free cash flow of $113 million on production of approximately 89 thousand barrels of oil equivalent per day. First, our disciplined operational performance remains a foundation of our financial results. During the first quarter, we delivered oil production of approximately 64 thousand barrels per day and total production of approximately 89 thousand barrels of oil equivalent per day, which just exceeded first quarter guidance. This outperformance was driven by strong new well productivity at Cardona, continued solid base performance, and high facility uptime. I am extremely proud of our team and want to recognize their tireless focus on operational excellence and identifying opportunities to maximize value across our asset base. This mindset is core to pillar one of our strategy and ultimately leads into pillar two by driving production and profitability. My second key takeaway is that execution is off to a strong start in what is an active drilling and completion year for Talos Energy Inc. In addition to efficient execution and strong performance at Cardona, we drilled and completed the CPN well in quarter one, with first production on track for the third quarter. Execution at CPN was best in class, highlighted by the fact that the well was completed with zero completion-related nonproductive time, an outstanding achievement and a testament to the high-performance team here at Talos Energy Inc. The plan for remediation work to begin on the Genovese well is on track for quarter two with a return to production midyear, slightly ahead of schedule. Lastly, on the execution front, drilling is underway at the Monument project operated by Beacon Offshore, with first oil on track by late 2026. Our relentless focus on improving the business every day has strengthened our position as a low-cost E&P operator in the Gulf of America while also delivering top-decile EBITDA margins across the sector. Over the last three years, as industry cost structures in the Gulf of America have increased, Talos Energy Inc.'s proactive cost management and production growth have resulted in a reduction in unit operating costs. In fact, for 2025, which is the most recent available full-year dataset, our operating costs were approximately 30% lower on average than the offshore peer group. Our advantaged cost structure combined with our oil-weighted production drives top-decile EBITDA margins in the E&P sector. My third and final key takeaway is that we continued this trend of low cost and high margins into the first quarter. Total company lease operating expenses were approximately $16 per barrel of oil equivalent in quarter one, which was in line with our 2025 average. It has also been an impressive start to the year for our optimal performance plan, with greater than 40% of the 2026 target already achieved. These results are broad-based, with free cash flow enhancements driven by operating cost reductions, margin improvement, and capital efficiency, which spans operations, development, and P&A activities. We expect to build on the outstanding first quarter performance and carry that momentum forward into the second quarter. We expect to spud the Daenerys appraisal well later in the second quarter. The primary objectives are to test the northern portion of the prospect and further evaluate reservoir and fluid properties. The well has been designed to penetrate multiple prospective intervals, with optionality to accommodate future sidetracks, enabling further appraisal and development. We are ready to start execution as soon as the rig returns from the current operator's well. We expect to have the well drilled and evaluated by the end of the year. Exploration is a core element of our strategy falling under pillar three: building a long-lived, scaled portfolio that supports sustainable growth. To deepen our exploration inventory for the future, we have been proactive with recent seismic investments, giving Talos Energy Inc. the most advanced reprocessed data across our core areas. This approach to leveraging modern technology enabled a successful December 2025 lease sale, with all 11 leases now awarded. The eight identified prospects among those leases, several of which span multiple blocks, represent more than 300 million barrels of gross unrisked resource potential across amplitude-supported Miocene and Wilcox opportunities. While the work is underway, and is still early, our objective is to advance these prospects toward drill-ready status, allowing them to compete for capital in 2027. For me, the bottom line is simple: a strong execution quarter delivered solid financial outcomes. With that, I will turn it over to Zachary to walk through our first quarter financial results along with the full-year and second quarter guidance. Thanks, Paul. I will focus my remarks this morning on our first quarter financial performance. Zachary Dailey: Which was underpinned by the strong operational execution Paul just discussed and our unchanged, disciplined capital allocation framework. I will also touch on our latest hedging activity before wrapping up with guidance and then opening it up for Q&A. Starting with the quarter, we invested just under $120 million of exploration and development capital and delivered oil production at the high end of our guidance range, with total oil equivalent production exceeding guidance. This strong execution across the business translated into $293 million of adjusted EBITDA and $113 million of adjusted free cash flow. Importantly, these results were achieved at a low reinvestment rate of approximately 41%, reflecting the capital efficiency of our development program and our ability to convert consistent operating performance into strong financial outcomes. While we expect the macro and commodity price environment to remain volatile, Talos Energy Inc. has the financial strength and flexibility to execute on our strategic priorities across a range of commodity price scenarios. Our 2026 plan features development projects with breakevens in the $30s and $40s, with a corporate free cash flow breakeven in the low-$50 WTI range. And although oil prices have moved higher since the Iran war began, our capital allocation priorities and our 2026 budget remain unchanged. We will continue to allocate capital in a disciplined, balanced, and focused manner, guided by the framework that underpins execution across all three of our strategic pillars. This consistency is especially important during periods of volatility, and we believe adherence to our capital allocation framework positions Talos Energy Inc. to deliver strong financial outcomes and long-term value creation through the cycle. As a reminder, our capital allocation framework calls for returning up to 50% of annual free cash flow to shareholders, and the first quarter represented another quarter of consistent execution on this front. We returned $38 million, or 34% of adjusted free cash flow, to shareholders through share repurchases. Since announcing our return of capital framework in 2025, Talos Energy Inc. has returned approximately $135 million to shareholders through repurchases, resulting in an approximately 7% reduction in our outstanding share count. Turning to the balance sheet, our liquidity remains strong and leverage is low, resulting in financial strength that underpins our ability to execute across all three of our strategic pillars. During the first quarter, cash on hand increased while net debt declined sequentially, further enhancing our financial position. In addition to approximately $1 billion of liquidity, we have no near-term debt maturities and have recently extended our credit facility, which now matures in 2030. Together, our balance sheet strength provides flexibility to invest in the business through the cycle, return capital to shareholders, and advance both our development and exploration priorities while maintaining financial discipline. Now let me share a few thoughts on hedging and provide an update on our recent activity. The end of the first quarter was marked by elevated oil price volatility, driven by geopolitical developments and broader macroeconomic uncertainty. In that environment, we remain disciplined and selectively opportunistic, acting consistently within our established hedging framework to support free cash flow while preserving upside. While we added some 2026 oil hedges at the beginning of the Iran war, our primary focus during the quarter was to begin layering in required oil hedges for early 2027, a time period in which Talos Energy Inc. was unhedged before the war began. These initial positions were added to establish protection around future free cash flow, maintain exposure to additional upside, and satisfy credit facility requirements. We view this early positioning in 2027 as prudent and well timed given the current level of market volatility and uncertainty in longer-dated oil prices. It is also worth highlighting that approximately two-thirds of our oil is sour and that we benefit from a balanced oil marketing portfolio with access to multiple physical crude pricing benchmarks. Beginning with April pricing, we saw strength in a number of Gulf Coast sours relative to historical levels, which, all else equal, should support near-term price realizations. Overall, our hedging activity during the quarter reflects a measured and steady approach, using periods of volatility to strengthen cash flow resilience and reinforce our ability to execute consistently across the cycle. For the forward outlook, all of our full-year 2026 operational and financial guidance ranges we released in late February remain unchanged. For the second quarter, we expect oil production to be in the range of 63 thousand to 67 thousand barrels of oil per day and total production to be in the range of 88 thousand to 92 thousand barrels of oil equivalent per day. Additional details describing our guidance can be found in our presentation, which is available on our website. In closing, the business is off to a very solid start to the year. With a clearly defined strategy, an advantaged cost structure, and top-decile margins, we have the financial strength and flexibility to execute on our strategic priorities while remaining anchored to our disciplined capital allocation framework. With that, we will open the line for Q&A. Operator: Thank you. In a moment, we will open the call to questions. The company requests that all callers limit each turn to two questions from each analyst, one question and one follow-up. If you would like to ask a question, please press star 1 on your telephone keypad. It may be necessary to pick up your handset before pressing the star keys. One moment, please. Your first question comes from Greta Drefke with Goldman Sachs. Please go ahead. Greta Drefke: I was wondering if you could just update us with your latest thoughts around how different uses of free cash flow compete across holding cash on the balance sheet, leaning into share repurchases like you did this past quarter, or potential M&A here? Paul Goodfellow: Yes, thanks, Greta. Good morning. Look, I would say nothing changes. We have a very clear framework in terms of how we think about capital allocation that we have been working within over the last year, where we have seen prices rise and decline during that timeframe. That is really focused on investing in the business, making sure we maintain the strength of the balance sheet, absolutely returning cash to shareholders, but also giving ourselves the opportunity to invest in the future of the business to make sure that we have length in the portfolio. We have said that investment needs to make Talos Energy Inc. better and not bigger, and so it is not investment for investment's sake. In the same way as you see us investing in projects in 2026 and going into 2027 that have low breakevens and high returns and can deal with the volatility that we see in the macro, that is how we look for that fourth component as well. We will balance that as we go through 2026 and 2027, with no change to the overall framework in which we are thinking and operating and planning. Greta Drefke: And then just for my second question, on the longer-term outlook: if we are in a higher-for-longer oil price environment, albeit very volatile, as you are thinking about organic growth opportunities like you mentioned, is Talos Energy Inc. considering leaning into any incremental organic growth projects in 2027 or 2028 to potentially turn economic given where the oil forward curve is today relative to a few months ago? Paul Goodfellow: I would reiterate what we spoke about before, which is we look for projects that have low breakevens, and Zachary mentioned that in the comments. We are not going to chase an oil curve. We will look for projects that have resilience through the cycle. As we mentioned, we were very successful in the first lease sale that was held in 2025. All of those leases, the 11 leases, have now been awarded to us, and we are working those diligently to allow the majority of those to compete for capital in 2027, but that is normal course. It is not in reaction to where the price is today. If you look at the shape of the curve, it is still incredibly backwardated. Yes, the long end is slightly higher than where it was pre the Iran war, but it is nothing that would fundamentally change our view on how we invest in projects and the thresholds that we have for those projects to be considered to compete for capital. Operator: Thank you very much. Paul Goodfellow: Thank you. Operator: Thank you. The next question comes from Analyst with BMO. Please go ahead. Analyst: This is Ajay Bhukshani on for Phil. Thanks for taking our question. As we think about the upcoming appraisal well at Daenerys, you do a good job of listing out the objectives, but what are some of the key risks here? And assuming you accomplish these objectives, how does this inform your resource potential estimates, or is further appraisal needed to really dial this in? Paul Goodfellow: Thank you. The reason that we are drilling the appraisal well at Daenerys is to try and derisk the range of uncertainties that we have. The clear risks, as there are with any exploration or appraisal well, are whether the main objectives we are looking for are present, do we see the reservoir characteristics that we are looking for, do we see the fluid characteristics that we are looking for, and how does that all then get folded into the overall resource size and estimate and quality that can inform the next steps. Clearly, there are always mechanical risks when you are drilling deep subsalt wells such as this, but we are incredibly fortunate at Talos Energy Inc. to have one of the best drilling and completion teams in the industry. They have demonstrated that time and time again with what they have done on the first Daenerys well, on Sunspear, on Cardona, and CPN. We plan accordingly, really thinking about the risks and how we mitigate those. Outside the mechanical risks, it really is looking at derisking the reservoir and fluid properties and characteristics. From that point, we will make the determination of what further appraisal, if any, is needed. It depends on where those results come in, which, as we have mentioned, we expect to spud that well once we get the rig back from the current operator in the second quarter, with results, all being well, available before the end of the year. We will clearly be able to update you then. Analyst: Very helpful. Thank you. And for my next question, can you just talk about what you have been seeing on crude differentials through 2Q so far? There is a strong global bid for waterborne medium sour barrels. Also, what is the typical breakdown as far as barrels and key price hubs for Talos Energy Inc.? Zachary Dailey: Ajay, this is Zachary. I appreciate the question. The diffs that we have experienced in April and May have been positive to HLS. About two-thirds of our crude is sour, with a little bit higher sulfur content than a sweet barrel, so they price at Mars, Poseidon, and Southern Green Canyon. We have seen an uplift in those sour diffs in the first part of the second quarter. All else equal, that should help realizations in Q2. Hope that helps. Analyst: Thanks, very helpful, and congrats on the good quarter. Zachary Dailey: Thank you. Operator: The next question comes from Analyst with Pickering Energy Partners. Please go ahead. Analyst: Hey, good morning. Thanks for taking our questions. It does seem like the oil market might be going through a structural shift that could result in a higher mid-cycle price. Under that context, how does the Talos Energy Inc. business strategy change, if at all, in a higher pricing scenario? And if it does not change, what levers can you pull to capitalize on higher prices? Paul Goodfellow: Thanks, Michael. I think it does not change. We have a very robust strategy in terms of the three pillars that we are driving against. We have a disciplined capital allocation framework in which we will look at how to deploy capital, and that is where our focus will remain. We are laser-focused on improving our business each and every day, driving continuous improvements, and we have continued to see evidence of that through the first quarter. We are equally focused on the second and third pillars in terms of driving production profitability and building a longer-lived, scaled portfolio. There is a lot of activity going on in those spaces. Until something gets to the finish line, it is difficult for us to talk about that. Bottom line is that our strategy does not change. If anything, potential structural changes through the cycle reinforce the strategy that we have and the need for the capital discipline that we are driving. Zachary Dailey: I might just add to what Paul said. To your second point on how you capitalize on higher oil prices: we expect to be 73% oil in 2026, which drives those top-decile margins that we are very proud of. Similar to the prior question, strong differentials are a near-term benefit with the sour crude we produce. Analyst: I appreciate the context. One related area we are trying to understand is how these oil prices affect the offshore rig market. With the West Bella contract rolling and with the upcoming Daenerys appraisal as well as other prospects, presumably Talos Energy Inc. has been active in this market recently. Paul, I would be curious to hear your views in the high-spec drillship market. Are you seeing a tightening? Do you feel that there is enough availability? And maybe you could offer your opinion on how leading-edge dayrates in the Gulf have evolved over the last twelve months. Paul Goodfellow: Thanks. The trends we are seeing are the trends that were suggested six to nine months ago, which was some potential capacity in 2026, but the market tightening in 2027. I think that is what you are actually seeing, maybe a slight acceleration of that tightening given what has happened in oil prices over the last two months. It is also important to remember that, for deepwater projects and deepwater wells, the cycle time is much longer from decision to having the well online. I still think for operators like ourselves there is a degree of caution in terms of making sure the projects that we move forward with have low breakeven prices. We have been in the market with a tender for deepwater rig activity in 2027. We have had a number of high-spec rigs bid into that, and we will be making our decision in the coming weeks and months as to which rig or rigs we take on in 2027 and beyond. We are looking at our needs beyond just the very near term and starting to think more strategically about deepwater rig needs. It is also important that we have the ability to intervene quickly on wells should they have a problem, such as the Genovese well that we identified at the back end of last year. Leveraging technology and using an intervention vessel platform to do intervention work versus only relying on the high-spec rigs gives us another degree of flexibility as we think about the type of vessel and therefore the cost of the vessel to do the work that we need to do. In fact, that is one of the reasons why the Genovese well is on or slightly ahead of plan at the moment, because of our ability to execute that work off an intervention vessel versus a high-spec rig. I hope that gives you some color. Analyst: That is great. Thanks for your time. Paul Goodfellow: Thank you. Operator: The next question comes from Timothy A. Rezvan with KeyBanc Capital Markets. Please go ahead. Timothy A. Rezvan: Good morning, folks. Thank you for taking our questions. First one, maybe this is for Zachary. On the balance sheet, Talos Energy Inc. has $1.25 billion of second-lien notes out there. The company is in much better financial health than when those were issued. They are trading above par, and some are callable now, and I know the call steps down in 2027. Just curious where that is on your radar screen this year. And maybe for Paul, is that part of that $100 million cash flow uplift, getting those refinanced? Thanks. Zachary Dailey: Thanks for the question, Tim. Good morning. You pretty much nailed the state of affairs on the ’29s. It is front and center on our minds. The high-yield market is very tight, and it is a good place to be for companies like Talos Energy Inc. I would say we have lots of flexibility in our balance sheet and our capital structure right now to support the strategy that we have laid out to the market and go out and execute the plan. I do not want to get into too many specifics, but suffice it to say that it is definitely front and center and we are in a good spot. Paul Goodfellow: The simple answer to the second part of your question, Tim, is any refinancing benefit we would get is not considered in the $100 million of additional free cash flow. That is centered around the operational, capital, and supply chain efficiency world in terms of the execution of the plan today. But as Zachary said, the actions we will take around those bonds are very much front and center in our thinking at this point in time. Timothy A. Rezvan: Appreciate the details. As a follow-up, also on the capital allocation theme, Talos Energy Inc. has repurchased shares for five straight quarters. It seems to be a consistent part of your use of free cash flow, but we also, going into today at least, have shares pushing two-year highs. Should we think of that as maybe you toggle that up or down, but you expect that to be a consistent part of the program, greater than zero but opportunistic? Just trying to understand how you think about repurchase intensity with shares back at ’16. Paul Goodfellow: We think about it within the framework that we laid out. We have said we are investing in the business today, we are going to maintain the strength of the balance sheet, we are going to look for accretive opportunities to support and build the business, and we are going to return capital to shareholders through share buybacks. It is a balance of those four. That is what you have seen us do over the last four quarters, and thank you for the recognition of that in terms of the consistency of executing against the strategy that we have. That is how you will see us think about it going forward, not only in this quarter, but the quarters to come. Zachary Dailey: Tim, Paul is exactly right. I will just add that in Q1 it was about 34% of free cash flow allocated to repurchases. Within the financial framework that we want to stay consistent to, we have the flexibility of up to 50%. At any one point in time, we will be toggling in that range. As we highlighted in the prepared remarks, we have reduced the outstanding share count by about 7% over the last twelve months since the strategy was rolled out. We do want to stay consistent, but we do have flexibility within that framework. Timothy A. Rezvan: That is all I had. Zachary Dailey: Thanks, Tim. Operator: Thank you. The next question comes from Paul Diamond with Citigroup. Please go ahead. Paul Diamond: Thank you. Good morning, all. Thanks for taking the call. Just a quick one on Katmai/Tarantula. I know that there was some recent debottlenecking there. Looking at it longer term, do you see there continuing to be capital going out beyond, you know, I know it is flatlining through 2027, but going out beyond that? Paul Goodfellow: Thanks, Paul. The Katmai field is doing incredibly well. The operations team there continues to focus on safe, efficient operations and maximizing throughput. That is what we have seen as we have gone through the first quarter of this year, a continuation of what we were doing in 2025. We have said there are a number of opportunities around the Katmai field—Katmai North as well as some of the leases that we acquired in the last lease sale. As we think about maturing those, we will also consider what further debottlenecking or expansion of that facility is needed. For where we are today, we see that nice plateau, and that is where we will sit. The next level of expansion would be looping of the pipeline, which would give us additional capacity. To do that, we would want to have additional volumes coming in from near-field wells. Those are the wells the team is maturing at the moment to compete for capital in 2027. Paul Diamond: Makes perfect sense. Just a bit of housekeeping on the optimal performance plan. You talked about $100 million in savings, with about 40% achieved. How should we think about the vector of that plan? Does the low-hanging fruit come first and the rest is somewhat linear, or is it more chunky? What is the timeline on completion? Paul Goodfellow: Great question. The plan is a continuation of what we laid out last year. We set an interim target, which the teams did incredibly well to exceed in 2025, and there is an element of those that recur from 2025 to 2026. There is some lumpiness as it comes through. I would think of the vector overall as, between where we are now and the $100 million at the end of the year, we have a high degree of confidence in delivering that $100 million, and we will be looking for ways to exceed it. We are not changing that target at this point in time. Zachary Dailey: I would just add that the real prize here is instilling a culture of continuous improvement, which has been a cornerstone of Talos Energy Inc. for a long time, but now with a bit more framework and structure. That will continue well into the future. Operator: The next question comes from Michael Stephen Scialla with Stephens. Please go ahead. Michael Stephen Scialla: Good morning, guys. It looks like you will have some growth heading into 2027 with Monument coming online at the end of the year. I realize there is a lot of variability and unpredictability with your business, but can you say if you are anticipating year-over-year growth next year, barring a collapse in 2027 oil prices, or is it too early to go out that far? Paul Goodfellow: In simple terms, it is too early to go out that far. There is a lot of uncertainty in terms of the work that we have to do this year still. The Monument project has started and, with our partner Beacon Offshore as the operator, operations so far are going well, but there is a long way between now and actually getting production from those wells. There is a range of uncertainty, although the area in which Monument sits is a prolific area if you think about the Shenandoah hub, which is where it will tie back to. We also have a fairly significant redevelopment program at Brutus coming through in the second half of the year that we are getting ready to start up now, and other activities as well. We are investing this year in good-quality, low-breakeven projects that give us stability for the future, but it is too early to put a number on a vector relative to where we are in 2026. Michael Stephen Scialla: Understood. Could you talk more about the 11 new leases that you got in the lease sale that you said unlock eight new prospects? It looks like some of that is in the Wilcox and that inventory is expanded. Maybe your thoughts on the confidence in that play and what you are seeing with those new leases? Paul Goodfellow: You are right. We were successful in getting 11 leases where we have identified eight prospects, and some of those span a number of blocks. We focused them around two key areas for us—around the Katmai area and around the Daenerys location. We focused them on plays where we have deep skills, including amplitude-supported Miocene, Wilcox, and some in the Paleogene. We are now going through the seismic work. We preinvested in seismic so that we could mature those prospects and have them compete for capital in 2027. We are focused specifically in the Wilcox in a proven part of the play where we see opportunities with tieback potential, but also with upside to be standalone and hub class. Those are some of the criteria that we looked at the leases through, and we will continue to look at opportunities in future lease sales. The preinvestment in really advanced, reprocessed proprietary seismic around those key areas and fairways is important. Operator: The next question comes from Nathaniel Pendleton with Texas Capital. Please go ahead. Nathaniel Pendleton: Good morning. Congrats on the strong results. You just mentioned the Brutus wells. Can you talk about the potential you see for similar recompletion activity across your portfolio? And how do those types of opportunities compete for capital when you are looking at potentially doing a dedicated drilling program as you look out to 2027–2028? Paul Goodfellow: What we are doing at Brutus is really bread and butter for Talos Energy Inc., which is our ability to take these mid- to late-life assets, identify opportunities that have maybe been overlooked, and then execute those very efficiently and effectively to maintain the volumes and throughputs of those hosts. This is the second or third incarnation of redevelopment that we have done at Brutus, and we have had similar activities at other hubs. It is important that we have high-quality seismic over those locations, so we can look at near-field opportunities from an infrastructure point of view. They need to compete in terms of breakevens and returns relative to other opportunities that we have in the portfolio. It is also important that we are balancing the focus on larger-scale opportunities in the exploration phase with high-quality development that can maintain the high oil component of the portfolio that we are delivering at the moment—north of 70% oil cut. The Brutus program specifically will be targeting more oil opportunities than gas. In fact, some of the wellbores it will use are wells that have been gas wells coming to the end of their life, and we will use those wellbores to add additional oil into the portfolio. Nathaniel Pendleton: Got it. Appreciate the detail there. As my follow-up, I wanted to zoom out and discuss M&A. Can you talk about the opportunity you see in the Gulf of America in smaller asset-level acquisitions versus corporate M&A potential? And do you have any interest in shallow-water assets versus deepwater? Paul Goodfellow: Our focus is to become a leading pure play offshore E&P player. From a Gulf Shelf perspective, we have a large legacy position, and we will continue to operate and execute those as efficiently and effectively as we can through to end of life, being a responsible operator as we take those through to abandonment and decommissioning when the time is right. In terms of asset-level opportunities, there has been a history of asset activity within the Gulf of America. We would expect that to continue to some degree. What has happened over the last two months post the Iran war run-up in prices has created a bit of a bump in the road in terms of how buyers and sellers think about price points. I think we are getting to a new norm and an understanding of how to deal with that. There will be a continual degree of opportunities that come forward, maybe not at a super high level, as current incumbents look to optimize their full portfolios as any company, including ourselves, would do. Operator: The next question comes from Phu Pham with Roth Capital. Please go ahead. Phu Pham: Hi. Good morning, everyone. My first question is about the cost savings. You executed $72 million in 2025, and the company expects to realize in total $100 million in 2026. The slide shows you have executed greater than 40% of the 2026 target. Is that 40% of the $100 million in total for 2026? Can you quantify that a little bit? Paul Goodfellow: Thanks, Phu. The $100 million for 2026 was a new $100 million starting at zero. We have executed just above 40% of that $100 million. The $72 million was the number in 2025 attributable to activities in 2025. Some of the solutions we put in place are repeatable, and we would expect to see those continue into 2026, but the target we set for 2026 was a new $100 million target and that was built into our plan. Phu Pham: That is very helpful. My second question is about the Genovese well. Can you provide an update? I think originally we expected to bring it back in the third quarter 2026, but now it is midyear. Can you provide more exact timing for the wells? Paul Goodfellow: The team has done a great job of procuring all the equipment that is needed, including the insert safety valve, which is now here in the Gulf with us; working with the operator to make sure we have access to the control system of the well; and accessing a platform in terms of an intervention vessel. We are working toward execution. I cannot be more specific than midyear because there is still uncertainty in terms of when we actually get the vessel and the exact date we can go onto the well, working with the operator. As is the culture of Talos Energy Inc., the team has worked incredibly hard to look at every lever we can pull to get that as early as we can while still executing it efficiently. Our prime driver is to execute efficiently to get that well back online, which at the moment we see slightly ahead of the third quarter target that we gave when we first shared the Genovese update last quarter. Phu Pham: Alright. Thank you. Paul Goodfellow: Thank you. Operator: The next question comes from Noel Augustus Parks with Tuohy Brothers. Please go ahead. Noel Augustus Parks: Hi. Good morning. I was wondering about exploration in the industry. We have heard so much, especially over the last couple quarters, about onshore exhaustion and more capital heading out to deepwater globally. With exploration drilling starting to get rolling more and more, it is nowhere near its past peaks. Is there anything that you see in the Gulf that you think is particularly exciting to the point where you could be enticed to maybe take a non-op role in someone else's exploratory prospect? Is the quality of what is out there something you are excited about or more routine? Paul Goodfellow: The first thing I would say is if we were not excited about the opportunities, we would not have taken the 11 leases that we did in the first big lease sale in December 2025. We have had a strategy of not just looking for exploration, but looking for exploration opportunities that can raise the volume picture that we have. As I have said in the past, in that first lease round we now have access to some 300 million barrels of gross unrisked volume opportunity, and the individual opportunity size has gone up by roughly 50% relative to what we had prior to that. Clearly, we prefer to be an operator. We think we have great skills in operating, but if partnering opportunities are out there, we will look at those if it is the right type of subsurface opportunity that fits our skills. Our continued investment in seismic is another point—if we were not excited by the opportunity set and potential, we would not be investing in high-quality, state-of-the-art, reprocessed proprietary seismic that allows us to develop those opportunities. Clearly, we are happy to be a non-operator with the right operator, as you see with the Monument development that we are doing now. Noel Augustus Parks: Fair enough. A general macro question: when we look at the volatility we have had in oil prices in the last couple months, from your long experience, any thoughts on the 2027 strip and whether there is a big leg up ahead or whether we have seen about as much as it is going to do unless there is a huge swing one way or the other? Paul Goodfellow: The only thing that we focus on at Talos Energy Inc. is making sure that our unit development costs, drilling costs, and lifting costs are as low as they can be and that we do that as safely and efficiently as we can. Regardless of where strip goes, we know that we have a robust set of opportunities that we can execute against. We will not get caught up in trying to have our decision quality driven by what we think a strip price may or may not be. Operator: We have reached the end of the question and answer session. I will now turn the call over to Paul Goodfellow for closing remarks. Please go ahead. Paul Goodfellow: Thank you, and thank you all for joining today and for your continued interest in Talos Energy Inc. To close, the current geopolitical landscape reinforces our belief that the world will continue to need reliable and affordable oil supply to meet rising global demand well into the future. We believe that Talos Energy Inc. is well positioned as a low-cost, high-margin oil producer, executing a well-defined strategy to become a leading pure play offshore E&P company and play a meaningful role in meeting that opportunity. Thank you all. Operator: This concludes today's conference, and you may now disconnect your lines. Thank you all for your participation.
Operator: Welcome to the Philips First Quarter 2026 Results Conference Call on Wednesday, 6 of May 2026. During the call hosted by Mr. Roy Jakobs, CEO; and Ms. Charlotte Hanneman, CFO. [Operator Instructions]. Please note that this call will be recorded, and replay will be available on the Investor Relations website of Royal Philips. I'll now hand the conference over to Mr. Durga Doraisamy, Head of Investor Relations. Please go ahead, ma'am. Durga Doraisamy: Hello, everyone, and welcome to Philips' First Quarter 2026 Results Webcast. I'm here with our CEO, Roy Jakobs, and our CFO, Charlotte Hanneman. Our results press release and presentation are available on our Investor Relations website. The replay and full transcript of this webcast will be available on our website after this call concludes. I want to draw your attention to our safe harbor statement on the screen and in the presentation. I will now hand over to Roy. Roy Jakobs: Thanks, Durga, and good morning, everyone. Thank you for joining us today. I will start with an overview of our Q1 results and our outlook for the balance of the year. Charlotte will take you through the quarter and our guidance in more detail. We started '26 with a clear proof that our strategy is delivering, growth, margin expansion and strong order momentum despite the volatile environment. At the same time, we remain closely connected to our customers and employees. This includes those impacted by the situation in the Middle East. We continue to prioritize their safety, support and continuity of care. Against this current backdrop, we reiterate our full year guidance. Looking at Q1. Order intake grew 6%, reflecting continued momentum. Comparable sales increased 4% with growth across all business segments, led by personal health. We also expanded margins. Adjusted EBITDA margin improved by 40 basis points to 9%, despite higher tariffs. This marks our sixth consecutive quarter of delivering on our commitments, even as we operate in an uncertain and dynamic environment. Disciplined execution and focus on what we can control underpins our progress. We are on track to deliver the full year outlook we set in February, which includes currently known information within an uncertain macro environment. Our strategy remains anchored in three pillars: focused value creation, innovation-driven growth and disciplined execution. Let me take you through the first quarter in that context. Starting with our first pillar, focused value creation. We execute specific strategies by segment. And we invest with discipline, focusing on interventional monitoring to drive growth. We also drive growth geographically with North America as the key engine. You can also see this in our Q1 results. Equipment order intake grew 6% and with solid growth across D&T and Connected Care. North America led the growth, building on strong prior year comparison. Europe also performed strongly across several modalities. Looking at D&T, Order intake increased in the mid-single digits. Growth was driven by sustained momentum in image-guided therapy as our market-leading Azure platform continues to drive strong demand. Precision Diagnosis delivered solid order growth outside China. Globally, MR order intake was solid, with increasing interest in our healing free systems. Last year, 75% of our MR systems shipped were Helium free. For our customers, resilience and MRI is being tested more than ever. Helium supply is tightening geopolitical developments in the Middle East are adding further pressure to that. Costs continue to rise. As a result, health systems are seeking uninterrupted imaging and reliable service in everyday clinical practice. Philips is leading the shift to helium-free imaging with our high-performance BlueSeal technology, we are setting the new industry standard in MRI resilience, enabling uninterrupted operations and reducing dependence on scarce helium. We have installed more than 2,200 systems globally, saving over 6 million liters of helium. Building on this, we also unveiled the industry's first helium-free 3.0T MR systems. We expect regulatory clearance in 2027, positioning us to transition to a fully helium-free MR portfolio and extend our lead over competitors. In CT, we are seeing a strong funnel for our spectral technology. In the quarter, Verida, the industry's first AI-enabled detector-based spectral CT gained traction following its launch at RSNA last December, with initial orders secured in Europe. The first system installed in Q1 is already delivering results. At Nuestra Senora de Rosario University Hospital in Madrid, it is demonstrating seamless workflow integration and clinically relevant insights and importantly, without added operational complexity. Turning to Connected Care. Order intake grew in high single digits, mainly driven by monitoring and supported by enterprise Informatics. Demand was broad-based across all regions with particular strength in North America and Europe building on a strong prior year comparison. We continue to expand enterprise partnerships with large integrated delivery networks. These customers are investing in enterprise patient intelligence medical device integration and cybersecurity. They are increasingly adopting our enterprise monitoring as a service model to improve clinical, operational and economic outcomes. This reinforces our position as a partner of choice for enterprise-wide data-driven care delivery. Moving to Personal Health. This segment delivered another quarter of broad-based growth, driven by strong consumer sellout and continued market share gains. We drove this through active expansion and diversification of our channel footprint, adding more than 3,000 distribution points in Europe. At the same time, we strengthened our presence with key global retail partners through increased listings and expand placement. This included IPL expansion broader distribution of interdental products and more than doubling on bay distribution in the U.S. Our second pillar, innovation, is another key driver of both momentum and growth. Across modalities and products, we are accelerating innovation towards scalable AI-enabled hardware and software platforms. And that is already translating into stronger regulatory momentum for approvals of new product introductions. In Q1, we received 20 510(k) clearances and premarket approvals, more than doubling year-on-year. In MRI, we received FDA 510(k) clearance for SmartHeart our AI-powered cardiac MR solution. Just like SmartSpeed is a clinical application that extends software and AI-led innovation across the installed base. SmartHeart automates complex planning workflows in 1 click and does that under 30 seconds, simplifying operations and boosting productivity. It also reduces patient breaths by up to 75%, improving patient experience in a big way. NCP, we received FDA 510(k) clearance for both spectral CT Verida and our Rembra Wide-bore CT. Launched at the 2026 European Congress of Radiology this platform features an industry-leading 85-centimeter bore. It is designed for high throughput environment with an AI-enabled workflow and improve diagnostic confidence. In Image Guided Therapy, we received clearance for DeviceGuide, an AI-driven solution, fully integrated with our Azurion platform. It enables real-time automated detection and visualization of mitral valve repair devices during minimally invasive procedures. We also launched IntraSight plus ,integrating intravascular imaging and physiology into a single system to simplify workflows and improve efficiency in the cath lab. Looking beyond product innovations to our future transformative interventional platform introduced at our CMD in February. We made progress in advancing clinical validation. Building on our ecosystem of more than 100 clinical partnerships, we added a share of our Research Consortium in Q1. Seven clinical studies are now underway to demonstrate the benefits of AI and robotics assisted workflows and minimally invasive treatments for brain aneurysms and liver tumors. In Personal Health, AI is embedded in our propositions. For example, the Philips High-end Shaver 9000 Prestige Ultra. It uses intelligent sensing and AI-driven adaptation to respond to each user skin and hair type. Delivering a more personalized shave every time. This innovative proposition not only won the TIME's invention of the year for the groundbreaking features, with also significantly increased sales and margin demonstrating our leadership in this domain. Since creating the hybrid shaving category, we have sold more than 50 million OneBlade handles and 100 million blades. This growing installed base supports profitable recurring revenue from consumables with strong replacement blade performance in the quarter. In Oral Healthcare, we infused new Philips Sonicare 5700 to 7300 series models in the U.S., featuring next-generation Sonicare technology. In China, we launched Sonicare 7000 at the South China Dental Show, reinforcing our position as a professional or care leader and strengthening momentum with the dental community. Across Philips innovation continues at scale throughout our portfolio. We remain the largest medtech applicant as the European Patent Office in 2025, a strong proof point of the depth of our innovation engine. And this is not just about today. This leadership is fueling the next generation of innovations coming through our pipeline and positioning us well to drive accelerated growth. In our third pillar, disciplined execution, it all starts with patient safety and quality, our top priority. It ensures we bring innovation to market with the high standards of patient safety and well-being. We're making strong and steady progress building on the improvements delivered over the past 3 years. And importantly, we are now benefiting from the work we have done to make Philips simpler, leaner and more agile, strengthening the foundation of our execution. Field actions were reduced by about 20% year-to-date. This is on top of a reduction of around 40% in 2025, reflecting increased discipline and process effectiveness. Importantly, these improvements in our quality processes are also enabling the innovation momentum I highlighted earlier. We also maintained close and constructive engagement with global regulatory authorities including ongoing leadership level dialogues with FDA and other regulatory bodies worldwide. This underscores our commitment to quality, compliance and continuous improvement in serving our customers. It carries through to our supply chain, a critical enabler of execution. Over the past 3 years, we have simplified, regionalized and localized our operations to be closer to our customers. Our focus is clear: deliver on consistently superior customer experience through a high-performing supply chain, day in, day out. During the quarter, developments in the Middle East increased volatility across logistics and input costs, including materials and components. Through active management of our logistics network, we maintained stable supply chain operations while stepping up cost mitigation activities, which Charlotte will further discuss. Importantly, customer service levels remain strong and in line with previous quarter and we remain vigilant in managing ongoing developments in supply and cost. And as we look ahead, we will continue to deepen the simplicity, agility and resilience as these are critical capabilities for navigating the increasingly turbulent environment. Turning to commercial and service excellence. In Connected Care, we saw further traction in our enterprise monitoring as a service. As health systems adopt enterprise monitoring, demand for enterprise informatics solutions is also increasing. These solutions now represent a growing share of both our order book and sales across various periods. In the quarter, we saw strong demand for capsule device integration and clinical surveillance across care settings driven by effective cross-selling across our enterprise informatics and monitoring platforms. In Diagnostic Imaging, we expanded our partnership with AdventHealth through a 5-year enterprise service agreement. It enables our full service model across modalities, while supporting a long-term imaging infrastructure focused on quality and performance. Turning to the regions. Fundamentals remain supportive across our markets, particularly in North America where demand remains strong and the landscape continues to segment. We continue to see stable activity levels across hospital systems with no signs of disruption among larger systems. Cost pressures and workforce shortages persist, driving further consolidation among larger health systems. Demand for secure productivity and cybersecure enhancing platforms is increasing. This reinforces our expectation that North America will remain a key growth engine in 2026 and over the medium term. In Europe, capital spending remained broadly stable with an improvement in some markets during the quarter. Demand conditions remain stable, supporting our execution in the region. Select international regions continue to increase investments in health care and digitalization as reflected with strong wins in India and Brazil. In China, centralized procurement continued to increase in Q1. particularly in modalities such as ultrasound and CT, which have shorter lead times. This is driving longer decision cycles and a more price-focused environment. As a result, we are seeing lower order conversion consistent with recent trends. These dynamics continued in the quarter, contributing to ongoing pressure on equipment demand. At the same time, underlying health care demand remains intact, particularly in procedure-driven segments. We remain focused on maintaining competitiveness, selectively driving our portfolio and executing with discipline in this more price-sensitive environment. In Personal Health, consumer demand remains healthy in North America, and momentum continues across several markets globally, even as geopolitical developments create uncertainty. We are managing these dynamics with agility while maintaining a strong focus on execution. Charlotte will now discuss our first quarter performance in more detail and our outlook for 2026. Charlotte Hanneman: Thank you, Roy. I will start with segment level performance. In Diagnosis & Treatment, comparable sales increased by 2%. Image Guided Therapy delivered high single-digit growth, continuing its multiyear momentum and building on a strong prior year comparison. Performance was broad-based across all regions with particular strength in North America, led by the premium configurations of our Azurion platform, higher service revenues and coronary intravascular ultrasound. We are reinforcing this momentum by leveraging AI to automate product testing, reduce release cycle times by 25% and accelerating time to market for new innovations. Precision Diagnosis sales declined in the low single digits in Q1, as expected, mainly due to order book rebuilding and the segment's higher exposure to China. Innovations, including EPIQ CV, point-of-care ultrasound, BlueSeal MR and CT 5300 continued to drive growth with solid uptake in markets such as Western Europe and Latin America, reflecting their scalability. Adjusted EBITDA margin rose 30 basis points year-on-year to 9.8%, driven by sales growth, underlying gross margin from recently launched innovations productivity measures and favorable mix effect. These favorable impacts were partially offset by higher tariffs, cost inflation and currency effects. Now moving to Connected Care. Comparable sales increased by 3%. Monitoring delivered mid-single-digit growth with particular strength in North America and Europe. Growth was driven by higher installations of IntelliVue patient monitors and continued traction in enterprise monitoring as a service. Sleep & Respiratory Care grew in the low single digits with the obstructive sleep apnea portfolio, delivering strong double-digit growth outside the U.S. led by particular strength in Japan, our second largest market. Enterprise Informatics sales declined slightly, reflecting inherent quarterly unevenness and lower implementation and deployment cycles. Adjusted EBITDA margin declined by 60 basis points to 2.9% as sales growth and productivity measures were more than offset by higher tariffs, cost inflation, lower cost absorption and currency effect. In Personal Health, comparable sales increased by 9% in Q1 with all 3 business contributing. Growth was broad-based, led by double-digit growth in North America and a strong contribution from international regions. China contributed modestly, benefiting from an easier comparison base. Sellout remains strong globally with channel inventory maintained at appropriate levels. This momentum was supported by strong demand for recently launched innovations, including the high-end i9000 shaver with AI-powered SenseIQ technology and the Sonicare 5000 to 7000 series. Adjusted EBITDA margin expanded by 60 basis points to 15.8% as growth and productivity measures more than offset the higher tariffs, cost inflation and currency effect. Advertising and promotion spend increased year-on-year, consistent with our commitment to continue investing in the business to drive consumer recruitment and sustain long-term demand for our recently launched innovations. We are also leveraging AI to strengthen consumer engagement, embedding it across 94% of digital assets and generating over 27.8 billion searchable data points, 100x increase. This enables more personalized consumer interactions, improves content reuse efficiency and enhances our ability to drive future sales through more targeted and effective marketing. Finally, sales in segment Other of EUR 177 million increased by EUR 37 million compared with the first quarter of 2025, mainly reflecting activities related to a divestment. These activities are excluded from comparable sales growth and contribute only an insignificant amount to adjusted EBITDA. Adjusted EBITDA for the segment increased by EUR 7 million to EUR 11 million, mainly driven by lower costs. Now turning to group results. Comparable sales increased by 3.7% in the first quarter with growth across all segments and regions, led by North America and Western Europe. Adjusted EBITDA margin increased by 40 basis points year-on-year to 9%. Margin expansion was driven by sales growth, favorable mix effects and productivity measures, partially offset by higher tariffs and cost inflation. Product productivity delivery in 2026 is off to a solid start with Q1 delivery of EUR 126 million, on track to deliver our EUR 1.5 billion 3-year savings commitment. Execution is progressing at pace, underpinned by plans already in place. Actions in Q1 were led by operating model simplification, including streamlining central functions and reducing organizational layers as well as procurement initiatives such as SKU rationalization and supplier consolidation. We are also seeing early contributions from footprint optimization and AI-enabled efficiencies. Service productivity was another contributor, including through more remote troubleshooting and fewer on-site visits with benefits most visible in ITT and across Europe. In parallel, we continue to execute tariff mitigation actions. Overall, we remain on track with good visibility to deliver our 2026 productivity objectives. Against the backdrop of rising input cost inflation, we are accelerating mitigation actions, further sharpening our focus on productivity, cost discipline and structural efficiencies. Adjusting items came in at EUR 61 million, less than half of last year's EUR 143 million. This significant improvement reflects our continued focus on structurally reducing adjusting items. A one-off gain in Diagnosis & Treatment from the reversal of an acquisition-related provision and cost phasing also contributed to the year-over-year reduction. Income tax expense increased by EUR 17 million in the quarter, primarily due to higher income before tax. Financial income and expenses were EUR 47 million, broadly in line with the prior year. And net income rose to EUR 146 million, primarily due to higher earnings. Adjusted diluted earnings per share from continuing operations were EUR 0.23 in the quarter. compared with EUR 0.25 last year, primarily reflecting the adverse currency effect on nominal earnings and a higher diluted share count. Free cash flow in Q1 was an inflow of EUR 28 million. Excluding the impact of the prior year U.S. Respironics settlement payout, free cash flow improved by EUR 94 million year-on-year. This improvement was driven by higher earnings, improved working capital and lower adjusted items. Moving to the balance sheet. We ended the first quarter with EUR 2.6 billion in cash after a $265 million payment for the SpectraWAVE acquisition announced late last year. This acquisition reflects the disciplined, value-focused M&A strategy we outlined at our CMD, including a disproportionate resource allocation to our interventional platform to reinforce our coronary leadership. Integration is progressing well with the core foundations in place and commercial momentum building as planned, positioning the business to scale and capture growth in coronary interventions. Net debt was EUR 5.5 billion at the end of Q1. The leverage ratio improved to 1.8x on a net debt to adjusted EBITDA basis from 2.2x in Q1 2025, driven by higher earnings and reflecting our disciplined capital allocation. Now turning to our outlook. Amidst continued macro uncertainty, we remain focused on disciplined execution of our plan. Based on the current status, developments in the Middle East are expected to impact sales in the remainder of 2026, though not materially at the group level. At the same time, supply chain and logistic constraints are expected to drive cost inflation. Against this backdrop and based on our Q1 performance, our outlook for the full year remains unchanged. We expect comparable sales growth of 3% to 4.5%, with growth in each quarter within this range led by North America and the international region. We continue to expect comparable sales in China to be stable this year with growth in Personal Health, offsetting a slight decline in health systems against the backdrop of subdued near-term market conditions. Across segments for the full year, we continue to expect growth within this range with Connected Care and Personal Health at the upper end and diagnosis and treatment at the lower end. We are encouraged by the better-than-expected adjusted EBITDA margin performance in Q1, driven by innovation, productivity and cost discipline with some benefit from lower-than-anticipated tariff impact. Consistent with last year's approach, our full year 2026 outlook includes currently known tariffs, which are marginally more favorable than assumed in our February outlook. However, uncertainty remains. Also, while we are pursuing tariff refunds related to the International Emergency Economic Powers Act, our 2026 outlook does not include any potential benefits from these refunds. We are also seeing input cost headwinds, including freight, electronic components and plastics as well as other inputs affected by higher energy costs. We are actively mitigating these pressures. Over the course of the year, we expect to offset these pressures through supply chain optimization, productivity and selective pricing actions. At the same time, we continue to closely monitor cost developments across our supply chain. For the balance of 2026, we expect some near-term pressure on margins consistent with our plan, reflecting the annualized impact of tariffs, higher inflation and foreign exchange. As a reminder, last year, the higher tariffs did not impact our adjusted EBITDA meaningfully until Q3 due to the natural lag between inventory and a flow-through to the P&L. Accordingly, we reiterate our full year adjusted EBITDA margin guidance range of between 12.5% and 13%. Our full year free cash flow outlook also remains unchanged at between EUR 1.3 billion and EUR 1.5 billion. As previously indicated, our outlook excludes the ongoing Philips Respironics-related proceedings including the Department of Justice investigation. With that, I would like to hand it back to Roy for his closing remarks. Roy Jakobs: Thanks, Charlotte. To close. We delivered a solid start to the year and order intake momentum continues. In April, we signed a long-term strategic partnership with WellSpan Health in the U.S. It expands our role as the preferred provider across all imaging modalities and advances a system-wide approach to imaging and diagnostic technologies. Importantly, this partnership is also a strong validation of our innovation and platform strategy, bringing together our capabilities to deliver integrated long-term value for customers. It underscores strong customer trust and our value proposition and long-term partnerships. These relationships matter even more in the current operating environment. Our strategy is clear, and we remain focused on advancing our strategic priorities, driving innovation and strengthening our differentiation and competitiveness. At the same time, we are executing with discipline, staying focused on what we can control and closely monitor the evolving macro environment. Against this backdrop, we reiterate our full year outlook, which includes currently known information, but an uncertain macro environment. Thank you, and we will now open the line for questions. Operator: We will now open the line for questions. [Operator Instructions]. Your first question comes from Hassan Al-Wakeel of Barclays. Hassan Al-Wakeel: Roy, Charlotte, a couple, please. Firstly, if you could please talk to the building blocks of the mid-single-digit order growth in D&T for the quarter. the sustainability of U.S. market strength based on your customer conversations? as well as the softness in China precision diagnosis given centralized procurement and how your share is progressing here across the different modalities and related to this, I wonder if your thinking has evolved for China order and revenue stability this year across D&T. And then secondly, Charlotte, another strong quarter on margins, and you've been consistently talking about gross margin benefits from innovations. It'd be great if you could help break up the quarter's EBITA performance across productivity, mix and innovation and how sustainable you think each of these are. And also what you're seeing from cost inflation, specifically around freight and memory chips and what's assumed in guidance? Roy Jakobs: Let me go to the first one. The mid-single-digit D&T growth. So if you look to the buildup of that, actually, that is a continued very strong order intake in IGT which actually is trending at high single digits and above. So very, very strong and that, of course, over multiple quarters. Then you see that we also had mid-single-digit PD order intake outside of China. But then, of course, China is affecting the PD order book as well. But we see a very strong overall mix, and we see increased demand, and particularly also for MR. We called out, of course, the helium-free, but also we have seen just a broad-based interest in the MR solution really growing also as a modality in itself. And that also gives us confidence for the further conversion in due course of the year into the latter part of the year from a sales perspective. Then U.S. is a strong contributor to that, has remained very strong. And actually, also from our customer dialogues, see that strength continuing. Actually, we see a very healthy market where patient volume is strong, the procedures are growing. But as we also said before, it's not evenly spread across all health systems. So the bigger systems are winning more. And that's also we are well positioned with our platform-based solutions. So that's actually where we see that we kind of are continuing to close these long-term partnerships. You also saw that in the quarter with Advent, with WellSpan so we had more. So that's really working out, and we see that U.S. actually will continue to be a strong contributor for us. Then Europe actually was also strong. So I think I want to call that out that Europe was doing well and is picking up, but then China at the other hand, is showing continued cautious development. Q1 was in line with our performance expectations. So it's not that it's unexpected that it's not performing that strongly. We do see differentiated performance by modality. So IGT and MR are solid. CT and ultrasound are the most exposed to centralized procurement and therefore, they have the biggest impact. And then on the consumer side, you saw that actually PH grew but was on easier comps but we do see some sales sellout momentum in PH. And that's also what we expect for the rest of the year, and essence of similar trend of subdued kind of medtech portfolio that PH contributing and therefore, actually, the full year China sales are expected to be stable, and that's also as we have planned it. So in that sense, kind of this is tracking alongside what we plan for, where the biggest growth has to come from North America, Europe and international region. China is contributing as the market gives the opportunity. So we are not relying on the China recovery in the rest of the year. We are actually counting on strong momentum in North America and Europe, in particular, to do that. And in that perspective, actually, we see that where we have been focusing our strategy, it's really coming also to fruition because North America, IGT, extreme Stronghold. Monitoring is doing really well as well there. We see the other momentum going up. So I think we're well positioned to execute our plan as we have built it for the year on the growth side. And maybe that's a nice bridge to Charlotte to then also talk to the margins. As, of course, we have revolving developments there. Charlotte Hanneman: Thank you very much, Roy. And hello, Hassan. So indeed, as you said, we were pleased with how the margin has developed with a 40 bps expansion in Q1 despite the impact of tariffs. So if I break that down for you in a little bit more detail. Yes, we saw a positive impact coming from volume, from the business mix. But indeed, as you mentioned, also from higher gross margin from innovations. So CT 5300, I called it out before, is helping us from a gross margin perspective. We also see point-of-care ultrasound, which we recently launched also at a higher gross margin, also helped lift our margin. And then we see the continued momentum also from our MR BlueSeal at a higher margin as well. So that is certainly helping us. Of course, we continue to do our productivity work. We are pleased with our EUR 126 million of productivity in Q1. You've seen it last year. We finalized our EUR 2.5 billion program last year. It's a real strong muscle we have built and that we are now expanding spending on, which is really creating self-help in what is a turbulent situation. So with this productivity, we're nicely on track there. Of course, offsetting that is tariff and also a little bit of input cost inflation. One thing that's good to mention is that the tariff impact was a little bit lower than anticipated initially, also after, of course, the Supreme Board struck some of the tariffs. So if I then look forward, Hassan, based on your question, what does that mean for the outlook. So a few different components here. Of course, we started well in Q1 which is helping us we are seeing inflation and to your point, also in freight, in components and in plastics. But offsetting that is us really leaning in to mitigating that with supercharging AI, further reducing our bill of material cost and also doing selective pricing. And then the other component is also tariffs being a very modest tailwind for us versus our expectations as well for 2026. Operator: Your next question comes from Richard Felton of Goldman Sachs. Richard Felton: Two questions for me, please. First one is on China. You called out central procurement for ultrasound and CT. How much exposure does Philips have to those modalities in China now? And what level of price adjustments are you seeing perhaps linked to that, how much of the low single-digit decline that you called out in precision diagnostics was due to China? That's the first one. Second question is sort of slightly sort of longer-term question, I suppose, on the sleep business. ex U.S. in kind of broad terms, how has performance been as Philips has returned to the market OUS in terms of growth market share? Could you also perhaps talk a little bit about your innovation strategy in sleep? Roy Jakobs: Yes. Thank you, Richard. So on China, we have seen indeed that kind of the centralized procurement is being applied mostly on ultrasound and CT. That is because the specifications are being seen as more generic and therefore, they put them under the centralized procurement to a bigger extent. We have seen that, that also has significant margin implications in terms of the pricing pressure that you see in those segments. So volumes are actually holding, but you see that the value is decreasing, and that is putting the downward pressure. Actually, in our IGT and MR business, we see that they are for biggest majority outside of centralized procurement because they are so specific and also don't have the alternatives that they don't put them into the centralized procurement. So that's something in the centralized procurement approach in China that we see currently as they expand that across the country. In terms of the devices, kind of, you see that it's a very small part of it. So actually, there's not a big hit. But the biggest hit is indeed in PD with the ultrasound and CT on. So that's kind of also, therefore, hitting the performance in the first quarter, and we can expect that also to pressure the rest of the year, which means that actually the dialing up in the other parts of the world will be really crucial. And as you know, that's also working. Now if you look to the BI China part, as we said earlier, kind of, that is around 15% of global. And in the mix, you see that kind of MR is 50% of that. So that's better protected. The bigger pressure is indeed on the CT and the ultrasound part. And then you have IGT percentage in China is slightly bigger than the 15%, but it has, of course, a strong contribution also from the other parts, and it's better protected from centralized procurement. So that's a bit of what I can say about the mix. And maybe lastly, it also really calls that we have the right strategy chosen for China because we said we want to compete in segments that we find we can differentiate. And still where we find we can differentiate is the MR BlueSeal for sure, and we see also that actually they are kept that out of the CT for biggest part. It's our IGT franchise, which is really differentiating. There's no kind of alternative in the market. We see ultrasound cardiac actually also being better performing. But of course, that's a smaller part of the cardiac -- of the ultrasound market in China. That's why you see that in the other ultrasound parts, there's bigger pressure. Then n sleep, I think if you look at sleep outside of U.S., we see strong double-digit growth that's led by Japan, but also it's coming from the markets where we are coming back. That's offset by the ongoing respiratory pruning effect. So that's kind of where you see the mix effect coming in. where the comparison is normalizing towards end of the year. So that also should improve towards the end of the year. And from an innovation perspective, actually, we have seen good resonance also driving that double-digit growth by the new masks portfolio that we have been introducing together with the device, the software updates we are dialing in. And that actually the ecosystem is still very strong. Actually, people are still waiting also in certain markets really for us to get back and to get back on our platform because they really appreciate the patient interface that we have built. And that's given us also a strong way back into the market. Maybe the other part on SoC, of course, we are working strongly on the mitigation of the regulatory part. So that's something that we're also making good progress on. We said kind of we cannot comment on what it will exactly mean, but we are still hitting every single mark in terms of milestone with the FDA and that's actually forging ahead also as planned. Operator: Your next question comes from David Adlington of JPMorgan. David Adlington: So maybe on cost, I think you may have addressed some of this. But obviously, GE, called out cost inflation, most notably on memory chips. I just wondered if you could sort of help give some further color there and maybe quantify the exposure? And then secondly, obviously, another great quarter for Personal Health care in terms of growth. I'm not sure if you quantify the contribution of price or not, that will be useful. And as we get into the second half and more difficult comps, how you're thinking about the growth profile in PH. Charlotte Hanneman: David, let me take the first one. So from a cost inflation perspective, and maybe a few things. So as I said earlier, we do see cost inflation impacts. We do see that, and we've taken that into account in our guidance. And we -- the expectation we have is that the elevated levels that we see today in freight, electronic components, plastic, we will see that come through for the remainder of the year. But at the same time, we've included mitigation actions that we are taking, including, for instance, reducing our bill of material cost even further, going hard after AI-enabled savings and also selectively increasing our prices. And we have a lot of confidence based on the muscle we've been building over the past few years and also what we're seeing again transpire in Q1 from a productivity perspective. On top of that, some of the tariff tailwinds that we're seeing after February are also helping us. So there is a little bit on that. And then your second question on Personal Health and the effect of pricing. So we had another stellar quarter in Personal Health in Q1 with particularly North America doing very well with double-digit growth in North America. Of course, we were a bit helped by China, but only relatively little. Pricing from a pricing perspective, it is relatively flat. We saw a slightly positive pricing, which is probably mostly attributable to the innovations that we've been seeing like the 9000 shaver, like the new Sonicare range that we've introduced. So that has helped pricing a little bit. If I look to the remainder of the year or the full year, I should say, so we have reiterated our guidance from 3% to 4.5%. And we've also said that PH will be at the higher end of the guidance, and we're reiterating that today because, as you said, the comps are getting a little bit more difficult as we get through the remainder of the year. At the same time, we see very good momentum in Personal Health as well. Roy Jakobs: And maybe one addition. What is also helping it, David, is, we have been re-expanding our retail distribution. So actually, we have been getting listings and placements in the web shelf and particularly of big retailers. And that actually we gives us additional sustainable growth opportunity for the quarters to come. So it's the combination of really great innovation, but also now having a better access event the consumers that actually gives us confidence that this is a sustained growth path and that we are in line with the guidance that Charlotte just provided. Operator: Your next question comes from Veronika Dubajova of Citi. Veronika Dubajova: I will keep it to two, please. One is kind of big pick your question on patient monitoring. Obviously, one of your sort of competitors suppliers of changing ownership. I'm just curious on how you're thinking about what impact that might have on your business and whether this is strategically positive and negative and net neutral is this an asset that would have made sense in the context of Philips, if you can kind of share your thoughts on that, that would be super, super helpful. And then my second question, is just circling back to some of the inflation commentary. Maybe Charlotte, can you give us a flavor for why you think you are in a better position to mitigate some of the headwinds than GE Healthcare. Would just love to understand what you think you have in your back pocket that's obviously enabling you to maintain your margin. And if you very briefly could comment on your Q2 margin expectations, that might also be helpful. Roy Jakobs: Yes. Thank you, Veronika. Let me take the first one. So on the patient monitoring. So you saw that actually the strong momentum continues, strong order intake. Actually, we are playing a platform play there that actually really resonates well with our customers. And as part of that, actually, we have strong partnerships. Masimo is part of that. We don't think that actually there will be any change. That's also not what kind of has been signaled because we have the biggest access to customers globally in terms of monitoring base. So there's a real intrinsic interest to actually connect with us to the customer. And there's also mutually interest from us to actually be providing in a vendor-neutral way consumable solutions that are out there in the market. And that has been benefiting the partnership with Masimo in past years, and we believe that will be also going forward. So we see it as at least net neutral. And I think we are excited to work also with any new owner there to kind of grow the franchise and make it work for our customers. And to differentiate also first competition because this is one of the strongholds the combination that we have a very strong cybersecure platform with the broadest data reach with the medical device integration and the consumables actually makes it very appealing in a very complex environment for our customers to do business with us, and that has been driving all these long-term partnerships and also the share gains in monitoring along the way. Charlotte Hanneman: Yes. Thank you, Roy. Let me take your second question, Veronika on inflation. And if I think about where we are in the year, let's first start with, in Q1, we had a very solid Q1 with margin expansion ahead of our expectations. So that gives us confidence that, again, we are able to not only compensate some of the headwinds we're seeing, but even expanding our margins despite that. Then, of course, we're seeing cost inflation. We're seeing it in freight, and we see it in electronic components and in plastics, but we have already started taking mitigation actions. Those will -- we started building them. Those are a little bit back-end loaded, and they will start coming in the second half of the year. And to take you through what we're doing. First of all, we're doubling down on bill of material productivity. We've always said there's more to go after, and we're now doing that with increased feed. We're going after our AI-enabled efficiencies, where we've seen some early progress already in Q1, and we continue to see that as well. And then as well, we're doing selective pricing as well. So the other element is really the tariff tailwind that we're seeing a little bit that we -- we're seeing also in Q1, and we'll see that versus our expectations being a little bit better going forward. Now you also know that we've been a little bit prudent in the way we've put our full year guidance out as well. So that, of course, has given us a little bit of buffer as well. So now to your question on Q2 specifically and Q2. So if we think about Q2, a couple of things that I think are important to realize, of course, Q2 is the last quarter where we still didn't have the full impact of our tariffs in 2025. So -- and you know, we've spoken about it a lot of times the way the tariff impact flows into our P&L, which first goes into inventory, and then it flows into our P&L. So we have, again, a tough comparable from a tariff perspective. And then also, we see the cost inflation, of course, starting to hit us. We have already taken the mitigation actions, but it will take a little bit of time before that starts positively impacting our P&L. So we, therefore, expect our mitigation impact to be a little bit more back-end loaded. Operator: Your next question comes from Julien Dormois of Jefferies. Julien Dormois: The first one relates to the mitigation initiatives that you are taking, and you mentioned selective pricing initiatives. So could you just walk us through what are the segments where you have the more leeway and at what speed we could see those pricing initiatives contribute to margin? And the second question is more specific on Enterprise Informatics. You indicated that sales were down low single digits in Q1, and you mentioned the usual unevenness in revenue generation. But if you could shed more light on why that happened specifically and then what we should expect for the remainder of the year and maybe also in the midterm, that would be helpful. Charlotte Hanneman: Julien, let me take your first question on pricing. So yes, we've called out also last year, you might remember, selective pricing as well, and we've already put some of that in place last year. We, of course, focus there where we have leading positions, and that's where we increased our prices. So I'll give you a few examples. We're increasing our prices in Image Guided Therapy. We're doing that in hospital patient monitoring. We're doing that in some of our service contracts. We're doing that in some of our time and materials. So we have a very granular plan in place to increase prices where we can. As you rightfully mentioned, some of that will flow through in 2026 and some of that will take a little bit longer as it needs some time to flow through the order book and will then benefit us in 2027. But I think it's fair to say that we've learned from COVID. And also there, we've been able to build up a much stronger muscle when it comes to price increases and price discipline, which is now helping us implementing that with a little bit more speed. Roy Jakobs: Let me then go to EI. So in EI, we see a couple of trends as we also alluded to when we had the Capital Markets Day. One is actually, we see continued order uptake. We saw that picking up strongly in the second half of last year. We also saw it again in the first quarter, and we have a very good funnel. So we see that there's healthy demand that's also on the back of the cloud migration and the cloud offering that we have, but also the integrated diagnostics trend that we see coming out in the market is really generating increased interest. If you then look at the sales trend, this is indeed more patchy. Sales drills orders quite a bit in EI. Furthermore, you see that if customers migrate in or out, those give quite big hiccups because actually that's the lumpiness that's kind of inherent to that business. The other part is that you also see that the orders that we are taking now more and more also go into a SaaS model, where you see that kind of the revenue flows in over a longer period of time. And that actually gives you more recurring attractive revenue stream for the longer run, but of course, it gives a bit of a hiccup in these quarters. So we see positive interest. We see the integrated diagnostics story really picking up with customers and of course, fueled by AI and the data play, and we are really working how we can tap into that. And we see the funnel growing also supported with what we're doing with Amazon. And then lastly, you also saw that kind of on the monitoring side, the Capsule and HPM combination is already working. So you see also this kind of combination play really driving impact. So we are kind of positive on that notion as well that, that will come through in due course of the year. Operator: Your next question comes from Hugo Solvet of BNP Paribas. Hugo Solvet: I have 2, please, quick ones on margins. First, short term. Charlotte, on the Q2 margin, could you maybe just clarify your earlier comments? Is there a scenario where margin in Q2 be within the full year guidance range? And second, a bit more long term, when we think about the full year 2028 targets, you have around 600 to 700 bps of buffer for wage input cost, tariff macro and so on. What's the level of confidence that this buffer can accommodate for higher input costs given where they are at the moment? Charlotte Hanneman: Yes. Thank you very much, Hugo. So let me start with your first question on Q2 margin. So based on what I just said, first of all, the incremental tariffs weren't in effect in Q2 2025. as well as the cost inflation that we're seeing with the mitigation timing being back-end loaded, I expect the Q2 margins to be lower year-on-year in Q2. I also feel very confident that in the back end of the year, we will be able to get those mitigation factors in because we have very, very strong plans in place and very granular plans in place to start offsetting that. But Q2 in that sense will be a little bit of a lower quarter from a margin perspective. Now to your second question on the longer-term margin outlook, as we said in February, we -- of course, as we stood there in February, we knew that the world was a turbulent place. We didn't quite know how turbulent it would get, but we absolutely did take into account that there would be something that we would be seeing. So as a result, and we were also very transparent about the buffer that we took at that point in time, especially given the ability we have to also step up from a mitigation perspective, I don't -- I feel equally confident as I was in February that we'll be able to get to the mid-teens adjusted EBITDA margin by the end of 2028 based on what we know today. Hugo Solvet: Thank you very much and congrats on EBIT. Operator: And your next question comes from Aisyah Noor of Morgan Stanley. Aisyah Noor: My question is just on D&T and your competitive outlook in Europe following the launch of an ultrasound by United Imaging in this space. And as well on the recent launch of Verida for you, just how that's progressing and how we should be thinking about the sales contribution for 2026? Roy Jakobs: Yes. Thank you, Aisyah. And I already called out Europe actually picking up and performing well in Q1. And that's also in particularly for D&T, where we see actually that -- and then within D&T also PD actually is doing really well in Europe. So we see a few trends. One, MR already was picking up strong. So we see that continued. And also if you look to the BlueSeal penetration now, actually, that's really kind of going well, and we see a good funnel. on the MR side. Then also with the new Verida launch, actually, we see very strong interest in Spectral and how that now with a better workflow is really helping to support high-volume throughput at high-quality imaging. We've secured the first order already. We have an installation ongoing. So actually, very good reference as well, very strong clinical support. So actually, we have a kind of good expectation that Verida will be doing really well in Europe, and we see the first proof points of that coming through. Then lastly, ultrasound. Ultrasound actually is also doing well. Indeed, we had some competitors as well in this space, but actually ultrasound in Europe has been already starting last year, picking up very strongly after we kind of came out with our latest EPIQ launch and also the Flash. We have good order momentum of ultrasound in Europe, strong positioning. So actually, we are quite excited about the momentum in Europe, how that is increasing and especially also how our AI-based, but also, I would say, high productivity and performance solutions really hit the mark in a market that needs to be also kind of conscious of the spend in the environment that we are in, but that seems to work well. Operator: Due to the time, the last question today comes from Graham Doyle of UBS. Graham Doyle: Just 2, please. Just the first one, just on inflation again. Just to get some context on this. Obviously, you guided in Feb, and there's been obviously volatility. But is there any -- how meaningful is the incremental headwind? So is it something that was comfortably within your buffer? Or are you doing other things to sort of mitigate? And then, Roy, just on China, you mentioned a few times at the CMD and then today about kind of playing to win in certain segments. Is there any way within reason that you kind of identified to us the areas where you understand that perhaps you can't win and therefore, you've built it into your guidance that you kind of know that there's areas where you're probably deprioritizing. Is that possible to maybe contextualize that for us? Charlotte Hanneman: Graham, thanks. Let me take your first question on the inflation. So indeed, yes, we guided in February only 3 months ago, although a lot has happened. So as I said before, we are seeing an incremental headwind in plastics, in also freight. It's good to know as well that energy, we have hedged for 2026. So we will not see any impact from higher energy -- direct highly energy prices. There are a few components here, right? It's -- first of all, we did already better in Q1 than we thought. So we are a little bit ahead of where we thought we would be, which is giving us confidence. The second component is we are -- after the Supreme Court struck some of the tariffs in February, we're seeing some tailwinds as a result of that, that we are that we are taking into account as well, which is offsetting some of the inflation. And then the third component is we have launched already additional mitigation activities, including bill of material price reductions, including also optimize the way we look at freight and where we use air freight versus boat in order to also optimize the spend there and also leaning in even harder in what we know and do very, very well, which is driving further cost discipline. We've also -- we've always said there's more to go after. So we're doing that now with double speed as well. And putting that also in the context of what I said earlier that we have put a prudent guide out, all of that actually comes to a place where we can reiterate our guidance of 12.5% to 13% for the full year. Roy Jakobs: And then on China, indeed, I think the differentiated play is becoming more important. And to give you some examples where we see that actually, we have really the right to play and to win is, I called out MR. Actually, we have one of the biggest installed base of the helium-free already in China. And we just go also the notion that we have a green part support from the regulatory body and PMA to kind of get an accelerated approval for the 3T because they're so excited about the new innovation that this will bring to China. So that's a good example on MR. IGT is also really doing well, and we have a kind of good momentum, and we see that also well in demand in the market. And also sound, I called out there's different dynamics. You see that the cardiovascular, we are still unique, but it's, of course, a smaller segment in totality and you see quite brutal competition on GI. The same with CT spectral, Actually, we have, again, one of the stronger installed bases of CT Spectral in China. But if you look to the more generic CT, that's really very strong competition. So that's kind of where we said that's not our game play. And then we exited DXR because we said that's so commoditized. That's not our game in China. We also exited the value play in China, which is the lowest price segment because that will be very strongly locally favored and also at price points that are not attractive to us. So -- so we made distinct choices. Actually, within those segments, we also see that we are really trending with market or even kind of doing well within the market momentum. But yes, there is just a subdued overall market environment that we have to operate in. But I think we have been making the right choices. We're sticking to that. It's also in line with the plan. And also, as we showed in the results, it's also in line with the results that we have in Q1 and also for the full year expectation. So, in that sense, I think we derisked China in our plan. We're playing there to tap the opportunity that we have. And last but not least, China is not only a demand market, of course, there's also innovation happening in China that we want to stay close to, including AI innovation that's going very rapid. Robotics is developing very rapidly in China. And then, of course, there's also still components and sourcing that we get from China. So that China for us is a wider market than demand only, and that's why we kind of keep a strong footprint there, but in line with demand, we have kind of opted for a more selective go-to-market. Operator: That was the last question. Mr. Jakob, please continue. Roy Jakobs: Yes. Thank you all for attending the call, as you saw, we have a strong start to the year with growth orders and sales and margin expansion despite a very turbulent environment we operate in. We have the confidence reiterated our full year guidance. Of course, a lot of work to be done, but we have the actions in place, the plan in place and the team that is working it. So thank you for your attention again. Have a further great day. Operator: This concludes the Royal Philips First Quarter 2026 Results Conference Call on Wednesday, 6th of May 2026. Thank you for participating. You may now disconnect.
Operator: Good morning. I would like to welcome everyone to Kennametal's Q3 Fiscal 2026 Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded. I would now like to turn the conference over to Michael Pici, Vice President of Investor Relations. Please go ahead. Michael Pici: Thank you, operator. Welcome, everyone, and thank you for joining us to review Kennametal's Third Quarter Fiscal 2026 results. This morning, we issued our earnings press release and posted our presentation slides on our website. We will be referring to that slide deck throughout today's call. I'm Michael Pici, Vice President of Investor Relations. Joining me on the call today are Sanjay Chowbey, President and Chief Executive Officer; and Pat Watson, Vice President and Chief Financial Officer. After Sanjay and Pat's prepared remarks, we will open the line for questions. At this time, I'd like to direct your attention to our forward-looking disclosure statement. Today's discussion contains comments that constitute forward-looking statements and as such, involve a number of assumptions, risks and uncertainties that could cause the company's actual results, performance or achievements to differ materially from those expressed in or implied by such statements. These risk factors and uncertainties are detailed in Kennametal's SEC filings. In addition, we will be discussing non-GAAP financial measures on the call today. Reconciliations to GAAP financial measures that we believe are most directly comparable can be found at the back of the slide deck and on our Form 8-K on our website. And with that, I'll turn the call over to Sanjay. Sanjay Chowbey: Thank you, Mike. Good morning, and thank you for joining us. I will begin with an overview of the quarter, including end market commentary followed by a discussion on unit volume trends. From there, Pat will cover the quarterly financial results and the fiscal year '26 outlook, along with an early look at fiscal '27. Finally, I'll make some summary comments, and then we'll open the line for questions. Turning to Slide 3. Let me begin by addressing some of the highlights from our strong third quarter. Our global commercial teams continued to advance our strategic growth initiatives. The infrastructure team delivered solid growth. In construction, we saw volume growth from strong product performance and the advantage we have as a secure source of tungsten in a tight supply environment. Additionally, we received large orders in our defense business, further securing ongoing growth in this market as we head into fiscal '27. In metal cutting, we continue to increase our share of wallet with key accounts, especially in aerospace and defense and build upon our momentum in energy from AI power generation initiatives. In general engineering, we have been winning new customers through targeted promotional campaigns and improvements to our digital customer experience, especially for our small- to medium-sized customers. As you know, we continue to prioritize above-market growth as a strategic imperative, and these wins position us well in our key end markets. Turning now to the broader tungsten environment. Prices continued their unprecedented increase throughout the quarter, rising from approximately $900 per metric ton to $3,000 as the supply of material continued to be constrained. This tungsten price and supply environment have created both challenges and opportunities. On the challenges front, we have seen a highly competitive market for material, but our supply chain has held up relatively well. We have and will continue to implement pricing actions in response to these rising tungsten costs and remain confident in our ability to secure that price. We are also focused on managing the working capital and balance sheet implications of higher tungsten costs. In terms of opportunities, our vertical integration has been a real strength in this market, providing us better supply chain control and flexibility compared to some competitors. For example, as competitors are turning away orders or extending lead times, we are well positioned to capture business that is aligned with our strategic priorities. During the quarter, we capitalized on these opportunities in each of our business segments, specifically earthworks within infrastructure and aerospace and defense in metal cutting. These new opportunities also facilitate shaping our product portfolio away from lower margin to higher-margin solutions. As such, we are seeing a unique combination of three factors that are opening the door to sales opportunities. First, continued market recovery; second, solid execution on our strategic growth initiatives; and third, a window of opportunity from the current tungsten market, which is likely to persist in the near term. Given those dynamics, we are prioritizing our time and attention on growth opportunities over restructuring initiatives in the near term. And we are shifting the time line for facility closure actions we had previously planned to complete in fiscal '27. We will provide additional detail on the restructuring time line as appropriate. Even with that shift, we are still targeting approximately $110 million in savings from cost takeout actions by the end of fiscal '27, which is $10 million above what we outlined at Investor Day. Now let's move to our quarterly results, which once again exceeded our sales and EPS outlook. Compared to outlook, sales were mostly driven by increased price realization and better-than-expected volume in both segments. EPS benefited from the additional price raw timing of $0.09, positive volume and lower-than-anticipated tax rate. Year-over-year, sales increased 19% organically. Please note, this was our third consecutive quarter of organic growth, driven by additional price realization, strategic growth initiatives and continued recovery in several end markets. Adjusted EPS increased to $0.77 compared to $0.47 in the prior year quarter. And adjusted EBITDA margin was 20.8% compared to 17.9% in the prior year quarter. Cash from operating activities year-to-date was $70 million compared to $130 million in the prior year period. Free operating cash flow year-to-date was $18 million compared to $63 million in the prior year. Free cash flow was adversely impacted by increased working capital requirements related to tungsten prices. Finally, we returned $15 million to shareholders through dividends. As it relates to our outlook, today, we are raising our sales and EPS outlook for fiscal '26. This update reflects the additional price due to the continued rise in tungsten and additional volume. Pat will provide more details on our updated outlook shortly. In summary, we are pleased with this quarter's results and how the team is navigating these unique business conditions. As I mentioned, there are opportunities and challenges in this market, and we remain focused on delivering on our commitments throughout fiscal '26 and setting ourselves up for a successful fiscal '27. Now let's turn to Slide 4 for an end market update. As a reminder, our full year outlook reflects forecast of specific market drivers and general market conditions. The top half of this slide reflects our sales outlook at the midpoint and includes price, volume and market factors. My comments will focus on the bottom half of the slide and address transportation and energy, which are the only end markets that changed since our last call. IHS estimates for transportation slightly improved from the previous estimate, up in the low single-digit range, mostly driven by improvements in Asia Pacific market. Energy improved slightly relative to our prior outlook as customer sentiment improved. The tone is now cautiously optimistic, which is an improved stance compared to what customers were previously signaling. Turning to Slide 5. As we have talked about over the last several years, customer activity rates and our sales volumes have been below the pre-COVID peak. I want to take some time to provide insight into unit volume and how those trends have improved over the last few quarters. This chart uses units sold volume and excludes the impact of price and foreign exchange. It also excludes infrastructure defense sales as these are lumpy and not tied to industrial production metrics. Now let me spend a moment on what is driving the volume recovery and just as importantly, why we believe it's sustainable. As the call-out indicates, we are now experiencing the second consecutive quarter of year-over-year trailing 12-month unit volume growth despite a macro backdrop that has been uneven. Volumes are strengthening in the Americas and Asia Pacific, but EMEA continues to lag, and that is consistent with what we are seeing in PMI and industrial production data. A key driver continues to be aerospace and defense, which remains strong across both metal cutting and infrastructure. Importantly, this strength isn't simply tied to OEM build rates, which are still roughly 20% below pre-COVID levels, but rather to share gains and deeper penetration with tier suppliers. That gives us confidence there is still additional runway as production rates normalize over time. We are also starting to see early signs of stabilization in general engineering and energy, even while headline indicators remain soft. In Energy, power generation continues to see meaningful momentum. And while U.S. land rig counts are still about 30% below pre-COVID levels, we are seeing enough stabilization to suggest we are past the trough. In infrastructure, earthworks has delivered volume gains for 2 consecutive quarters, driven by share gains. Stepping back, if you look at the chart, global volumes are now up approximately 3% from the Q1 fiscal '26 trough following 36 months of stagnant industrial production. Our performance is not just the result of a market recovery. It's shaped by where we compete, how we allocate resources and where we are winning share. We know we operate in cyclical end markets, but we are quite confident in the long-term growth potential of these markets and our ability to capture share within them. Now let me turn the call over to Pat, who will review the third quarter financial performance and the outlook. Patrick Watson: Thank you, Sanjay, and good morning, everyone. I will begin on Slide 6 with a review of our Q3 operating results. Sales were up 22% year-over-year with an organic increase of 19% and favorable foreign currency exchange of 5%, which was slightly offset when adjusting for the divestiture we concluded last year. Sales volume in the quarter was up low single digits. At the segment level, organic sales increased 30% in Infrastructure and 12% in Metal Cutting. On a constant currency basis, Americas sales increased 27%, Asia Pacific sales increased 25% and EMEA was up 2%. The sales performance this quarter exceeded the expectations we provided last quarter on higher sales volumes from better market conditions and share capture. We also had higher-than-expected price, primarily in infrastructure from the continued rapid increase in tungsten prices. By end market, on a constant currency basis, Earthworks grew 43%, Energy increased 28%, Aerospace and defense grew 23%, General engineering grew 14% and Transportation increased 1%. I will provide more color when reviewing the segment performance in a moment. Adjusted EBITDA and operating margins were 20.8% and 13.8%, respectively, versus 17.9% and 10.3% in the prior year quarter. The margin increase was driven by favorable price raw of $39 million within the Infrastructure segment, pricing and tariff surcharges in Metal Cutting, increased sales and production volumes and year-over-year restructuring benefits of $7 million. These are partially offset by higher compensation costs, which are mostly performance-based, tariffs and general inflation and a prior year benefit from an advanced manufacturing tax credit of approximately $8 million that did not repeat in the current year. Adjusted earnings per share was $0.77 in the quarter versus $0.47 in the prior year period. The main drivers of our EPS performance are highlighted on the bridge on Slide 7. The year-over-year effect of operations this quarter was positive $0.36. This reflects approximately $39 million of favorable timing of price raw material costs, price and tariff surcharges in Metal Cutting, higher sales and production volume and incremental restructuring benefits of $7 million. These are partially offset by higher compensation costs, tariffs, general inflation and higher raw material costs in Metal Cutting. There was a headwind of $0.08 related to the net prior year manufacturing tax credit. You can also see the $0.02 of transaction gains related to preferential Bolivia exchange rates. Currency, other and pension impacts offset each other. Slides 8 and 9 detail the performance of our segments this quarter. Reported Metal Cutting sales were up 18% compared to the prior year quarter with 12% organic growth and favorable foreign currency exchange of 6% Regionally, excluding currency exchange, Asia Pacific increased 18%, the Americas increased 17% and EMEA increased 3%. Looking at sales by end market on a constant currency basis, Aerospace and defense increased 27% year-over-year due to improved build rates in Americas and easing supply chain pressures in EMEA, combined with our global focus on deeper market penetration. Energy grew 17% this quarter from data center power generation wins. General engineering increased 13% year-over-year due to price, volume gains in Asia Pacific and stronger distribution sales in the Americas. And lastly, transportation increased 1% year-over-year due to price and market softness, primarily in EMEA. Metal Cutting adjusted operating margin of 11.2% increased 160 basis points year-over-year, primarily due to higher price and tariff surcharges, higher sales and production volumes and incremental year-over-year restructuring savings of approximately $5 million. These factors were partially offset by higher compensation, tariffs and general inflation and higher raw material costs. Turning to Slide 9 for Infrastructure. Reported Infrastructure sales increased 29% year-over-year with organic growth of 30% and favorable foreign currency exchange of 4%, partially offset by a divestiture effect of negative 5%. Regionally, on a constant currency basis, Americas sales increased 42%, Asia Pacific increased 35% and EMEA sales were flat. Looking at sales by end market on a constant currency basis, Earthworks increased 43% from higher demand in construction as we were able to provide product to customers who are unable to source product from other players and share gain in underground mining. Energy increased 34%, mainly driven by price. General engineering increased 18% due to price and higher powder demand in Asia Pacific, partially offset by lower demand in EMEA. And lastly, Aerospace and Defense increased 17% due to defense orders, driven by continued focus on growth initiatives and timing in the Americas. Adjusted operating margin increased 680 basis points year-over-year to 18.3%, primarily from the favorable timing of pricing compared to raw material costs of $39 million and year-over-year restructuring savings of $2 million. These items were partially offset by higher compensation costs and a prior year manufacturing tax credit of $8 million that did not repeat in the current year. Now turning to Slide 10 to review our free operating cash flow and balance sheet. Our third quarter year-to-date net cash flow from operating activities was $70 million compared to $130 million in the prior year period. This change was driven primarily by higher working capital from higher tungsten prices and increased volumes of tungsten to secure our supply chain. Our third quarter year-to-date free operating cash flow decreased to $18 million from $63 million in the prior year, primarily due to the increased primary working capital changes I just referenced, partially offset by lower capital expenditures. On a dollar basis, year-over-year, primary working capital increased to $819 million from $654 million. On a percentage of sales basis, primary working capital increased to 32.4%. It's important to note that from both an earnings and cash flow perspective, the business is operating as it normally would when the price of tungsten rises. In periods of rising tungsten prices, we always experienced favorable price raw timing effects in sales and earnings, while we experienced headwinds to cash flow as primary working capital grows based on tungsten valuation. What is unique about the current circumstance is the magnitude of the rise in tungsten prices. In no recent time have we experienced a ninefold increase. Due to the uncertain nature of tungsten pricing and the corresponding pressure it has placed on working capital, we once again made the decision not to repurchase shares. Net capital expenditures decreased to $52 million compared to $67 million in the prior year quarter. In total, we returned $15 million to shareholders through dividends. Inception to date, we have repurchased $70 million or 3 million shares under our $200 million authorization. We remain committed to returning cash to shareholders while executing our strategy to drive growth and margin improvement. We continue to maintain a healthy balance sheet and debt maturity profile. At quarter end, we had ample liquidity to support the business with combined cash and revolver availability of approximately $742 million. And as always, we remain well within our financial covenants. The full balance sheet can be found on Slide 16 in the appendix. Now on Slide 11, regarding our full year outlook. We now expect FY '26 sales to be between $2.33 billion and $2.35 billion, with volume ranging from 2% to 3%, net price and tariff surcharge combined of approximately 16%, and we anticipate an approximate 2% tailwind from foreign exchange. The increased outlook reflects additional pricing actions related to the increase in cost of tungsten since our February call. Specifically, within the fourth quarter, we expect net price and tariff surcharges combined of approximately 35% compared to the prior year quarter. We now expect adjusted EPS in the range of $3.75 to $4. This outlook includes approximately $2.45 related to the timing of price raw benefit due to the rise in tungsten prices, the significant majority of which affects the Infrastructure segment. This effect increased $1.50 from the prior outlook. On the cash side, the full year outlook for capital expenditures is now anticipated to be approximately $85 million. And free operating cash flow is expected to be approximately negative 30% of adjusted net income, reflecting the working capital pressure from the rising cost of tungsten as discussed earlier. It's important to note our outlook does not include any effects from the conflict in the Middle East. The other assumptions in our outlook are noted on the slide. While it is earlier than normal, I would like to take a moment to provide a bit of a framework to help you think about FY '27. First off, our current assumption is that tungsten prices will remain elevated for some period of time going forward. That implies there will be significant carryover pricing given the 35% price expectation for the fourth quarter. This carryover pricing will diminish as FY '27 progresses since we would fully lap it in the fourth quarter. Keep in mind that this assumption holds price at the fourth quarter level. Also, we would expect price raw timing benefits in a flat tungsten environment will continue through the first half of FY '27 with the bulk of the benefit occurring in the first quarter. Outside of tungsten, we would expect normal cost inflation going into FY '27. However, we would see performance-based compensation reset the target, providing a $20 million tailwind. We will also see additional savings from restructuring and continuous improvement of $10 million. We will provide the rest of the details, including market expectations for FY '27 on our call in August. Back to you, Sanjay. Sanjay Chowbey: Thank you, Pat. Turning to Slide 12. Let me take a few minutes to summarize. We have delivered 3 strong quarters so far in fiscal '26, driven by price and modest improvements in various end markets, project wins on the commercial side and productivity and cost improvement actions. Going forward, we will remain focused on the strategic growth initiatives and lean transformation we have underway while also exploring ways to strengthen our portfolio over time. Additionally, we will continue to actively manage our tungsten supply chain. And in summary, we remain confident in our plan for long-term value creation for shareholders. With that, operator, please open the line for questions. Operator: [Operator Instructions] And today's first question comes from Steve Volkmann with Jefferies. Stephen Volkmann: Can we just start with what do you think -- what was the incremental margin on the volume in the quarter? Patrick Watson: Yes. I think the volume incremental margin was pretty normal for us, Steve. I think there's a couple of things, obviously, in the quarter that are kind of masking that because we've got some big numbers being thrown around there. Obviously, you've got the $39 million worth of price raw timing benefit coming through. In the prior year, we had that $8 million advanced manufacturing tax credit. And then I'd say the third component there that's just unusual for us is variable compensation. So last year, we would have been on the low side of accruing for variable compensation. This year, given performance, we're a bit on the high side. In the quarter, that's like an $18 million number there in and of itself. And then, of course, you have some benefits coming through for restructuring. But when you pull all that back, volume leverage is pretty normal for the business. Stephen Volkmann: Okay. And then it sounds like you've adjusted price. You obviously have a big forecast for the fiscal fourth quarter. Are we like where we need to be today in terms of price? Or will there be more price that sort of flows through in the fourth quarter and maybe even later into the summer? Sanjay Chowbey: Yes. Steve, this is Sanjay. As you know, this is a very dynamic situation that we are managing, and we'll continue to monitor how that moves. As even the last call, you talked about that how it was moving on a daily basis, hourly basis. So that's why we will just tell you that we are looking at different market variables. And our -- definitely, our goal here is to fully offset the cost implication of tungsten. Patrick Watson: I would just add to that, we did put price in here in the market, various states by region, but effectively in the April, May time frame. Stephen Volkmann: April, May... Operator: And the next question comes from Steven Fisher with UBS. Steven Fisher: Congrats on managing all the complexities here. Just a follow-up on that last question. Just curious about the differences between metal cutting and infrastructure. I know with infrastructure, it does tend to be fairly quick to capture that pricing. I'm just curious -- confidence that you can really fully pass on the price increases within the metal cutting and what the frequency of timing you can put that through? Essentially, are the customers that are going to these distributors, are they really seeing a 35% increase on the shelf there from these products? Just curious if there's any real differences there in dynamics between metal cutting and infrastructure. Sanjay Chowbey: Yes, sure, Steve. I think, first of all, like in the past, we have talked about the metal cutting is a list price business. And also when you look at the material flow, even there is more lag in that, but infrastructure sees that first. And based on the different product, we also have like different content of how much tungsten is used. So that will reflect -- when you look at the growth numbers, sales growth numbers by different end markets within the different segments, you will see, in some cases, very, very high number. Many cases, those are driven by the higher content of tungsten. So we have in infrastructure, many customers who are on the index price basis, but many others are not. And we do move relatively quicker on infrastructure pricing. In metal cutting, there's a 3- to 6-month lag generally. And then based on the list price change, we implement that. Steven Fisher: Okay. And then maybe just a little more color on what you're seeing in energy and how you see that evolving for the next few months. Just curious what you are hearing from your customers there? And is that something you're preparing for kind of a bit more of a ramp-up? Sanjay Chowbey: Yes. On the energy, I'll divide the equation into two pieces here. First is the AI power generation-related energy demands, which we see more so in the metal cutting side. Definitely, as you know, there's a lot of industrial activities driven around the world, but a lot in the U.S. also. And we are very well positioned with our innovative solutions, application support and custom solutions for our customers, and we are doing a pretty good job in winning share there. And I do believe that, that will continue. And as you have seen in even this quarter report, we talked about that quite a bit. When it comes to the other side of energy, which is more or less, let's say, oil and gas, it will definitely touch a little bit metal cutting, but a lot more in the infrastructure side. As we talked about it, that there is a little bit of optimistic view, but it's cautiously optimistic view. The rig count projection right now has gone from 527 to 532. But if you look at the market, there are 2 camps. There are people who are saying that there will be a lot more investment coming up here. And there are people who are saying that this is temporary and things like that. But our overall conclusion based on what we see, the trough is behind us, and we should see some steady improvement going forward. Operator: And our next question is from Julian Mitchell with Barclays. Julian Mitchell: Just maybe a first question, just to try and clarify the tungsten related sort of tailwind to EPS, I think you said $2.45 for fiscal '26 in aggregate. In the fourth quarter, is it around $1.75? Is that roughly the right math? Just wanted to check that. Patrick Watson: Yes. I think if you kind of back into that, Julian, we had about an EPS terms of about $0.16, I think, in Q2, $0.39 here in Q3. And so we just forced the rest out of Q4. Julian Mitchell: That's great. And then maybe, Pat, help us understand those moving parts around the sort of cash flow, year-ending leverage, when you might look to resume the share repurchase program? Help us understand what that free cash flow in the fourth fiscal quarter is looking like? And how quickly does it sort of reverse following that based on where tungsten is today? Patrick Watson: Yes. So I would think about it this way, and we talk about this from a -- how does the cost structure lag from an income statement perspective, that obviously, the balance sheet is following that, too. So as tungsten has ramped, we're going to continue to see inventory build on a valuation basis here in the fourth quarter. That's really what's driving that negative free operating cash flow for the full year. And so as that kind of builds up, we would anticipate you get about a quarter or two out. Again, from a change in tungsten, we would kind of get flatlined. The business would then move back to its normal pattern in terms of its cash generation ability. Obviously, as I said kind of in the scripted remarks here, the magnitude of what we're dealing with here is just significantly larger than what we've seen in the past, right? Think about that from a share repurchase perspective. Look, we've been very committed to returning cash to shareholders through the dividend program as well as through our repurchase program. Our desires have been at a minimum to offset dilution from equity compensation programs. We just fundamentally think that's good housekeeping. In the current environment, what would we want to see to really resume that? We really want to see some stabilization and clarity about where tungsten is headed. Our obvious thesis here at the moment is that tungsten should be relatively stable. That being said, it's a very dynamic marketplace today. Operator: The next question is from Steve Barger with KeyBanc Capital Markets. Steve, you may be muted on your side. Steve Barger: You talked about good activity in aerospace and defense and some share gains in infrastructure and earthworks. But at the same time, I think you said some competitors are turning away orders, presumably on price cost. So can you talk about what you think is happening with prebuy and just people scrambling to get product due to inflation? And then how does that map to the longer-term durability of share gains? Sanjay Chowbey: Yes. Steve, this is Sanjay. I'll take that first. First of all, we did see some prebuy, but it was mostly in the infrastructures earthwork construction business. Beyond that, there was not much material impact on prebuys in the rest of the business. We did see opportunities also in the earthworks business within infrastructure and also in aerospace and defense in metal cutting, where we did see some evidence, where we were able to capture, where competitors were not able to either provide proper lead time or even just meet the demand. So that's how we saw that. Does that answer your question? Steve Barger: I think so. Just so I'm clear, why do you think the competitors are not able to meet demand right now? Sanjay Chowbey: Yes. What we have seen some competitors are definitely having problem in getting raw material. And even if they're getting raw materials, they're also pretty booked and they're putting longer lead times. So in some cases, we are able to provide a better lead time, and that's how we got it. Patrick Watson: I would say that, I mean, the opportunity, obviously there, Steve, is that there is short-term disruption in the marketplace. That gives us an opportunity to quote and win business that maybe we wouldn't normally have seen the same opportunities on. The opportunity for us and the challenge to our sales organization, quite frankly, is to convert that to permanent long-term share capture. Sanjay Chowbey: Yes. One more thing, Steve, I will add to that. I think for investors who may be listening to us first time, I do want to mention that this situation that we have with tungsten is not driven by higher demand. It is driven by supply constraints. As in past, you have seen some of the times, tungsten went up. At the same time, oil and gas and some of the other industry, which consumes a lot of tungsten went up. This time, it is because of supply constraints and also export controls. So just simply, in a big portion of market, there is less supply right now. Steve Barger: Yes. Understood. That actually is a good segue to my next question. If I heard you right, you're slowing facility closures. And last quarter, you expected restructuring savings of $125 million. Now that's $110 million. Are those 2 things related? And if so, why -- maybe I missed it, why are you slowing facility closure? Sanjay Chowbey: Yes, very good question. As we said in the prepared remarks, and I will clarify that a little bit more. Obviously, we are seeing right now more growth opportunities, which is driven by all 3 factors: market improving, then also share gain through our routine strategic growth initiatives that we have talked about it in the past. And on top of that, a window of opportunity from the tungsten situation. So we look at how we can create the best value for all our stakeholders. And we feel right now that allocating more resources on growth opportunities and driving our routine business leverage will create more shareholder value for now. And that's how we are making the shift. However, we are not stopping the work on footprint optimization. We'll continue to work on it. Time line will shift a little bit. We'll come back and give you more information on that at appropriate time. Operator: Our next question is from Tami Zakaria with JPMorgan. Tami Zakaria: First question is on tariffs. I think IEEPA got struck down. Do you expect to file any refunds? And if so, what kind of -- what amount of refund would you expect to collect? Sanjay Chowbey: Yes, Tami, First of all, as you know, this is also one of the very dynamic situation. We still have tariffs in place. And so we are not taking any hasty action on this yet. I think we'll continue to monitor. And based on that, we'll make decisions. So nothing more to share at this point in today's call. Tami Zakaria: Understood. That's fair. And my second question is, for the fourth quarter, I just wanted to clarify, do you expect volume growth to be in that 2% to 3% full year range or it could come in above that? Patrick Watson: Yes. It's the full year range. I would say it's depending on where you're at in that range, Tami, it's going to be low to at the high end, maybe up into the mid-single digits. You obviously factor in 35% price we talked about from a script perspective. Don't forget, we had a divestiture in the prior year, and you got a little bit of FX in there as well. So that kind of is the math there in terms of you think about the top line. I would emphasize, as we just think about the profitability that obviously, we're going to see sequentially profitability step up pretty significantly here based on that price raw. And given the circumstances that we're in today, it is unusual, we're going to have some of that price raw realization in Metal Cutting, too. So when you think about, again, the margin performance of the business as a whole in the two segments, pretty big ramp-up for both of them. Operator: And the next question comes from Angel Castillo with Morgan Stanley. Angel Castillo Malpica: Just maybe first, I wanted to start out on the market share gains. That's been a meaningful driver, I guess, of the organic growth that you've been seeing. Just curious if you could unpack that a little bit more. I guess I'm trying to understand if it's possible to, I guess, separate how much of the share gains you think was maybe driven by value proposition or project wins that tend to be a little bit stickier versus where it's maybe related to kind of competitor supply constraints. And in particular, I guess, to the latter bucket, curious if you kind of expect that over time as kind of supply perhaps normalizes, if you would expect to kind of get that back or if there's any kind of stickiness to some of those shifts that we might be seeing on the kind of supply-driven angle? And also if you could comment on the promotional campaigns you talked about as well, that would be helpful. Sanjay Chowbey: Yes. Sure, Angel. First of all, again, it is a combination of all 3 factors: market improving, and we think that, that should continue. Then second will be in our strategic growth initiatives, and we have talked about in the past, those will include, for example, what we have done in aerospace and defense and energy and general engineering, earthworks and so on and so forth, how we have gone about winning bigger share of wallet with existing customers, but also going out and winning business at different tiers of the supply chain or our customer value chain. And those I will tell you that are very sustainable because we're winning those using our core competencies from product and innovation and our commercial excellence and our operational capabilities. Now the third piece of the volume that we have also talked about, the window of opportunity we have from tungsten Dynamics. We also think that those are sustainable, at least in the near term that we see that. In the long term, we'll see how that plays out. But we are being very strategic about which opportunities that we go and capitalize. We are selective on what opportunities we think are going to be longer-term sustainable for us. So all in all, of course, it's a mix of 3 things, and I won't be able to quantify break down or don't want to disclose it in public domain on that. But I can tell you that as we have talked about in past, that driving growth above market has been one of our strategic imperatives, and it will continue to be. In last 2 years, 3 years, actually, I will go a little bit beyond that, we have shown our ability to outperform or at least hold our own in our metal cutting business where we have in public peer data. And this is going to continue to be one of the focus. So in short, I will just say that it is going to be a meaningful piece of our overall volume story. Angel Castillo Malpica: Very helpful. And then if you could bear with me, I guess, a 3-part question here just on tungsten. Hoping to better understand, I guess, a couple of things. One, any more color you can add in terms of the sourcing that you're doing and how that differs versus competitors that allows you in a market that you described as very competitive in terms of sourcing to make sure that you're able to have the right amount of supply. So just any color you can add on that? And then maybe a little bit more longer term or medium to longer term, on the tungsten side, I think your preliminary fiscal year '27 outlook talked about that as being kind of stable at current levels. Just anything you can add in terms of the supply-demand that you're seeing progressing from here in terms of -- I think there might be some capacity that's coming online in 2027. So just to the extent that, I guess, any implications from that or the recently kind of lower prices of tungsten in China as to what -- where that commodity heads in 2027? And then just kind of lastly, implications of that to the price and the market share gains that you talked about on the supply basis. Patrick Watson: Yes, certainly. So I'll try to take each one of those in terms. When I think about the advantages we have, I want to go beyond, quite frankly, just the sourcing aspect. And from a sourcing perspective, -- as we've talked about in the past, we do not use significant amounts of Chinese material outside of our Chinese operation. Outside of China, we've got a diversified supply base and partners we've been with for a long period of time in getting material from Bolivia, other East Asian sources and as well as a nice slug of recycled material. But a lot of the strength that we have as a company vis-a-vis some of the competition that's out there is also the integrated nature of our supply chain, right? So we are -- we have the ability basically to take in tungsten materials at various stages and turn them ultimately into a final product. You think about that from our ability to take raw materials, which is virgin ore in and process that, there is only a handful of companies in the industry that can do that as well. And so that provides us, I think, a durable strategic advantage here in this set of circumstances. As you think about where it is from an overall pricing perspective, yes, our assumption at the moment is the tungsten prices are stable. I think the last couple of quarters that we've gone through in terms of the magnitude of this price change, I don't think that many market participants would have envisioned us going from a couple of hundred dollars a ton to over $3,000 a ton, excuse me, as we have over the last 12 months. Certainly, there has been some softening in China the last week or so in terms of the prices, unclear at the moment in time, whether or not that's indicative of a larger trend that will be more durable. We'll obviously continue to monitor and watch that. And then your last question in terms of what supply is coming online, yes, there's a variety of new mine projects that are out there that will come online. We would anticipate in the fullness of time, that would help moderate the tungsten prices here a little bit on a global basis. I think the other reality of the situation here is, in particular, we've got the export controls in China that are in place, number one. And then number two, we've got lower Chinese mine production over the last 2 years as it relates to -- based on some information in the public domain, lower quality ore potentially out there as well as I would emphasize lower mining permits provided by the Chinese government. So the market has been in a period of shortage, additional supply obviously would help alleviate some of that. And as that market continues to unfold, obviously, that will inform our pricing decisions and how we set, I'll say, our inventory objectives here in terms of holding inventory as well. Operator: And the next question is a follow-up from Steve Barger with KeyBanc Capital Markets. Steve Barger: Pat, just to level set expectations for the models. You said price raw timing benefit from tungsten flows through into the first half, mostly in 1Q. Is the right way to think about FY '27 kind of reverse order from this year, high point by far in 1Q trailing back down to your quarterly average of like $0.40 towards the end of FY '27. Patrick Watson: Yes. A couple of ways that I think about that. Steve, first off, just let me give you some like the basic walk, and I'll start from the midpoint, right? Midpoint of the outlook this year is $3.88. We said we've got $2.45 of price raw in there, probably have about 0.20 worth of variable compensation that would reset. So let's think of like a clean FY '26, removing those items, about $1.63 in EPS terms, right? And then kind of moving forward next year, you're going to add $0.10 in for the additional restructuring that we talked about. That gets you down to like about $1.73 before you get to, what I'll call is additional price raw, which again should exist in that first half, right? And then whatever the volume assumption is that you guys make at this point in time, obviously, we'll give some clarity about that in August. The second thing I would say about that in terms of now taking that cadence and thinking about the year, yes, I think the right way to think about this, again, this is assuming a relatively stable tungsten environment would be first half, we're going to see the benefits of price raw. Back half of that year, we'll get back to what I would call it is a normal level of profitability, right, absent the price raw tailwinds. Operator: The next question is a follow-up from Julian Mitchell with Barclays. Julian Mitchell: This will be a quick one. Maybe just flesh out a bit more the cadence of kind of volume demand. You had that very interesting chart on cumulative volumes going back several years. So that was interesting. And you've clearly seen a pickup, as you said a couple of times. There's some prebuy, I suppose, in that. So maybe give us any color you can on sort of how base volumes are performing, if you can really get to that level of detail from your channel partners and so forth? And have you seen an improvement in base demand in the last couple of months? Or it's difficult to disentangle that from prebuy movement? Patrick Watson: So I'll take that first, and then Sanjay will hit most of it. But just to clarify that chart to make sure we're all talking about the same way, right? That chart is based on a 12 trailing months basis. Julian. So based on that, you can think about it as an annualized chart, it's going to kind of flatten out any sort of short-term prebuying issues, right? Because again, we're talking about an annual type number. And with that, I'll turn it over to Sanjay. Sanjay Chowbey: Yes, Julian, with regards to rest of the drivers at this point, Q4, we are confident in what we are saying that we do see impact from improving market condition, which is again moderate. And then on top of that, our share gain opportunities that we have, those will definitely play out. I think with respect to fiscal '27, we'll come back and talk about that in August, but the initial signs are -- seems like things are definitely stabilizing. Operator: And this concludes today's question-and-answer session. At this time, I would like to turn the conference back over to Sanjay Chowbey for any closing remarks. Sanjay Chowbey: Thank you, operator, and thank you, everyone, for joining the call today. As always, we appreciate your interest and support. Please don't hesitate to reach out to Mike if you have any questions. Have a great day. Operator: Thank you. And as a reminder, a replay of this event will be available approximately one hour after its conclusion. [Operator Instructions] And today's conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.
Operator: Greetings, and welcome to the Freshpet First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Rachel Ulsh, Vice President, Investor Relations and Corporate Communications. Thank you. You may begin. Rachel Perkins-Ulsh: Good morning, and welcome to Freshpet's First Quarter 2026 Earnings Call and Webcast. On today's call are Billy Cyr, Chief Executive Officer; and John O'Connor, Chief Financial Officer. Nicki Baty, Chief Operating Officer, will also be available for Q&A. Before we begin, please remember that during the course of this call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements related to our strategies to reaccelerate growth, progress and opportunities and capital efficiencies, timing and impact of new technology, capital spending, adequacy of capacity, expectations to be free cash flow positive, 2026 guidance and 2027 targets. They involve risks and uncertainties that could cause actual results to differ materially from any forward-looking statements made today, including those associated with these statements and those discussed in our earnings press release and our most recent filings with the SEC, including our 2025 annual report on Form 10-K, which are all available on our website. Please note that on today's call, management will refer to certain non-GAAP financial measures such as EBITDA and adjusted EBITDA, among others. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release for how management defines such non-GAAP measures, why management believes such non-GAAP measures are useful, a reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP and limitations associated with such non-GAAP measures. Finally, the company has produced a presentation that contains many of the key metrics that will be discussed on this call. That presentation can be found on the company's investor website. Management's commentary will not specifically walk through the presentation on the call, rather, it is a summary of the results and guidance they will discuss today. With that, I'd like to turn the call over to Billy Cyr, Chief Executive Officer. William Cyr: Thank you, Rachel, and good morning, everyone. The message I would like you to take away from today's call is that we are off to a strong start to the year and are well positioned to continue to capture a very large share of the growing market for fresh pet food. This strong start and our success are built on manufacturing scale and expertise that deliver a broad lineup of exceptional products, our extensive fridge network across a wide array of channels that increasingly serves our rapidly growing e-commerce business and our first-mover advantage that has enabled us to build a large and diverse consumer franchise. We've built a business around a wide range of product forms, sizes, prices and channels and with a level of quality that no single competitor can match. It is those strengths that position us to lead the transformation of the pet food category from kibble and can to fresh. Our first quarter net sales growth was ahead of our guidance range for the year, and we believe demonstrates our ability to successfully adapt our growth plans to the dynamic environment in which we are operating. Since last reporting earnings in February, however, the macro environment has been increasingly volatile. So while we are encouraged by the trends we see, we also want to remain prudent. Year-to-date, the consumer's remained remarkably resilient, but we are keeping a watchful eye on potential shifts in consumer buying habits, particularly as it relates to their willingness to trade up and are balancing these risks against the strength we have seen to start the year. As such, we are modestly increasing our sales guidance for 2026. As we look at the business holistically, the fundamentals remain firmly intact. We compete in the large category. We are making consistent share gains and are improving margins and new technologies are increasing our returns on capital. Together, this creates a compelling backdrop and a long runway for value creation. Against that backdrop, there are 3 core reasons we remain confident in our long-term growth opportunity. First, pet food is a very attractive category, with long-term tailwinds like the humanization of pets, treating our pets as valuable family members and younger generations are increasingly interested in feeding high-quality food to every member of their family, including their pets. The phenomenon of feeding your children and pets better food is a generational shift, and that suggests we have a very long runway for growth. As a result, our total addressable market has grown to 36 million households versus the 16.1 million we have today, and we expect both the addressable market and our household penetration to keep growing. Second, consumers are increasingly choosing fresh and frozen over dry and canned food. So we have the winning proposition in a winning category. We've increased our market share to 4.2% in U.S. dog food and treats according to Nielsen omnichannel data and expect to capture a large portion of the future growth of the fresh/frozen category as it continues to become more mainstream. Third, we are focused on improving returns on capital investments as we progress from being a category disruptor to a high-growth, profitable scaled business. Our operational effectiveness programs plus the new technologies we are developing are designed to improve returns. And to continue to drive capital efficiency, we intend to: one, get more out of existing lines, primarily through OEE improvements; two, get more out of existing sites, whether that be finding ways to optimize our network or add more lines to our existing campuses; and three, develop and implement new technologies. We are quite encouraged by the progress we are making on each piece of that plan. We have discussed over the last few quarters how we are shifting our commercial model by changing the media mix and message, making tactical pricing changes and evolving into an omnichannel distribution model. Our goal is to address the needs of a broad consumer base, and we want to give them the Freshpet products they want, how they want them, when they want them and where they want them. We have built significant organization capability to accomplish that. And in conjunction with our network of more than 39,000 fridges that service fulfillment centers, we believe that Freshpet is uniquely positioned to serve the widest range of consumers seeking Freshpet food and the most diverse ways in which they buy. As we make these changes, there will be learnings along the way, but the key will be how we pivot to capture that opportunity. As you know, our marketing model is based on strong advertising driving household growth and more households helps drive further distribution growth. Our recent shift in both our advertising message and our media mix to support our omnichannel business appears to be working, and we are seeing some early signs of increasing media leverage. Our fall campaigns continue to resonate with consumers, and we just launched a new campaign this week called "Kitchen Conversations." Our new tagline of "Better Food for your better half" deepens our connection and relationship with our core audience and our ads showcase the difference that fresh products made. From a household penetration and buy rate standpoint, we continue to see household penetration growth in excess of all other super premium dog food brands, including DTC brands, and MVP growth continues to outpace total households. On a 12-month basis, as of March 29, 2026, household penetration was 16.1 million households, up 8% year-over-year, and total buy rate was approximately $114, up 6% year-over-year. MVPs, our super heavy and ultra heavy users are continuing to grow faster than overall households and now total 2.5 million households, up 13% year-over-year and have an average buy rate of $513. Note that Numerator recently completed its annual panel reset in April. So there have been some revisions to the absolute numbers in the historical data, but the overall trends remain the same. Growth continues to be strongest amongst higher income households and millennials amongst club and online shoppers and amongst our heaviest users, Ultra buyers. We do not see any signs of trade down amongst our users. From a retail standpoint, our objective is to improve accessibility and visibility for the omnichannel consumer. Our products are now in 30,435 stores and 25% of those stores in the U.S. and Canada have multiple fridges. You can see on the updated chart on Slide 13 of our investor presentation that we are adding fridges faster than new stores, and we expect that trend to continue. We will still add new stores such as Tractor Supply's recently announced expansion to up to 700 stores by year-end, but have more opportunity to add more fridges in a variety of formats and configurations in the highest velocity stores we are already in so that we can serve more omnichannel consumers. Our large retail footprint acts as micro fulfillment centers for omnichannel consumers and is a key piece of fulfilling digital orders. In the first quarter, digital orders grew 43% and accounted for 16.1% of our total business, up from 14.6% in the fourth quarter and 81% of those sales volume went through our extensive fridge network. According to Nielsen omnichannel data, Freshpet was the fastest-growing brand over the 13 weeks ending March 28, 2026, demonstrating the power of our marketing model and the broad availability of Freshpet design to meet a wide range of consumers' buying preferences. Our scale advantages extend to our manufacturing as well. Because we own our manufacturing, we have the incentive and the ability to advance the technology for making Freshpet food. We believe our new breakthrough technology enables an even stronger product proposition with both a better consumer experience and better unit economics. As we mentioned last quarter, the first bag line in Bethlehem, utilizing the new technology started up in January. That line continues to perform well, and our first lite version of the technology was successfully installed on another bag line in Bethlehem last month. We are very encouraged by the potential to significantly improve quality, throughput and yield, but we want to run each of these lines for several months before we quantify the magnitude of the benefits. However, the results to date supported our decision to convert a bag line in Ennis to the lite version of the technology as well. That conversion is expected to be completed by late June or early July and will allow us to convert a larger portion of our existing product lineup to the new technology this year. By the end of the year, we expect to have about 35% of our bag capacity using some version of the new technology. The capital for this expansion is modest and does not change our CapEx guidance for the year. In the coming months, we will decide whether to convert an additional bag line, i.e., a third line converted to the lite version of the new technology and also whether we will pull forward the installation of a completely new line using the full version of the technology. That incremental line using the full version of the new technology would add significant capacity to our network sooner than we might need it, and that will factor in our decision-making. If we do move forward with either project, any capital spending for those projects would be above our original $150 million capital budget. We believe the development of this technology demonstrates our technical mastery as a self-manufactured leader in fresh pet food. Maintaining control of our manufacturing also opens up opportunities to further advance the technology. Now I'll provide some highlights from the first quarter. First quarter net sales were $297.6 million, up 13.1% year-over-year, primarily driven by volume. Recall in Q1 of fiscal year '25, we had distributor disruption in the pet specialty channel. Lapping that disruption added 50 to 100 basis points to our growth rate in Q1 of this year. Adjusted gross margin in the first quarter was 46.9% compared to 45.7% in the prior year period. Adjusted EBITDA in the first quarter was $37.9 million, up $2.4 million year-over-year. Now turning to our updated 2026 guidance. We are raising our net sales guidance range from 7% to 10% growth to 8% to 11% growth year-over-year and reiterating our adjusted EBITDA guidance of $205 million to $215 million. We are encouraged by recent sales trends and believe raising net sales guidance is prudent based on year-to-date trends. However, we are balancing the dynamic environment we are operating in. So we are monitoring our costs closely, particularly on logistics, packaging and any additional ripple effects on input costs. We continue to expect capital expenditures to be approximately $150 million this year, absent any incremental investments, and we expect to be free cash flow positive in 2026. John will walk through more details of our 2026 guidance in a few minutes. With that, I'll turn it over to John to walk through more details of our financial results. John O?Connor: Thank you, Billy, and good morning, everyone. The first quarter results demonstrated our ability to deliver category-leading growth despite a challenged consumer environment. Net sales in the quarter were $297.6 million, up 13.1% year-over-year. Volume contributed 14.6% growth, partially offset by unfavorable price/mix of 1.5%, which was primarily driven by gross to net items, which include an unfavorable prior year comp and current year items we do not expect to recur in the rest of the year. We also saw the effect of targeted price reductions, some of which began last year, and we will begin to lap in Q4. We had broad-based consumption growth across channels. For Nielsen-measured dollars, we saw 13.5% growth in total U.S. Pet Retail Plus with Costco. First quarter adjusted gross margin was 46.9% compared to 45.7% in the prior year period. The 120 basis point increase was driven by improved leverage on planned expenses and lower input costs. First quarter adjusted SG&A was 34.2% of net sales compared to 32.2% in the prior year period. This increase was primarily due to higher variable compensation in the quarter, increased media as a percentage of sales due to timing and increases in our logistics costs. Media spending was 15.8% of net sales in the quarter, up from 15.1% in the prior year period, mainly due to a planned shift in cadence of spend that brought more spending into the first quarter. Logistics costs were 6.3% of net sales in the quarter compared to 5.8% a year ago. The increase was partly due to storm-related costs, including driver shortages as well as recent fuel cost increases, which we began to experience in March. First quarter net income was $48.5 million compared to a net loss of $12.7 million in the prior year period. The increase in net income was primarily due to the sale of our equity investment in Ollie, contributions from higher sales and lower nonrecurring SG&A charges, partially offset by the increase in income tax expense related to the gain on the Ollie sale. First quarter adjusted EBITDA was $37.9 million compared to $35.5 million a year ago, an increase of approximately 7%. This growth was primarily driven by higher sales and gross profit, partially offset by higher adjusted SG&A expenses. Adjusted EBITDA margin was 12.7% in the first quarter compared to 13.5% in the prior year period. This decrease was primarily driven by the higher G&A, cadence of media investments and higher logistics costs in the quarter. Operating cash flow in the quarter was $40.3 million, while capital spending was $27.6 million. We ended the quarter with cash on hand of $381.4 million, including $95.5 million in proceeds from the sale of Ollie and generated free cash flow of $12.7 million. Now turning to guidance for 2026. As Billy mentioned earlier, we now expect net sales growth of 8% to 11% compared to 7% to 10% previously. We are pleased with our results for the quarter and are optimistic about growth opportunities for the year. However, we continue to balance the recent acceleration in our net sales growth against the volatile macro environment and its ability to affect the consumer. Going back to last year, we have taken steps to position ourselves to continue expanding the fresh dog food category amid a slower consumer backdrop with improved entry price point offerings, and we'll continue to make balanced investments in both improved affordability for the consumer and profitability for Freshpet. As a reminder, -- we have easier comps through May and then a tougher comp in Q3 from the significant expansion in a large club customer in the year ago, including pipeline fill. We continue to expect to grow market share as we benefit from a generational shift from dry and wet food to fresh. We continue to expect adjusted EBITDA in the range of $205 million to $215 million, an increase of 5% to 10% year-over-year. Adjusted EBITDA dollars and margin should improve sequentially for the remainder of the year. Media as a percent of sales for the year is still expected to be roughly in line with 2025 at approximately 12.5% of net sales and will be front half weighted in dollars. We now expect elevated logistics costs for the remainder of the year given increased fuel costs. As I said on the last earnings call, 2026 is not necessarily indicative of the underlying operating leverage in our model. We reset variable compensation this year and have made significant investments in omnichannel capabilities. Beyond 2026, we expect adjusted EBITDA growth to exceed net sales growth with an expectation of continued gross margin expansion and a more consistent variable compensation expense. We anticipate adjusted gross margin to improve by approximately 50 to 100 basis points at the midpoint of our net sales range, primarily driven by plant leverage, partially offset by mix. Should our current revenue trends continue, it is possible we will need to add staffing in our manufacturing operations, although this is not currently contemplated in our guidance. Within our guidance range for net sales, we expect to drive OEE improvements to deliver the volume growth embedded in the range. From an inflation standpoint, we are carefully watching for any changes. To address any higher input costs, we are evaluating opportunities to offset through product formulations and targeted pricing actions. Capital expenditures are projected to be approximately $150 million in 2026, excluding any significant incremental investments in fridge islands or expediting the rollout of our new technology. These are 2 distinct investment decisions. Conversations with retailers about fridge island expansion are ongoing, and we expect to make a decision on whether to accelerate the new manufacturing technology in the middle of the year. While it's still early and we need to run the new lines for longer to demonstrate consistent efficiency gains, we are encouraged by the initial results. Regarding our fiscal year 2027 targets, we are confident in our ability to deliver net sales growth well in excess of the U.S. dog food category growth, achieve at least 48% adjusted gross margin and deliver an adjusted EBITDA margin in the range of 20% to 22%. And we believe we have a variety of paths to achieve our 2027 margin targets. Since joining in February, a key focus of mine has been assessing our capital allocation strategy given the strong and evolving nature of our financial position. Freshpet operates in a very attractive and growing category and has built strong competitive advantages that support durable market share gains and revenue growth. With this backdrop, investing internally in the business is far and away our highest priority for capital deployment. These investments include expanding manufacturing capacity in a fast-growing space where we lead, developing novel production methods that enhance product quality, reduce cost to produce and improve returns on capital, new recipes that broaden our offerings and enhance our appeal to pet owners and enhancements to our commercial model to expand distribution, access new channels and reach consumers in a more targeted way. As we pursue these investments, we desire to retain a high degree of financial flexibility to invest in new technologies, capabilities or accelerate our growth. To the extent we are able to cover all of these investment opportunities through internal cash generation, we would then evaluate the opportunity to improve our capital efficiency by returning cash to shareholders in a manner that does not compromise our ability to fund our long-term growth drivers. To summarize, we are pleased with our first quarter results, but remain conscious of developments in the macro environment since we initially set our guidance for 2026. In light of this, we remain cautiously optimistic with our outlook for the remainder of the year. I firmly believe we have a long runway for growth, and we'll continue to build on our competitive advantages as the scaled leader in the fresh/frozen pet food category. That concludes our overview. We will now be glad to answer your questions. As a reminder, we ask that you please focus your questions on the quarter, guidance and the company's operations. Operator? Operator: [Operator Instructions] Our first question comes from the line of Peter Benedict with Baird. Peter Benedict: First, just maybe talk a little bit more about the competitive environment and how your performance is trending in stores where you've seen some new competition enter the market and maybe how that's influencing your plans for innovation or new product rollout? That's my first question. William Cyr: Yes. Yes, so as we look at the competition, obviously, we're seeing a wide range of people trying to compete with us in a variety of different channels. And I'll let others speak for their own performance. But what I can tell you is you should look at us and think about us as having a very broad lineup of products in a wide range of channels at a variety of price points -- and that breadth of our portfolio and the distribution we have has insulated us very, very well from all these new competitive entrants because the vast majority of these folks are competing in a very narrow product lineup and a very limited number of distribution points or different distribution channels. And so as you look at our results, we're able to perform quite well because of the breadth and depth of our portfolio regardless of who these competitors are, what channels they might be in. Peter Benedict: Okay. And then I guess one follow-up. You mentioned in the remarks some signs of media leverage on some of the new programs. Maybe you could expand on that. What exactly are you seeing on that front? William Cyr: I'll let Nicki take that one. Nicola Baty: So as you know, we very much focus on advertising as being a big strategic choice for our investment. We don't discount, so we don't have any investment going through in promotions. We've made some really big shifts with media, especially when you look at the results over the last 13 weeks where we've seen an acceleration versus the last 26. We've changed our messaging. So we put the new creative on air, and we've seen our CAC coming down, which has been great news. We've seen improvements in our ROAS. So return on advertised spend has really gone up across a number of areas. And what we're particularly encouraged about is we're getting higher growth coming through from millennials and also MVPs. So we're seeing some really encouraging signs coming through from media. We elevated media spend in Q1 as we'd always intended to do, and we feel really good about the results that we're seeing as we now go through the year. Operator: Our next question comes from the line of Brian Holland with D.A. Davidson. Brian Holland: So maybe just first on taking the top line guidance of this year. Billy, it sounded like in your prepared remarks that that was informed by the better-than-expected performance in 1Q. So that's backwards-looking, looking forward, do we have any greater visibility on whether that's distribution or competitive dynamics as far as what you're going to see in fridges that you share or other fridge installations outside of your own that leaves you comfortable with the balance of the year relative to when you set your initial guidance? And then maybe within that, do we expect consumption and shipments to largely align over the balance of the year? William Cyr: Yes. Brian, first of all, the decision to raise the guidance and what's embedded in the guidance is obviously informed not by just what we saw, as you indicated, but what we see going forward. As you know, we look at a wide range of factors. We look at everything from the Nielsen measured consumption to what we know our customers' plans are, what our read is on the broader macro environment. And what I can tell you is that so far to date, we feel very good that the brand is performing well. We see that in Nielsen, we see that in the household panel data. To the extent that there are competitors out there, it's obviously not having any significant impact on the numbers that are showing up in Nielsen or showing up in our household panel data because we're still leading growth in the category in both those areas. So our guidance going forward on growth has been informed by that. We are, as you heard in the comments, a little bit cautious about the macro environment. We look at everything from consumer sentiment to housing starts to unemployment to disposal or discretionary income. And as I think you've heard from a lot of other folks, we're all kind of watching and waiting to see where that might go. But so far, everything in our business looks like it's heading in the right direction, and that's what's informed our guidance. Brian Holland: And then maybe on gross margin, as we just think about the year going forward and maybe tied back to the top line here. I believe that initially no plans to add staffing in 2026. What level -- and I think there was some reference to potentially needing to add folks later in the year in the prepared remarks. So maybe just trying to understand at what level of volume growth do you feel like you would then have to bring on more staffing? Just trying to understand the leverage potential there on continued volume strength in excess of what you initially anticipated. William Cyr: Brian, I forgot to answer the second part of your original question, and then I'll hand it to John to answer the margin question. But your question about shipment growth versus consumption growth, the only variable that's going to be different between the 2 is, as we've said before, we will lap a very significant launch into Sam's last year in Q3. And so you would expect that there were more shipments there necessarily than there were consumption in Q3 of last year. So this year, you'd expect to get a little bit of a reversal of that. Outside of that, our business is very predictable and reliable, so consumption growth and the shipment growth should be fairly closely in line with each other. Let me turn it over to John to talk about the margin. John O?Connor: Sure. Thanks, Billy. Yes. So Brian, within the net sales guidance range that we gave, we believe we can deliver that without having to add staff. So what starts driving it higher is if we start meaningfully outperforming our guidance range as we go through the year and getting above the top end of the range, maybe we get a better consumer environment. Those are the levels where we'd start looking at the staff needs to come on at some point in 2026. There is a point as we continue to grow, where we'll need staff for -- to deliver volumes in 2027. But really, the question is if and when in 2026 based on the revenue trends that we're seeing throughout the year, and it would need to be above the net sales guidance range that we gave today. Operator: Our next question comes from the line of Rupesh Parikh with Oppenheimer & Company. Rupesh Parikh: Just going back to the consumption acceleration you saw in Q1. Just curious what you believe are some of the key factors that drove that improvement? And then as you look at the underlying pet category just overall, what you guys are seeing there? William Cyr: I'll take the first part, and Nicki will take the second part. But as you saw in the data that we published, we saw a resumption in household penetration growth and the buy rate growth. Buy rate has been a bigger contributor to our growth of late than it has been historically, and that's in part due to our focus on the MVPs. But it's really -- it's been strong fundamentals, the things that we've been building this business on for a long time, which is great advertising is engaging the right consumers. It's increasing household penetration, and it's increasing household penetration amongst those consumers who are -- have the propensity to buy the highest amount of product. And so that's driving the buy rate. So we feel very good that it's really fundamentally driven. It's not any unique demographic or customer or channel. It's broad-based across the board. So I'll turn to Nicki to talk about the category. Nicola Baty: Great. Thanks, Billy. So I think the category is still a little bit pressured, especially when we look at dog food. It's broadly flat in terms of household penetration. At the moment, we're not really seeing a significant turn either way. We are seeing more going through online than in-store. So that's still really a faster-growing part of the category. And there's definitely a trend for more going through to what I call affordable retailers. So whether that's club or also the likes of some of the mass grocers are doing particularly well in that area. Now generationally, we are seeing boomers coming out of the category. We're seeing the fastest-growing part being millennials and Gen Z. And then within income groups, we are seeing sort of lower income, particularly pressurized as well. As Billy said, I think why we're feeling pretty good about where our results are coming in at is our growth has been very broad-based. We're growing in every income group, and we're growing with every demographic. But we're particularly winning, especially with millennials and Gen Z, and we're growing at a fast rate with both middle income and higher income as well. Operator: Our next question comes from the line of Robert Moskow with TD Cowen. Robert Moskow: A couple of questions. John, I think you said that you still see a path to the 20% to 22% EBITDA margin target for 2027. But you've also talked about these extra staffing costs that you'll have to take on to handle extra volume and I guess, also cost for the new tech. So I just want to make sure that, that's still the case that you can take on those extra costs and still get to the 20% kind of the low end of that range because it does require a lot of leverage in '27. John O?Connor: Yes. Thanks, Rob. So yes, I think one of the points to also make, right, is that in the past, when we've made some staffing increases, we were a much smaller company, right? And we're much larger today. So each incremental line staffing that we bring in is much less consequential to our overall gross margin, right? And so we do believe, right, that we can bring on additional staffing, deliver volume growth in 2027 and get leverage on that staffing. In terms of the new technology, the costs that it would take to bring on would be capital costs. And those would be depreciated, which for the margin targets that we're talking about is adjusted gross margin, which excludes depreciation, right? So there would be overall cash costs and depreciation that would come with that, but the 20% to 22% is excluding the depreciation. We would, of course, have to staff those lines. But again, we'd only be doing that if we saw the need to deliver more volume into a strong demand backdrop. So it's a good question, Rob, but we do believe that we can get the leverage on the additional expenses or costs required to deliver additional volume in 2027. Robert Moskow: Okay. Can I ask a follow-up? First quarter, you have a big club customer that expanded the size of their fridges. And I think you got the full benefit of that expansion. But I believe in second quarter, they'll introduce a private label version into those fridges. Is any of the beat in first quarter from that dynamic? And would you expect still growth with that customer, but some deceleration in 2Q? William Cyr: Nicki will take that one. Nicola Baty: Thanks, Rob. So look, our club business is performing well, and it's more than one customer, as you can see. We obviously made a big expansion last year into a second club customer, too. The one thing I'd say with our club business is we have more than one item with our club retailers. We have a handful of items that appeal to -- with different formats that appeal to different consumers that are sitting in there. With one particular club customer, we did actually expand our portfolio. We brought in an additional item, which you may have seen, which was our beef roll. And that's delivered a lot of incremental sales that we really saw coming through in Q1, and we anticipate as that distribution has continued to expand, we will continue through the rest of the year. And also another club customer, we've clearly seen the expansion of a much larger fridge network. That's definitely raised the opportunity for more items to have more holding capacity in that club retailer. Clearly, we've seen the benefit being the largest player within that. But we haven't seen any meaningful impact really coming through as yet or significant impact coming through from any competition that's listed. We believe that's due to the increased visibility and the holding capacity that we can continue to bring through. So for us, we're very focused on making sure that we have a breadth of portfolio at the right price points and that we are accessing across all club channels where the shopper is looking to go. And we believe that, that will support sustainable growth for the future. Operator: Our next question comes from the line of Tom Palmer with JPMorgan. Thomas Palmer: In the prepared remarks, you noted the possibility of expediting the rollout of the new manufacturing technology and had kind of a comment that it could result in capacity outpacing sales. Could you maybe discuss the decision-making process here? Are the potential margin benefits, for instance, so significant that it might justify kind of having this excess capacity or maybe there's something else? William Cyr: Yes, Tom. It's -- there's a variety of factors that are going to be involved in that decision. In part, as you indicated, is if you bring on extra capacity, you will have, in essence, incremental costs. But I'd also make sure you think about the technology development and the validation process here. The longer we run the technology, the more we learn, the more certain we can be that the next line that we put in is going to be the best possible line, and it's going to have all the right unit operations in it. So to your question of what are the factors that we're looking at, it's obviously going to start with, is it delivering on the yield throughput and quality advantages that we think it will. And so far, we're very encouraged by what we see. The next question will be, are those gains big enough to justify pulling forward capacity just on that basis alone because we do believe there's also another level of benefit, which will come from higher return on invested capital where these new lines, if they have higher throughput, will put us in a position where the cost to add incremental capacity is lower than what it has been historically. And so we'll put that into the equation as well. But I would also say that one of the big factors is going to be how confident are we that we know exactly what this line needs to look like because every single line we've installed, we have found that there's something we can improve on the next line. And the longer we run it, the more we'll learn about what that will be so we get it right. So I would just put it under the heading of there's a variety of factors that we're going to consider, but all of them seem to be very positive. It's just when do you want to make that choice. Thomas Palmer: Understood. I also wanted to maybe ask on the cost environment and how you kind of see that evolving as this year plays out. For the first quarter, there was the call out for logistics. I think it was both weather challenges and then later in the quarter, higher fuel. As we think about the remainder of the year, should we look at the level of kind of logistics margin as indicative of what the rest of the year will look like because you had that weather piece? And then are there other inflationary call-outs we should be thinking about that might either flow through kind of that SG&A side or COGS? William Cyr: Let me take a shot at that, and I'll ask Nicki or John if they have anything to add to it. But you properly characterized the first quarter. There were 2 things that impacted logistics. One of them was the weather events that occurred in January and early February. And the second was the fuel cost that happened in basically beginning in March. The fuel cost, at least at this point, looks like it's going to continue on, and it will have an impact, and that's going to be embedded in our financials. I don't expect to see another one of the weather events, although the weather event created a driver shortage event. And so obviously, you're vulnerable to driver shortages. But the fuel cost is embedded and it's embedded in our thought process for the guidance we've given going forward. If there's a material change in the cost of fuel, that obviously will have an impact, whether it's positive or negative on how we think about the balance of the year. On the bulk of our cost structure, we are not completely locked, but we're largely locked on the bulk of our cost structure for the year. And so if there is going to be an impact from sort of the trickle effect of higher energy costs on our ingredient suppliers or the inbound transportation and whatnot, that will flow through, but it could flow through later in the year. It may not be as significant. We just have to see where that's going to flow. I don't know, Nicki or John have any thoughts to add on that, John? John O?Connor: Yes. Tom, I think you appropriately characterized it, right? When you look at the total logistics cost as a percent of sales in the first quarter, that's about the level we're expecting it to continue at for the rest of the year, but based on fuel costs, right, for the remainder of the year, as Billy said. Operator: Our next question comes from the line of Steve Powers with Deutsche Bank. Stephen Robert Powers: I actually wanted to ask around the economics of the omnichannel strategy and maybe focus in on e-commerce, just given the strength of the digital orders that you've been seeing and the growing percentage of sales that it represents. Is there a way to help us understand the unit economics in that area and whether the mix shift impacts the margin mix at all materially for the better or for the worse, either on the gross margin line or as it relates to SG&A? Just help us a little bit understand the puts and takes of that growing digital channel and if it has an impact on the P&L. William Cyr: Yes, we'll let Nicki take that one. Nicola Baty: Thanks, Steve. So omnichannel, we're doing a lot of work at the moment. We've built out our capabilities. I think that's the first thing I would say in omnichannel. It does require a little bit of different capabilities for us to build out in the G&A line overall. Our omnichannel is very focused on super serving our MVPs, and our MVPs are much more valuable to us. So the first thing I'd say is as we grow our business and grow our business in MVPs, this is a more long-term profitable way for us to be growing. So the MVP buy rate is obviously much higher. And we do believe we're going to get better returns from a CAC standpoint with each MVP that we bring in from a lifetime value perspective. Now in the short term, we will see a little bit of channel shift coming through. So the first thing I'd say with omnichannel is we've been underpenetrated a little bit in club. So you will see a slight dilutionary impact coming through in that part of the business. But regarding your specific question on e-commerce, I think the great thing about our omnichannel strategy is it's really based on a local fulfillment model, which is to be serving the business through the 39,000 fridge networks that we currently have. So that fridge network and the way that we serve our omnichannel customer, 82% of our online sales are going through that fridge network. Now that's already installed capacity. So we actually anticipate the ROIC from our fridges is going to be improving over time as we continue to drive omnichannel sales. And in terms of the economic profile, given it's in our current retail structure, we don't anticipate a significant shift coming through in that area. We may have a slight change in the economics of D2C coming through, but we still anticipate that will be a relatively small part of our business. John O?Connor: Yes. And if I could add to that, right? So Nicki mentioned the margin in club as we see that shift, right? We had strong growth in club in Q1, but we had also strong delivery of gross margin improvement as well. So as we grow the volume, we are seeing our ability to drive greater and greater efficiency in our cost structure and manufacturing. Stephen Robert Powers: Got it. Okay. Appreciate it. And the second question is a little bit more tactical. Billy, you called out the distribution wins, both in terms of more stores and more fridges per store. Can you guys just update us on sort of your distribution gain outlook for the year today versus where the year started? And just maybe remind us on what was originally embedded in guidance and if there's anything that's been achieved so far that would be incremental to that original outlook? William Cyr: Yes, I'll have Nicki handle that. Nicola Baty: Okay, Steve. So I think the main piece of news on distribution was what was announced on someone else's earnings call last week. So the retail lifestyle distribution, we will have coming through the back end of the year. We're still working through phasing of the incremental stores. In that retail lifestyle, we have 250 stores distributed by the end of the first half. And then we anticipate that by the end of the year, we will have around 700, but that will have to be carefully phased as we go through the year. So that's the main distribution gain in terms of retail. As we also look at, we anticipate that our online growth will continue as we go through the year. And we're nicely on track based on our budgeted goals for the number of multiple fridges that we will be securing. So that's really embedded through in guidance. Billy, is there anything else you'd like to add to that? Stephen Robert Powers: No, I think that's good. Operator: Our next question comes from the line of Michael Lavery with Piper Sandler. Michael Lavery: Just want to start on -- maybe just making sure I've got all the moving parts on pricing. I realize the macro environment is pretty dynamic, but you've made some tactical pricing changes. We see that flow through the numbers. You've talked about that running through kind of the balance of the year. But you've also then flagged some incremental cost pressures and potentially reevaluating maybe taking, I think you said some more pricing. Would those offset each other? Would you undo what you did? Is it partly just a function of differentiating it by SKU that you've got the breadth of the portfolio, the comment you mentioned some of the ability to do that? Or how should we think about all those moving parts? William Cyr: Yes. Michael, let me take a shot at that, and Nicki or John might have something to add. But I would just start with, we're very comfortable with the pricing that we have in the market today. We feel like it's made us very competitive. It's delivering the household penetration growth we'd like. And at the same time, we're expanding our gross margin. So we feel good about where we are. The comments that we made about pricing and the inflationary environment going forward is more perspective. We're just telling you that if, for example, there is some increase in the cost that is a more sustained increase in costs over time that we are willing to take pricing as we have in the past. we would be glad to take the right pricing. But we also will work on efforts to improve productivity, formulation changes and whatnot because we want to do everything we can to make this category as affordable as we can to make it -- to let it grow as big as it can be. So we will drive as much affordability as we can into the category. But from a fundamental perspective is we are committed to expanding our margins over time. And if there is inflation that would require us to take pricing, we are willing to take pricing. I don't know if you guys want to have anything to add to that? Michael Lavery: Okay. No, that's helpful. And I just want to follow up on a bit of the manufacturing you've characterized the scale and expertise as an advantage. And I think we're seeing that as much as ever. If you've got the lower cost and higher quality position, how long would you estimate it could take somebody else to replicate that? William Cyr: It's obviously a very difficult question to answer. All I can tell you is it took us a long time to figure out what we figured out in a long time and a lot of money to build the scale that we've built, and we're very committed to continuing that. So we are investing heavily in R&D and in new technologies. We're not standing still. Our expectation is that if somebody could figure out what we're doing today, spend a lot of money in a couple of years trying to catch up by the time they catch up, we'll be on the next generation of technology, and we'll be further ahead again. So our focus here is that we always want to be the brand that is leading the category in terms of driving the technology advancements that give us highest volume and lower cost. I also want to point out that if you think about our product lineup, -- we have a variety of different product forms. And the innovation that we've been focused on right now is on our bags and technology advancements on our bags, and we made huge gains there. But we have other product forms that we can continue to invest in and develop new technologies to make them even better as well. So I just -- I don't know how long it's going to take somebody to catch us. They'd have to spend a lot of time and a lot of money. That's what we did. But by the time they get to where we are today, we expect to be further ahead and on the next generation. Operator: Our next question comes from the line of Eric Serotta with Morgan Stanley. Eric Serotta: First, in terms of the lite version of the new technology, now that you're further along in the testing and validation phase and it looks like you're going to be -- or you said that you plan to roll that out to more lines. Can you help us dimensionalize the order of magnitude of savings versus your existing lines? I know you've spoken before about, well, it's less than sort of the full fat version from scratch, but any help dimensionalizing that would be helpful. And should we think of any benefits from that as just in terms of phasing, more benefiting '27 than '26. And then a follow-up on the questions around the large club retailer. As you speak to them and look at their store base and where they have the double-wide fridges, what's your sense as to how much more expansion for refrigerated fresh space is still to come at that retailer as they add it to more stores, sort of leaving aside the question of what the mix will be between your product and their private label and potentially others? William Cyr: Eric, I'll take the first part of that question, and I'll have Nicki take the second part. But as we said on the call, we don't want to give anybody any specific numbers on what the improvements are that we're going to see on this technology until we get further into the year, and we've had a chance to run it for an extended period of time. But you should take from the fact that we made the decision to install a second light line as a confirmation that this is a good technology and it's delivering on our expectations or exceeding. The metrics that we're focused on are input costs, which is really a measure of yield through the throughput that we get and the quality that we get. And what I can tell you so far is that we're seeing all those benefits, and we're at this point, just trying to dimensionalize how big are those benefits. And because the capital cost in these light lines is relatively small and also the time to disruption, meaning the time that we have to take a line down to retrofit it is also very brief. It's a very attractive technology investment for us. In terms of its impact this year, because it's only going to be impacting a portion of the line and we have to convert meaning a portion of our product lineup, and we have to convert parts of the lineup over time, it will have an impact in this year. It will be skewed towards the back half, and it will be relatively modest because we have to ramp our way into it. It's much more of a 2027 event. And in 2027, you should expect to see some benefits from it. Remember, what we said on the call was the technology, we should be, by the end of this year, have about 35% of our bag volume could be produced on lines that will have this technology. And we feel like that's going to be -- would contribute meaningfully in 2027. But again, it's a little bit too early because every one of these lines is a ramp-up, and you don't really want to lock in and say this is going to be until you've tested under a lot of different circumstances over an extended period of time. Nicki, on the club question. Nicola Baty: Thanks, Billy. So regarding club, those wide double fridges that are in at the moment are in 416 club stores. So that's around 70% of the estate. What it's done is it's opened up both a lot of holding capacity, but also an opportunity for incremental products, both from us and from others to be listed in those fridges. Those fridges are not planogrammed. So I think the key piece is that no matter which club store you're going into, the range may look a little bit different in there. We would never expect to only have Freshpet in those fridges. And we believe that this Fresh as a segment is still a very big growing segment within the category, and there will be more competition coming in. But we do believe those fridges has opened up a lot of opportunity for Freshpet to put more product assortment in. And we're seeing very encouraging signs by having the highest level of distribution of any fresh product in there today. Eric Serotta: And just to follow up on that, Nicki, of the 30% of stores that don't have the double-wide fridges, are those stores that will potentially -- some of those that they're still rolling out to? Or do you think the customers kind of tapped out the store base that the double wide fridges would be appropriate to, given the demographics of the consumer at the store or the store footprint or things like that? Nicola Baty: I think that's a decision for the retailer to make. We don't see any space constraints today beyond expanding those double-wide fridges, but clearly, that's not really within our control. Operator: Our next question comes from the line of Matt Smith with Stifel. Matthew Smith: A follow-up question on the omnichannel growth. You referenced 82% of orders fulfilled through the fridge network. In the past, there's been some constraint on fridge space and out of stocks. Where does that stand today? Is there still a capacity constraint on omnichannel growth from availability of product? Does that improve as fridges expand? And are you seeing greater incremental fridge interest from retailers as they look to participate in more omnichannel growth with more capacity on the floor? William Cyr: I'll let Nicki take that. Nicola Baty: Thanks. I think we're seeing a lot of interest in moving more to multiple fridges, which might be the standard fridges, but also concepts like fridge island or open-air fridges, which is obviously what you're seeing in club retail at the moment. Many of our conversations with retailers are all about maximizing holding capacity so that they can compete very effectively with online sales, but also having the right assortment in. The big bit of research that we've done shows that the biggest unlock for that MVP shopper is actually access. An MVP shopper is buying across multiple channels. They want to buy online and they want to buy in-store and they buy very frequently. So as we continue to partner with retailers, they're looking for help in how they unlock that MVP access, and they're also wanting to compete very much with local fast delivery versus maybe some pure-play retailers. So we believe we will continue to steadily expand multiples, but we also believe there'll be more opportunity in the future for different fridge configurations, whether it's open air or items. Operator: Our next question comes from the line of Marc Torrente with Wells Fargo. Marc Torrente: Last quarter, you talked to the expected bridge on underlying SG&A, which was limiting some of the sales and gross margin flow-through to EBITDA this year. Has anything changed on those underlying assumptions? And any color on the cadence of those items through the year, particularly on media spend? William Cyr: I'll have John take that. John O?Connor: Marc, no change to what we outlined last quarter and no change also to the cadence of media. So we expect to be front half weighted. You saw some growth in the media as a percent of sales in the quarter year-over-year, which was planned. And we'd expect that media intensity to be stepping down as a percent of sales as we go through the year. In terms of other G&A, excluding logistics and media, we'd expect that to be generally flat on a sequential basis as we go through the year. There will be some comps that will drive differential growth rates, but overall flat sequentially as we go through the year. Marc Torrente: Okay. I appreciate that. And then I guess just building on that a little more, part of the SG&A step-up is investment behind omnichannel, and this is going to be a growth channel over time. So just trying to get a sense of how much of the SG&A step-up is, I guess, onetime versus more going in nature. John O?Connor: Yes. So there's kind of 2 elements of it that are onetime, right? I'll remind you of the step-up in variable comp expense, which we said was about 1/3 of the increase in dollars on the year. The remainder is capability investments, and there will be ongoing capability investments over time, but not to the scale that we saw this year. And a lot of it, Nicki has outlined in terms of driving the things we're doing from an omnichannel perspective that we weren't before. Those are investments we needed to make in '25 that are carrying into '26. And so that's really just a big step-up. And so there were 3 items that we said were roughly equal in size, driving growth in dollars year-over-year, media, in dollars, variable comp expense and then the investments in our capabilities being the other one. Operator: Our next question comes from the line of Jon Andersen with William Blair. Jon Andersen: Two quick ones. On the technology, the new tech, you've talked a lot about quality and cost. I'm wondering if there is an element here around product range, innovation, differentiation that this tech can also enable, if you could speak to that? And then second, Billy, you mentioned product forms earlier. I wanted to ask a broader question about forms in super premium and ultra-premium pet food. Are you seeing any changes by customers or within any of your channels where customers may be leaning into kibble, kibble plus, fresh/frozen? Anything on that front or does kind of the fresh refrigerated remain the gold standard? William Cyr: Jon. I'll take the first one, and I'll have Nicki take the second one. One of the beauties of this new technology is its ability to produce a wider range of product forms, all within the context of our bags. But think of that as different shapes. It could include different proteins that we can't currently produce with today. And what it'll allow us to do is also give higher quality inclusions. So some of our products you might have noticed, we have very nice cranberries and carrots and whatnot, and we can get better looking and a more diverse supply of inclusions that go into the products. And so you should expect that a big part of the payback for the incremental investments in these new technology will come from a wider range of product innovation that will be both more appealing, but also higher quality than what you can get from some of the competitors going forward. So we spent a lot of time focusing on the economic benefits or the efficiency gains of input cost, throughput, yield, quality, whatnot, but innovation is going to be a big driver going forward. But that's not going to be a big driver until we have more lines installed because we have to have enough capacity to support those new items. I'll let Nicki take the second part of the question. Nicola Baty: Thanks, Billy. We are seeing some more shelf-stable products coming in that might have some claims of being sort of fresh, i.e., they can be refrigerated after being purchased. We're not seeing very much traction coming through certainly when we look at the Nielsen data on any of those products. We're definitely seeing a little bit more growth coming through in higher interest in functional foods and ingredients that might deliver functional benefits. We think that, that continues to be an opportunity more for Freshpet to explore. And then clearly, we see a lot of frozen entrants, which is a little bit of an easier barrier to entry to cross to get frozen products out there. But unless they're supported with very heavy brand investment, so advertising investment, also, it's a little bit hard for them to get traction, especially when they're head-to-head with a fresh product at retail. So that's really pretty much the gist of what we're seeing in the competitive landscape. Operator: Ladies and gentlemen, our final question this morning comes from the line of Yasmine Deswandhy with Bank of America. Yasmine Deswandhy: I just wanted to dig in a little bit more on your -- on the omnichannel unit economics. In your prepared remarks, you talked about adding new stores like Tractor Supply, where you recently announced expansion to up to 700 stores by year-end. The shopper there is a little bit different than some of the other retailers that you're in. So if you can maybe talk about your go-to-market strategy there, whether the approach will be different, product lineup, marketing, messaging and if it will impact mix at all for this year? William Cyr: Nicki, you'll take that one. Nicola Baty: Yes. So we've had the benefit of doing a long test with Tractor Supply. So we've really learned on what part of the portfolio is going to work for their specific shopper. As you may expect, we've got some larger pack and larger dog SKUs that have gone into that range. We also have put our Vital pet specialty range into Tractor Supply, combined with some of our top-selling home style creations lines as well. So the mix of products that we have has been performing very well, which is why we've had the green light to expand really through the year. In terms of margin positioning, there's nothing in that, that would be particularly either accretive or detrimental on the P&L. So broadly the same as where we stand today. And in media, very much supported with the same master brand advertising that we do overall. Yasmine Deswandhy: Okay. That's helpful. And then the 35% of that capacity using new tech by end of year, where does that number stand today? And as you continue to install new technology, will you be able to ramp at that same pace? Or as you manage through capital cost and margin impact, will it be kind of slower than the pace that you're doing it this year, faster? Or yes, any change there? William Cyr: Yes. I would tell you, it's a very low number right now as a percentage of our total capacity because as you heard, we started up the full version of technology in January, but it's a relatively small throughput line and is producing relatively limited SKUs. The lite version that we started up has only recently started up, and we're still in the ramp-up phase, but what we've seen so far is very encouraging. But between the 2, it's a relatively small percentage of our total volume. When we add on the third line and we get further out on the operating competency or expertise level, that's where you get to that 35%. The big question for us is going to be as we add these new lines, it will come in a little bit in fits and starts. It won't be a uniform pace, and it will in part be driven by the capacity needs that we have because at some point, we'll have converted all the products that are relevant to be converted to this. And then the question will be when do you need more capacity? Because as we add capacity, it's likely that we'll have to make a decision about which technology we use to add the capacity, and that will be really driven by when that capacity is needed and what product forms is needed to produce. So it's not going to be any -- it's not going to be linear. It's going to be more episodically driven than it is going to be something you can lay down on a straight line. Operator: Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to management for any final comments. William Cyr: Great. Thank you, everyone, for your time and attention today. I'll end today with a quote that I think is particularly appropriate for the challenging times we're operating in today. This is from an unknown. "The best therapist has fur and four legs." To which I would respond, "Pay them with Freshpet and give them treats as a co-pay." Thank you very much. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the Taboola Q1 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Aadam Anwar, Head of Investor Relations. Please go ahead. Aadam Anwar: Thank you, and good morning, everyone, and welcome to Taboola's First Quarter 2026 Earnings Conference Call. I'm here with Adam Singolda, Taboola's Founder and CEO; and Steve Walker, Taboola's CFO. The company issued earnings materials today before the market, and they are available in the Investors section of Taboola's website. Now I'll quickly cover the safe harbor. Certain statements today, including our expectations for future periods, are forward-looking statements. They are not facts and are subject to material risks and uncertainties described in our SEC filings. These statements are based on currently available information, and we undertake no duty to update them, except as required by law. Today's discussion is also subject to forward-looking statement limitations in the earnings press release. Future events could differ materially and adversely from those anticipated. During this call, we will use terms defined in the earnings release and refer to non-GAAP financial measures. For definitions and reconciliations to GAAP, please refer to the non-GAAP tables in the earnings release posted on our website. With that, I'll turn the call over to Adam. Adam Singolda: Thanks, Aadam. Good morning, everyone, and thank you for joining us today. We're starting the year off strong with our first quarter results exceeding the high end of our guidance across all metrics. We're seeing continued acceleration in our growth, which gives us the confidence to raise our full year guidance across the board. We now expect excess gross profit growth of 8% while maintaining 30% adjusted EBITDA margins and strong free cash flow conversion. As I said last year, we believe we've reached an inflection point with Realize driving advertiser success. I'm confident that this momentum gives us a clear path to double-digit growth over time. We're not there yet, but we're moving in the right direction, and I'm proud of the team executing against it. In the first quarter, we repurchased approximately 7 million shares for a total of $23.5 million while continuing to invest in R&D to support our long-term growth ambitions. And including this quarter, we've now bought 19% of Taboola between 2025 and year-to-date 2026, which we're very pleased with. We plan to continue allocating the majority of our free cash flow towards share repurchases, which we view as our most compelling capital allocation opportunity. Before getting into the details, let me remind you who we are and how we compete. Taboola is one of the largest performance advertising companies outside of search and social, referred to as the open web. Similar to how Google and Meta understand intent within their own platform, Taboola understands intent across billions of consumers who read, watch and engage with trusted OEMs, apps and publishers across the open web. We then convert these signals into profitable and measurable outcomes for advertisers. That proprietary intent data and the AI-driven conversion machine we've built, that is Taboola. In a world where AI is evolving so quickly, I believe the winners will be those with either unique data that LLMs cannot get or access to unique supply and distribution. Taboola has both. To execute on our mission in 2026, we're focused on 3 priorities: first, investing in our technology to advance Realize; second, with Krishan Bhatia joining as the Chief Business Officer, further verticalizing our sales organization around our ideal customer profiles, where we're seeing stronger retention and spend growth over time; and third, strengthening our brand. As advertisers see stronger results on Realize, our ability to expand the budgets we manage continues to grow. In the first quarter, Realize drove increases in both scaled advertisers, those who spend more than $100,000 a year with us and the budgets we manage. Scaled advertisers grew 3.5% and average revenue per scaled advertiser grew 5%. As we scale, we benefit from more data, which powers our AI systems and drives continuous performance improvements, reinforcing our ability to grow budgets over time. This progress comes from our investments we've been making across our technology, strengthening our user graph to better understand users across sites and devices, leveraging unique signals from Taboola News, high-intent content like product reviews, intent signals driven by a massive amount of people clicking on our ads, along with ongoing improvements to our bidding and core algorithms. Just a few weeks ago, we introduced Realize+ our agentic framework for advertisers, something the team has been building towards for a long time. Meta has Advantage+. Google has Performance Max, and now we have Realize+. The idea is simple. Advertisers who want greater control, such as setting budgets by strategy, defining goals by geo and managing campaigns more hands-on can continue to use Realize. However, for those who prefer full automation, they can simply provide a budget and objective and Realize+ will take care of the rest, including audience targeting, creative generation, placements and continuous optimization. What matters here isn't just simplification, it's performance at scale. By reducing operational complexity and improving outcomes, Realize+ reacts autonomously to the dynamic marketplace in real time, deciding and executing strategies which drive better performance outcomes. This allows advertisers to confidently shift more budgets into the system over time. That's how we grow. We want to make it really easy to use Realize and succeed. Our second priority is our go-to-market, where we're building a more repeatable engine to grow our share of advertisers' budget. The foundation of this strategy is verticalizing, organizing our sales team by industry and focusing on clearly defined ideal customer profile, what we call ICPs. For Taboola, these ICPs are performance-oriented advertisers who prioritize measurable outcomes, require scalable customer acquisition and operate in mid- to low-funnel categories such as travel, health care, auto, personal finance and more. By aligning our verticalized teams to these ICPs, we develop deeper expertise, execute faster and stay focused on delivering advertisers outcome. Lastly, on brand and perception, we're making real progress in how the market sees Taboola. As we invest in products like Realize+, onboarding incredible advertisers and partners, we're shaping our brand to be recognized as an AI-driven performance platform. This takes time, but we're building trust and shifting perception. In the end, I measure this by outcomes. Are we breaking more advertisers, driving more demand and growing faster or not. At the end of the day, companies either accelerate their growth or they don't. And to bring it all together, we feel good about where we are and even more importantly, about where we're going. We're seeing early signs of what this business can become when technology, data and execution come together. It's still early, but we're moving in the right direction. It's an exciting time for us at Taboola, and we look forward to updating you all on our progress throughout the year. With that, I'll hand it over to Steve. Stephen Walker: Thanks, Adam, and good morning, everyone. We're happy to start the year on a strong note. In the first quarter, we continue to build on the momentum we built last year, delivering results that exceeded the high end of our guidance across every metric. In the first quarter, revenues grew 9% year-over-year to $466.4 million. We remain focused on increasing advertiser investments through Realize, our performance advertising platform. Continued product enhancements and new feature launches contributed to solid execution during the quarter. This was evident in our first quarter scaled advertiser metrics, which showed a 3.5% rise in the number of scaled advertisers and a 5% increase in average revenue per scaled advertiser. Ex-TAC gross profit increased 11% year-on-year to $168.1 million in the first quarter. Growth was primarily driven by higher advertising spend, largely supported by the scaling of Realize as well as strong performance from Taboola News and Bidded Supply. Gross profit for the quarter was $129.6 million, up 9% year-over-year. Growth in ex-TAC gross profit contributed to this performance, but was partially offset by an increase in infrastructure and operational costs as we continue to scale the business for future growth. Net income for the quarter was $59.1 million with non-GAAP net income coming in at $17.2 million. Net income came in higher due to proceeds from a onetime legal settlement. This settlement was adjusted out of non-GAAP net income. Adjusted EBITDA for the quarter was $26.7 million, a margin of 16%. This reflects continued discipline in expense management while continuing to invest in strategic priorities to support long-term growth. And I would note that the legal settlement I mentioned previously does not contribute to adjusted EBITDA. Foreign exchange was a meaningful headwind in the quarter. On a constant currency basis, first quarter ex-TAC gross profit showed a tailwind of approximately $3.6 million, while operating expenses saw a headwind of approximately $8.2 million, primarily reflecting the strength of the Israeli shekel, where we have a significant employee and cost base. In aggregate, FX represented roughly a $4.7 million headwind to the first quarter adjusted EBITDA. Excluding this impact, adjusted EBITDA would have been $31.4 million, which would have represented an adjusted EBITDA margin of 19.1%. We expect FX to remain a headwind for the remainder of 2026. In terms of cash generation, we had $108.7 million in operating cash flow in the first quarter and free cash flow of $90.3 million. Free cash flow for the quarter benefited from the legal settlement I mentioned previously. As a reminder, we expect to sustainably convert free cash flow from adjusted EBITDA at a 60% to 70% rate over any typical 4-quarter period. Turning to the balance sheet. We remain in a strong financial position. We ended the first quarter with a net cash balance of $83.9 million. Cash and cash equivalents totaled $150.3 million, which more than offset our long-term debt of $66.4 million. Last year, we secured a $270 million revolving credit facility. And as of March 31, we maintained approximately $203.6 million of available liquidity. We remain focused on disciplined capital allocation, prioritizing investments in sales and R&D while returning excess capital to shareholders through share repurchases. In the first quarter, we repurchased approximately 7 million shares at an average price of $3.41 for a total consideration of $23.5 million. As a result, shares outstanding declined to approximately 273 million at quarter end, down from about 276 million at the end of 2025. We have approximately $160 million remaining under our authorization and continue to view share repurchases as a compelling use of the majority of our free cash flow. Moving to guidance. For the second quarter, we expect revenues to be between $492 million and $505 million, gross profit to be between $147 million and $152 million, ex-TAC gross profit to be $189 million to $194 million, adjusted EBITDA to range from $49 million to $55 million and non-GAAP net income to be $36 million to $43 million. Reflecting continued adoption of Realize and its features, we are raising our full year guidance across all metrics. We now expect revenues to be between $2 billion and $2.06 billion, gross profit to be between $610 million and $630 million, ex-TAC gross profit to be $760 million to $781 million, adjusted EBITDA to be $222 million to $240 million and non-GAAP net income to be $167 million to $191 million. I would note that our adjusted EBITDA guidance reflects a forecasted headwind from foreign exchange rates of approximately $13 million in operating expenses, partially offset by ex-TAC tailwinds. Without this headwind from foreign exchange, adjusted EBITDA margins would be approximately 34%. In summary, the first quarter results exceeded the high end of our guidance range across all metrics, reflecting strong execution and continued momentum in the business. We continue to build on the momentum we've seen with Realize and are focused on accelerating growth. We continue to stay disciplined in our approach and our steady progress reinforces our confidence in our ability to return to sustainable double-digit growth over time. With that, let's move to Q&A. Operator, can you please open the line for questions? Operator: [Operator Instructions] Our first question comes from the line of Daniel Medina of Needham & Company. Laura Martin: Can you hear me? It's Laura Martin, can you guys hear me? Stephen Walker: Laura, we hear you, if you can hear us. Laura Martin: Okay. Yes, I just didn't know if you can hear me. Yes. So I have 2. One is on the scaled advertiser number, these numbers look great. Can you remind us like why you make this distinction between scaled advertisers and like -- and what is the -- is the churn level different with non-scaled advertisers? Or why do we make this distinction in scaled advertisers? And then the other thing is, I think I saw it when we were talking last week, Adam, we were talking about your integration into Claude and how you sort of think that the -- maybe these LLMs are kind of a new source of demand for Taboola. Could you go into how you're thinking about some of these Agentic AI LLMs and whether you think that drives revenue growth for you in the future? Adam Singolda: It was good seeing you last week at POSSIBLE in Miami. So with the first question as it relates to scaled advertisers. The reason we think that matters is, as a performance advertising platform, people try Taboola and some of them obviously succeed and some of them need more work to succeed. But what happens when someone kind of exceeds the $100,000 mark, they tend to be very stable line of revenue for us. It means they've tested enough, they tried enough of our capabilities to feel good about the performance that they were hoping to get. And at that point, for us, that kind of becomes more sustainable, predictable line of revenue, and we can grow that base over time. So I think for investors, we think that's an important metric because it's a good proxy for, one, how are we doing as a technology platform? Are we able to grow that number? Are we able to get more and more clients to be happy with what we're seeing as that compares to Meta and Google. And two, that revenue is fairly predictable as it relates to churn rates and things like that, like you mentioned. So we think that's a good metric to track. Internally, there are leading indicators that get advertisers to that stage. So usually, we lower churn rates, they're able to spend more money with us until they hit that point of scaled advertisers. So that's why we track it internally. And I think for investors, that's a good proxy for our progress as a technology company as well as how sustainable is that revenue moving forward. About Agentic AI, which we talked a lot about last week, and I'm personally very excited about it. I think as an industry, we're going through a significant revolution with AI, not only affecting almost everything we see and touch, but now specifically with programmatic protocols. We're spending a lot of time with agencies and big advertisers. And for the last 30 years, they've spent tens of billions of dollars buying programmatic different types of supply. And the challenge with programmatic protocols is that they normalize for the kind of the lowest denominator. They can't really take advantage of the unique data different companies have. They can't take advantage of the unique supply companies have. And with agents now kind of agent-to-agent era we're embarking, you can now -- with Taboola, you can go to Claude and using an MCP, basically a skill that is able to talk within the app or within the CLI, the command line, if that's what you're using, you can talk to Taboola Realize or you can talk to Taboola Realize+, never leave Claude and basically interacting your objectives. The reason this is exciting is you can do the same with Google, you can do the same with Meta, you can do the same with Taboola and even TV, which means for a $200 subscription with Claude, you can now buy search, social, open web and TV. And that is quite big. So it's early days, but I think things will move very fast. And I suspect a year from now, Laura, as you and I do a fireside chat and talk about where things stand, I suspect agent-to-agent kind of advertising buying will be a much bigger portion of the industry. Operator: Our next question comes from the line of Barton Crockett of Rosenblatt. Barton Crockett: I was curious, you credited Realize was driving some of the upside in the quarter and in the guidance for the year. And I was just wondering if you could be a little bit more specific about what in Realize was driving the upside. Was that using Realize to perhaps go beyond some of the traditional bottom of page inventory that you've been trafficking in going into the other parts of the page? Or was it just more general kind of the capabilities that Realize that was driving? That would be one question. And the other question is on the guide. You guys are raising the ex-TAC gross profit guide and revenue guide at both the high and low end, but the EBITDA net income guides are less changed. I mean, unchanged on the EBITDA at the low end and unchanged on the non-GAAP net income at the high end. And so why isn't the revenue upside flowing to the bottom line as much? Adam Singolda: I can start, and thank you for the question. So on the first one, with Realize, essentially, we're really seeing utilization of all the various kind of capabilities the platform offers for advertisers being used more, which accelerates advertiser success, which accelerates essentially spend on our platform, and that's why we're able to raise our guidance and feel good about our way towards double-digit growth consistently and organically as a company. And that includes things such as format diversification, which you mentioned. So it's much, much easier now to start a campaign with either vertical video or display. On the supply side, we're plugged into much more, I would say, kind of traditional display inventory if that's what advertisers want; vertical format, if that's what advertisers want. On our OEM, we have full screen kind of advertising placements, in-app inventory, which is about -- again over $100 million a year as well. So we're seeing basically on the supply also further diversification of types of inventory advertisers can get. And then one of our probably leading tech features that advertisers really use is predictive audiences, again. So advertisers keep using our ability to predict how many more conversions they can get based on the seed of conversion they already have with us. And to oversimplify this, what that means if you're a personal finance mortgage company and you were able to get 1,000 leads with Taboola, we're able to predict how much money do you need to give us to get the next 1,000 conversion, which is really comforting for advertisers who are looking for stability and predictability with us. They want to know how much more money do they need to give us so they can further scale their spend and work with us on the platform. And that's something that advertisers really like. And as you've probably seen with Realize+, this will be, I hope, and that's what I expect over time to see even further kind of acceleration of how advertisers use Taboola. With Realize today, advertisers open sometimes dozens or hundreds of campaigns with Taboola. And they have to manage that manually, which some of them really like to do that to have that level of control. But with Realize+, Realize+ may open for advertisers dozens, hundreds and sometimes thousands of campaigns for you on a daily basis, geo campaigns, different bidding strategies campaign, retargeting, different things. So I hope to see even further automatic utilization of what Realize can do with Realize+. But all of those things as a mix are able to increase spend, grow the scaled advertisers and, of course, help us accelerate the guidance for the year. Stephen Walker: Regarding -- hey Barton, regarding your second question about kind of the flow-through on some of our guidance, I think the biggest factor on why we didn't flow through as much of the beat on adjusted EBITDA and non-GAAP net income as we did on ex-TAC and revenue has to do with foreign exchange rates, primarily the Israeli shekel, in fact. So the Israeli shekel will impact our OpEx by about $13 million this year. It's a $13 million headwind. And that obviously has a big impact on that adjusted EBITDA. We're happy though that even with that headwind, we're still guiding to 30% adjusted EBITDA margins for the year. Without that headwind, our adjusted EBITDA margins would be around 34%. So generally, it's related to exchange rates. Same thing on non-GAAP net income, except it's actually even a bit more extreme because we tend to hedge our cash expenses but we are not 100% hedged, unfortunately, because you can never be perfectly hedged. But we tend to hedge our cash expenses. We don't hedge our noncash expenses at all. So therefore, higher exchange rates have an outsized impact on non-GAAP net income. So we're -- we always try and be a bit more conservative there and the flow-through is less because of that. Operator: Our next question comes from the line of Tyler DiMatteo of BTIG. Tyler DiMatteo: Steve, 2 for you. My first one, on the guidance, how much conservatism is baked into that from a macro perspective, given everything that's going on in the world today? And then maybe how much of a contribution from something like live events? I know in the past, I believe you had said live events is maybe more of a traffic boost than an actual revenue boost per se, but just kind of curious on those 2 things. And then the second question for you, Steve. Has the time line to double-digit growth? Or I guess, how has the time line to double-digit growth changed at this point? Stephen Walker: Yes. So good questions. Thanks for asking them. So I think, generally speaking, when it comes to the macro, it's been actually pretty impressive that the advertising marketplace, especially our advertising marketplace in the performance space has been fairly resilient in the face of wars, tariffs, everything that's going on kind of in the macro, it's continued to be relatively resilient. So I find that pretty impressive, and we continue to say that it's been a fairly stable marketplace. So that's good. When it comes to the events like World Cup and the elections and things like that, I think we've mentioned this in the past, and you're right in your characterization of it, which is that it's more of a traffic event for us than it is an advertiser interest event for us. The reason for that is that those events tend to be more branding oriented. So in elections, it's usually the candidates trying to get their names out there and send branding messages, either branding themselves or anti-branding their opponents. We do get some flow-through from that. Usually, it's more around like campaign contributions and very specific performance actions that they also want to achieve. But generally speaking, it's much smaller impact on us than it is on, say, connected TV marketplace or something along those lines. Same thing for World Cup. It's usually companies like Coca-Cola trying to build their brand by tying themselves to those events. So it usually is more of a traffic impact for us with a small amount of flow-through on the advertising side. Then to your last question about time line to double-digit growth, I don't think -- we feel good. I think Adam mentioned in his prepared remarks that we still feel good that we're on the path to consistent double-digit growth. We still feel like we've seen an inflection in our business, and we're continuing to make progress towards that. Obviously, you can see in our guide that we're not there yet. So Adam is not happy yet about where we're at, but we're making progress. I wouldn't say anything has changed on the time line with anything we've seen recently. Operator: Our next call comes from the line of Brianna Diaz of Citizens. Brianna Diaz: This is Brianna on for Matt Condon. Can you just unpack the outperformance in the quarter? And what were the contributions of growth from new products such as Realize and DeeperDive? And if any at all growth is embedded in the full year guide from those products? And then on Realize+, it's just doing more of the live work for an advertiser. Is there anything to know on just the take rate and pricing and how that might compare to a traditional campaign? Adam Singolda: I can start, Steve, feel free to join. So in terms of the contribution right now, it's primarily driven by our strategy to make advertisers successful and spend more money with us and get more advertisers to work with us. So most of what you're seeing now in the business is directly correlated to us making more advertisers successful and existing advertisers spend more with us, which is exactly kind of tracked through the scaled advertisers you're seeing, 3.5% more -- numerically more advertisers, and then you're seeing increase in average spend per advertisers. So that's primarily Realize, which is most of our revenue as a company. Again, one of the things that's unique about Taboola, when you look at our $2 billion of spend, gross revenue, the vast majority of it is direct to Realize. So it's not programmatic. It's not through channels, it's advertisers buying from us, much like they are buying from Meta and Google. And to me, that's a very unique part of our business and the company. DeeperDive, which you mentioned, is growing really fast. I mean it's quite -- we just had a Board meeting yesterday, and we talked about how much fun it is to kind of start a start-up within a start-up like DeeperDive completely organically, having a small team of really kind of ventures working so hard to bring kind of a ChatGPT-like product for the open web. And I would argue in doing things that they can't do like suggesting questions based on first-party data that we have, and it's been used by incredible partners like you said today, Nexstar and Huffington Post and BuzzFeed and Independent and Reach and many -- and that business is growing. Financially, that's still small, though I did mention that what we're seeing is unique. When I look at effective CPMs on a DeeperDive page or when I look at advertiser conversion rates, the return on ad spend from DeeperDive compared to anything else, it's at the top. So if DeeperDive continues to scale, I'm excited about the impact it can make to our publishers, the impact it can make to advertisers and the effect it can make to us. You may also know that I'm fairly optimistic about Gemini and Google given what we're seeing in DeeperDive, I suspect Google is seeing similar kind of trends for Gemini. So that's about that. About Realize+, it's -- yes, you're right. It's basically making it dramatically easier for advertisers. By the way, also big advertisers who may have a Realize kind of operation, but also want on top of that to have a PMax-type line of business with us. So Realize+ can work very well for huge advertisers, big advertisers and smaller advertisers. But the idea is that the amount of permutations of Realize that our product team has brought to market is quite significant. There's a lot of different things you can do, more than a team of 1 or 2 or 3 humanly possible can execute on. But Realize+ is unlimited. It can do everything for you. It doesn't sleep 7 days a week. So we're optimistic about where it can go. But of course, early days, and we'll continue to update. Operator: Our next question comes from the line of James Kopelman of TD Cowen. James Kopelman: The first one is for Adam. Taboola has been a company that's benefited over time from acquisitions and some really large-scale partnerships. Obviously, Connexity a few years ago, and then the Yahoo! agreement, Apple News and other large partnerships. My question is, do you see Taboola's growth story as largely organic going forward? Or do you see potential opportunity for additional acquisitions over time or partnerships in new verticals? And what sort of adjacent or additional competencies would Taboola potentially look to add over time as you continue to grow and look to capture share -- greater share of digital advertising? And then I'll have a follow-up for Steve. Adam Singolda: Yes. That's a great question. So I'll say 2-part answer. One, I think most of our growth will continue to be organic. And at the same time, I'm quite happy to buy 19% of the company back since last year. So I like that we're not only accelerating growth, not only I see organic -- I keep saying consistent and organic. I use those words because that's how I expect us to continue to grow organically and consistently, which is something we care about and I think investors should care about. So that's how we see our future. So when I say double-digit growth, I mean organically and consistently. It doesn't mean we're not looking at stuff all the time, but our appetite for a big kind of type of thing is small. And at the same time, like I said, I enjoy reducing the share count as a shareholder myself. I like that we're able to use our free cash flow, which is growing to put that to work, and we think that's a great investment for us. So that's something we intend to continue to do this year. Now in terms of -- I can tell you, we had yesterday, our COO, our Chief Business Officer, Krishan and I spent some time together. And we're thinking about big growth engines over the next few years. It's kind of divided into 3. One is on the business side, there's a lot of sales growth with agencies and advertisers and partnerships. I think there's a lot of companies who want a really good friend, who want to drive -- build an advertising business for them. We're obviously so happy with what we've done with Yahoo! and Apple and Microsoft over the years, but I think there's going to be more of those, and we're already in conversation now with some really exciting companies, big companies that want to -- they want a non-Google, Facebook friend, and we are the best friend they can have, and they can be the best ones for us. The second thing is on the technology side. You're seeing us kind of investing a lot with Realize and Realize+ and more things coming up on the road map because we think that Taboola as a technology company can do a lot for ourselves by making advertising more successful and growing the ARPU or kind of like revenue per publisher or partner over time. So that's -- and our pipeline on the publisher side has never been stronger. I mean the meetings we're having, the seniority of people that take meetings is so great to see. And I think it's driven by DeeperDive and the strategic things we're doing that they want to see what we're working on. And the third one is just AI in general. Our COO is leading an internal kind of huge multiyear project starting now, whereby we're constantly imagining Taboola as what we refer to as AI native company. What would we look like if we started today and constantly looking for innovation and growth and how we can all be more productive internally and externally. So between those 3 kind of big waves of growth, organically and consistently, I'm quite excited. James Kopelman: Great. And then a quick follow-up for Steve. I think Taboola has currently a little under 1,600 employees, if I understood that right from the 10-Q. That's down quite a bit from, I think, about 2,000 employees roughly a year ago. So I assume you're seeing some efficiency gains. And I'm wondering how much of the efficiency is tied to AI initiatives or other areas within the company? And I guess, looking ahead a year or 2, what can you tell us about potential headcount trends, maybe areas of hiring as you continue to ramp Realize and how you balance those investment opportunities around Realize against the focus to remain prudent with regards to cost discipline going forward? Stephen Walker: Thanks, James. Yes. So first of all, just on the numbers side of things, we're actually more like around 1,950 employees, right now. So I'm not sure maybe that was a subset of our company or something that you were looking at, but we're around 1,950. That's still down from where we were. So we were over 2,000. We did just do a kind of an adjustment to our restructuring to our company that impacted that. Frankly, that was a relatively business as usual type -- ordinary course of business type of adjustment. So we were just reducing some investment in certain areas that we didn't want to invest in as much anymore. We're still hiring in other areas. That one was not as much about AI, although we are always looking at, as Adam said, areas where we can use AI to become more efficient. And I don't want to necessarily predict the future too much because our future headcount growth and everything else is dependent partially on how we grow as a company. But what I would say as I look forward is, for sure, if I'm asking myself, can we be more efficient with the same number of people? My answer is yes. I mean, ultimately, our R&D group, for instance, is talking about a 10x project where they use AI to 10x the impact of their engineers. It doesn't mean we necessarily see needing less people, but it means we can become way more efficient with the people we have, and we can support growth at a more efficient level. So I think the trend line without getting into specific headcount numbers, I think, is towards more efficiency. And I really -- we're all very excited about AI and the impact it can have on kind of our cost efficiency and everything going forward. Operator: Our next question comes from the line of Naved Khan of B. Riley Securities. Naved Khan: A couple of questions from me. So maybe just on Realize, can you just talk about the ads -- the spend per advertiser on Realize and how it compares to the legacy native? And are you adding more verticals besides the one you've mentioned in the past, like finance, travel, et cetera? So that's one. And then maybe just talk about the costs related to AI. So as you put in more AI features in your products, how should we be thinking about the impact from a cost perspective as the adoption increases for these products? Stephen Walker: Sure. Let me -- I'll jump in and answer this. So when it first -- on your first question about Realize, I think what we're doing, we've talked about in the past that we're focused on 3 things, which we think will impact our growth with Realize. One is, we're focusing on ICPs, ideal customer profile verticals. I wouldn't say we're adding more of those at this point. For right now, we're basically trying to focus our organization on making the ones that we've identified successful. So that includes tech efforts to try and make them work. It includes focusing our sales teams to make sure they're going after the right verticals. And the result of that, we believe, will be higher retention and more spend from our advertisers in general, especially within those verticals. The second thing we're doing is we're investing in our brand. So we're trying to reposition ourselves from being a native company to being all performance advertising. So that is an ongoing effort. I think we're early in that process, and that's something we're continuing. And then lastly, we're investing in tech, which I think Adam addressed a bit earlier. A lot of good things going on there. We're continuing to see opportunities to build on our product and to continue to develop more capabilities for our advertisers. Realize+ being a great example of that where we're making it so much easier to buy with us. We also released a skill in Claude now where you can interact with Realize directly in an agent-to-agent way. So things like that are going to drive growth in the future for us, and that's where we're focused. To your second question, if I understand what you're asking, I think, generally speaking, AI is an opportunity for us to do more with less. So it doesn't -- and again, I think what that means is that we should become more cost efficient going forward. That includes the cost of the AI itself. Obviously, we have to pay for the AI, but we're also trying to be very smart about that. So for instance, in many cases, we're hosting our own AI. So we bring in the open source AI models. We host it on our own infrastructure, which fortunately, we've built the company from the beginning to host our own infrastructure. So we host the AI models on our own infrastructure. What that means is you may not be up with the absolute latest model from whichever model you're using, but it's a lot less expensive to host it yourself. So generally, AI is going to drive cost efficiencies even after the cost of the AI itself. Operator: This concludes the question-and-answer session. I would now like to turn it back to Adam Singolda, CEO, for closing remarks. Adam Singolda: Thanks, everyone, for being with us this morning. Q1 wasn't just about beating the numbers. It's another step towards building the largest kind of walled garden outside of the walls, helping advertisers drive outcomes on the open web through Realize and now through Realize+, while growing our partners across publishers, apps and OEMs. We're executing on our priorities, raising the guidance with confidence in our path to double-digit growth organically and consistently. I love that we're able to buy 90% of our shares since last year, and we do intend to aggressively keep buying shares this year. We appreciate your support and looking forward to staying in touch these weeks ahead. Thanks, everyone. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. Star zero, and a member of our team will be happy to help you. Hello, and welcome, everyone, joining today’s Q1 2026 SLR Investment Corp. earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. Please note this call is being recorded. We are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to Michael Gross, Chairman and Co-CEO. Please go ahead. Michael Gross: Thank you very much, and good morning. Welcome to SLR Investment Corp.’s earnings call for the quarter ended 03/31/2026. I am joined today by my long-term partner, Bruce Spohler, our Co-Chief Executive Officer, as well as our Chief Financial Officer, Shiraz Kajee, and members of the SLR Investment Corp. Investor Relations team. Shiraz, before we begin, would you please start off by covering the webcast forward-looking statements? Shiraz Kajee: Good morning, everyone. I would like to remind everyone that today’s call and webcast are being recorded. Please note that they are the property of SLR Investment Corp. and that any unauthorized broadcast in any form is strictly prohibited. This conference call is also being webcast from the Events Calendar in the Investors section on our website at srinvestorancorp.com. Audio replays of this call will be made available later today as disclosed in our May 5 earnings press release. I would also like to call your attention to the customary disclosures in our press release regarding forward-looking statements. Today’s conference call and webcast may include forward-looking statements and projections. These statements are not guarantees of our future performance or financial results and involve a number of risks and uncertainties. Past performance is not indicative of future results. Actual results may differ materially as a result of a number of factors, including those described from time to time in our filings with the SEC. We do not undertake to update any forward-looking statements unless required to do so by law. To obtain copies of our latest SEC filings, please visit our website or call us at (212) 993-1670. At this time, I would like to turn the call back over to our Chairman and Co-CEO, Michael Gross. Michael Gross: Thank you, Shiraz, and thank you to everyone for joining our earnings call this morning. Following a year of relative outperformance and strong portfolio credit quality metrics, we are pleased to report a solid start to 2026 for SLR Investment Corp. This is despite the confluence of events in the first quarter that created challenges for our industry. These include rising geopolitical uncertainty and elevated concerns about the disruptive impacts of artificial intelligence on the economy, and to a greater extent the private credit asset class. These dynamics have triggered a speculative and often negative global conversation about the industry unlike anything we have seen in our twenty years of operating SLR Capital Partners and decades of experience managing BDCs designed to match the ownership of illiquid private credit assets with permanent equity. While we expect an elevated focus on private credit and BDCs to persist through 2026, we think it is important to remind investors we have been positioning the portfolio for this moment of recalibration of risk in direct lending for a long time. We believe SLR Investment Corp.’s conservatism and focus on collateral-based specialty finance strategies should enable our portfolio to weather uncertain economic conditions while allowing our origination teams to be opportunistic in an improving investment climate. Additionally, we continue to embark on growth initiatives across our specialty finance investment strategies. We also believe that both institutional and private wealth investors are increasingly recognizing SLR Investment Corp.’s value proposition and place in a portfolio’s allocation of private credit that provides differentiated exposure. For the first quarter of 2026, we reported net investment income, or NII, of $0.33 per share and net income of $0.31 per share. NII was down sequentially primarily due to three factors: first, the lag impact on our floating rate loans from the Fed’s 50 basis points cut in the fourth quarter of 2025; second, a contraction of the comprehensive portfolio as deal activity slowed meaningfully in what is already a seasonally light quarter amid rising economic uncertainty; and lastly, a decline in fee income. As of March 31, the company’s net asset value per share was $18.16, down one-half of 1% sequentially but flat year-over-year. SLR Investment Corp.’s net income for the quarter equates to an approximate 7% annualized return on equity. While we recognize that the company’s net investment income ROE did decline sequentially, we continue to expect that our net income ROE, or total return, remained above the public and private BDC industry average in the first quarter and continued to compare favorably on both a one-year and three-year basis. During the first quarter, SLR Investment Corp. originated $242 million of new investments across the comprehensive portfolio and received repayments of $360 million for net repayments of $180 million, resulting in a quarter-end comprehensive portfolio of $3.2 billion. The primary driver of new originations continues to be our commercial finance strategies, which we believe offer more attractive risk-adjusted returns in today’s competitive private credit markets. As of 03/31/2026, approximately 85% of our portfolio investments were senior secured specialty finance loans, which remains the highest percentage on record and offers a risk profile that is highly differentiated from other BDC portfolios available to investors. We continue to believe that SLR Investment Corp.’s investment portfolio mix shift over the last couple of years to asset-based specialty strategies provides greater downside protection than cash flow loans through our strong credit agreements, actively managed borrowing bases, and underlying collateral support. We expect to continue to approach new investments in cash flow lending opportunistically, especially if signs of widening spreads and improved terms endure. For investors concerned about the uncertainty, technology obsolescence risk, and enterprise value destruction for the software industry from the burgeoning threat of artificial intelligence, we believe that SLR Investment Corp.’s portfolio, with its lack of software exposure, offers a safe haven for investors. Our direct industry exposure to the software industry remains at approximately 2% of our portfolio’s fair value as of 03/31/2026 and is one of the lowest amongst publicly traded BDCs. During the first quarter, we established an artificial intelligence investment committee responsible for assisting investment teams with evaluating both new opportunities as well as the existing portfolio as it relates to the risk of AI to both companies and industries. Despite our de minimis exposure to software, we believe that AI will have an impact either positively or negatively in nearly all industries and are assessing every portfolio company and new investment opportunity accordingly. Our underlying analysis includes evaluating the impact to business model, customer base, and competitive moat from AI as well as incorporating company- and sector-specific evaluation categories. We will apply this process during underwriting of new investments and will reevaluate all portfolio companies at least once per quarter. In addition, we are implementing AI in our specialty finance businesses to assist in analyzing borrowing bases and covenants, streamlining routine workflows, and improving legal document reviews. Overall, we are pleased with the composition, quality, and performance of our portfolio, a direct result of SLR Investment Corp.’s multi-strategy approach to private credit investing. At quarter end, 94.5% of our comprehensive investment portfolio was comprised of first lien senior secured loans. 100% of investments at cost were performing with zero investments on nonaccrual. Our watch list investments represented only 2.2%, which we note is unchanged from the first quarter in 2021. We believe these credit quality metrics compare favorably to peer public BDCs. At March 31, including available credit facility capacity, at SSLP and our specialty finance portfolio companies, we had over $900 million of capital available to deploy. Our liquidity profile puts us in a position to take advantage of either stable economic conditions or a softening of the economy. At this point, I will turn the call back over to Shiraz to take you through our first quarter financial highlights. Shiraz Kajee: Thank you, Michael. SLR Investment Corp.’s net asset value at March 31, 2026 was $990.8 million, or $18.16 per share, compared to $18.26 per share at 12/31/2025. At quarter end, SLR Investment Corp.’s on-balance sheet investment portfolio had a fair value of approximately $2.1 billion in 99 portfolio companies across 28 industries, compared to a fair value of $2.1 billion in 100 portfolio companies across 31 industries at December 31. SLR Investment Corp.’s investment portfolio continues to be funded by a combination of our multi-lender revolving credit facilities and the issuance of term debt in the unsecured debt markets to institutional investors. The company is investment grade rated by Fitch, Moody’s, and DBRS. More than 40% of the company’s debt capital is comprised of unsecured debt as of March 31. At March 31, the company had approximately $1.1 billion of debt outstanding with a net debt-to-equity ratio of 1.14x, within our target range of 0.9x to 1.25x. We have ample liquidity to fund our unfunded commitments and for future portfolio growth. Looking forward, the company has one debt maturity in 2026 with $75 million of unsecured notes maturing in December. We expect to continue to prudently access the debt capital markets and issue unsecured debt as and when needed. Subsequent to quarter end, the company increased its revolving capacity by $25 million with the addition of a new lender. Total revolving commitments now total $720 million, up from $695 million as of quarter end. Furthermore, in May, the Board authorized a one-year extension of our $50 million stock repurchase program. Moving to the P&L, for the three months ended March 31, gross investment income totaled $49.3 million versus $54.5 million for the three months ended December 31. Net expenses totaled $31.4 million for the three months ended March 31. This compares to $32.9 million for the three months ended December 31. Accordingly, the company’s net investment income for the three months ended March 31, 2026 totaled $17.9 million, or $0.33 per average share, compared with $21.6 million, or $0.40 per average share, for the prior quarter. Below the line, the company had net realized and unrealized losses of $0.7 million in the first quarter versus a net realized and unrealized gain of $3.5 million for the fourth quarter of 2025. As a result, the company had a net increase in net assets resulting from operations of $17.1 million for the three months ended 03/31/2026, compared to a net increase of $25.1 million for the three months ended 12/31/2025. On 05/05/2026, the Board declared a quarterly distribution of $0.31 per share, payable on 06/26/2026, to holders of record as of 06/12/2026. The Board also approved a voluntary and permanent change in the company’s advisory agreement with the investment adviser, SLR Capital Partners, reducing the performance-based incentive fee payable to 17.5% from 20%. This further aligns the adviser with our shareholders. With that, I will turn the call over to our Co-CEO, Bruce Spohler. Bruce Spohler: Thank you, Shiraz. As Michael shared, we believe that the private credit industry continues to exhibit signs of the middle stages of a credit cycle, characterized by rising defaults and growing credit dispersion in direct lending. With uncertainty percolating, today’s environment requires highly disciplined underwriting and a heightened focus on capital preservation. Our specialty finance strategies offer high returns in cash flow loans and greater downside protection through their underlying collateral support and tight documentation. We view these more favorable terms as a complexity premium earned through investing in structures that require significant expertise as well as infrastructure that many private credit firms do not have. Turning to the portfolio, at quarter end, the comprehensive investment portfolio consisted of approximately $3.2 billion with average exposure of $3.7 million measured at fair value; approximately 98% of the portfolio consisted of senior secured loans with 94.5% in first lien loans. The 3.2% of our portfolio held in second lien loans consists entirely of asset-based loans with borrowing bases and no second lien cash flow loans. At quarter end, our weighted average asset-level yield was 11.1%, down from 11.6% in the prior quarter. The sequential decline was primarily due to the lagged impact from the 50 basis points decline in base rates in the fourth quarter and reduced one-time income that had occurred in the fourth quarter. Overall, we believe our portfolio has been less impacted by changes in base rates and spread compression compared to the BDC peer group because of our lower allocation to cash flow loans. Based on our quantitative risk assessment scale, our portfolio continues to perform well. At quarter end, the weighted average investment risk rating was under two, based on our one-to-four risk rating scale, with one representing the least amount of risk. Just under 98% of our portfolio is rated two or higher. Importantly, 100% of the portfolio was performing with no investments on nonaccrual. While our credit quality remains strong, in light of market concerns of increasing defaults in private credit portfolios, we believe it is important to note that SLR Investment Corp. has a strong track record of successfully navigating workouts. When a portfolio company’s performance deteriorates, we work closely with our co-lenders, owners, and management teams to arrive at a value-maximizing path forward. In the event owners are no longer willing to support a portfolio company with additional equity, we are comfortable stepping into an ownership role if we believe that will be the path to drive the maximum return. We have a dedicated senior team that works closely with our investment teams when a situation first becomes noisy. They work hand-in-hand with our senior leadership team at SLR on all workouts. In addition, our asset-based lending teams are led by industry veterans with over thirty years of liquidation and workout experience, and they provide additional restructuring support when needed. Now let me touch on each of our four investment verticals. Starting with our Specialty Finance segments, as a reminder, we dynamically allocate to our strategies based on market and economic conditions, which allows us to source what we believe to be attractive investments across market cycles. Let me start with asset-based lending. Our direct corporate ABL business remains a highly fragmented industry and contains high barriers to entry through the complexity of underwriting, collateral monitoring, and active borrowing base management. This strategy requires significant investment in experienced human capital as well as infrastructure. Our priority remains first lien positions on liquid current account assets, which has historically minimized our downside risk exposure. At quarter end, our ABL portfolio totaled just under $1.4 billion across roughly 250 issuers, representing approximately 43% of our total portfolio. During the first quarter, we originated $77 million of new ABL investments and had repayments of $194 million. The weighted average asset-level yield on this portfolio was 12.3% compared to 12.6% in the prior quarter. Our ABL portfolio contraction in the first quarter was predominantly due to temporary paydowns of existing revolving credit facilities and our proactive management of borrower exposures, consistent with our hands-on ABL credit discipline, as opposed to repayments of loans that would have generated repayment fees. In our ABL business, a meaningful contributor to returns is derived from portfolio churn in the form of early repayment fees and the acceleration of upfront fees. We had close to 70% of this portfolio churn last year across our ABL businesses. Over time, we expect this churn to revert to its historical level, which we expect will drive incremental fee income. We are seeing increased activity across our ABL platform. In particular, we are seeing an uptick, post a quiet first quarter, from our sponsor finance clients who are increasingly seeking incremental liquidity through companies. We expect to produce net portfolio growth in our ABL strategy through the remainder of this year. Turning to ABL strategic initiatives, our adviser recently established a sourcing arrangement for ABL investments with a large U.S. commercial bank that spans many of our ABL strategies. This partnership expands our origination reach. We are optimistic that this initiative will enhance our investment sourcing funnel and support portfolio growth in specialty finance ABL investments. We are currently in discussions for other partnership opportunities similar to this. In addition, we are continuing to evaluate strategic transactions such as portfolio and ABL business acquisitions. We also continue to expand our ABL origination team. Now let me touch on Equipment Finance. At quarter end, the equipment finance portfolio totaled just under $1.1 billion, representing approximately a third of the total portfolio. It was highly diversified across roughly 580 borrowers. The credit profile of this portfolio was unchanged quarter over quarter. During Q1, we originated $122 million of new assets with the majority of these investments coming from our business that provides leases to investment grade corporate borrowers. We had repayments of approximately $126 million. The weighted average asset-level yield for this asset class was 10.2% compared to 10.9% in the prior quarter. We remain encouraged by current trends we are seeing in our equipment finance business. Our investment pipeline has expanded and we are seeing demand from our borrowers to extend leases on equipment rather than buy new equipment at higher tariff-adjusted prices. Now let me turn to Life Sciences. At quarter end, the portfolio had just over $180 million of senior secured investments, representing close to 6% of the total portfolio, which is down from a peak of 15%. Over the past couple of years, we have been reporting on the origination challenges in this strategy. The debt market for venture-backed private and public late-stage life science companies has seen an influx of capital and a corresponding degradation in credit discipline. Our life science finance team has been in this business for over twenty-five years. A zero loss track record has been predicated on underwriting and structuring standards that new entrants are often not adhering to. This trend has impacted our portfolio growth. For context, Life Sciences has historically accounted for an average of 22% of our quarterly gross comprehensive income since 2020. However, in the first quarter, it was only 13.5%. One-time life science fees have historically contributed an average of 3.5% to our gross investment income, whereas they represented approximately 1% during Q1. Similar to asset-based lending, churn is critical in our Life Science portfolio and has been a significant contributor to our earnings. The pipeline of new opportunities has picked up materially in 2026. To capitalize on the expected growing opportunity set in Life Sciences, our adviser has expanded the team through the hiring of three highly experienced professionals. We expect that these efforts to broaden our origination reach and product offering should generate strong portfolio growth over the coming quarters. We will eventually both increase portfolio churn as well as fee income. Finally, let me turn to cash flow lending. As a reminder, in cash flow lending, we position SLR Investment Corp. not as a generalist capital provider across all industries but rather as a specialized, industry-focused partner to private equity firms with portfolio companies in the upper mid-market. This is most evident in the healthcare sector. We intentionally curate our sponsor base, partnering exclusively with dedicated healthcare private equity firms with long-standing successful track records of investing in the healthcare industry. These sponsors prioritize knowledge over terms, recognizing that the healthcare industry’s ongoing regulatory and reimbursement evolution requires a lender with deep domain expertise. By leveraging SLR Investment Corp.’s three healthcare investment pillars—healthcare ABL, Life Sciences, and Healthcare Sponsor Finance—we evaluate sponsor-backed investments with a level of granularity that generalist lenders cannot replicate. Beyond our focus on healthcare, we selectively deploy capital into business and financial services which mirror these same defensive characteristics: target market leaders with high recurring revenue, sustainable business models, and low capital intensity. By focusing on companies that share the resilient non-cyclical profiles of our healthcare portfolio, we maintain rigorous underwriting standards while providing prudent diversification across our cash flow finance strategy. At quarter end, this portfolio was $480 million across 28 borrowers, including the senior secured loans in our SSLP. Approximately 2% of the portfolio is allocated to software investments. Weighted average EBITDA was approximately $110 million. 100% of our cash flow investments are in first lien investments, and the portfolio carried a weighted average LTV of 38%. Our borrower fundamentals are trending positively, with year-over-year growth in both EBITDA and revenue at our portfolio companies. Weighted average interest coverage on this portfolio was 2.2x at quarter end, up from 2.0x in the prior quarter. During Q1, we made investments of $43 million in first lien cash flow loans and had repayments of approximately $40 million. Only one of these 12 investments was to a new borrower. At quarter end, the weighted average cash flow yield was approximately 10% compared to 9.8% in the prior quarter. Now let me turn to our SSLP. During the quarter, we invested $9.8 million and had $3.4 million of repayments. Net leverage was just under 1x. In the first quarter, we earned income of $1.5 million, representing an annualized yield of roughly 12.25%, compared to 9.25% in the fourth quarter. At quarter end, we had approximately $54 million of undrawn debt capacity. We expect to grow this portfolio opportunistically over the remainder of 2026. Now let me turn the call back to Michael. Michael Gross: Thank you, Bruce. Over the last seven months, we think both the public and private markets have come to terms with private credit’s maturation as a core asset class with a corresponding recalibration of forward return expectations to reflect a tighter spread environment and a more normalized default loss experience. With less than 10 basis points of annual losses at SLR Investment Corp. since the company’s IPO sixteen years ago, resulting in an IRR above 9%, our North Star at SLR continues to be protecting capital, avoiding losses, and not chasing higher spreads at the expense of structural protections. We believe this approach provides our investors with absolute returns designed to consistently exceed the liquid corporate credit markets yet with lower volatility. It is with this view—that the private credit market has matured and correspondingly carries tighter illiquidity premiums—that our Board of Directors took action this quarter to adjust the second quarter dividend distribution to a level we view to be sufficiently covered from earnings while simultaneously preserving capital as we grow our earnings, and to adjust our performance-based incentive fees to 17.5% from 20%. These are actions that we do not take lightly as leaders and significant shareholders of SLR Investment Corp. since founding more than fifteen years ago. However, we believe that we have struck the right balance and are acting in the best long-term interests of shareholders. As a reminder, we have taken action previously at SLR Investment Corp. to adjust the dividend during transitioning investment climates to make way for growth. The SLR team owns over 8% of the company’s stock and has a significant percentage of their annual incentive compensation invested in that stock each year, including purchases that took place in the first quarter. The team’s investment alongside fellow institutional and private wealth investors should demonstrate our confidence in the company’s portfolio, stable capital structure, and earnings outlook. We have made significant investments and resources across the SLR platform over the last couple of years and year to date that should fuel growth in the investment portfolio that will support net investment income growth. Importantly, we have the available capital to be opportunistic in market dislocations and to evaluate strategic transactions. Thank you all again for your time today with a busy day of BDC earnings releases. Operator, will you please open up the line for questions? Operator: Thank you. And our first question today comes from Erik Edward Zwick with Lucid Capital Markets. Your line is now open. Erik Edward Zwick: Thanks. Good morning, everyone. I thought you made some interesting points in the prepared comments describing how lower churn in some of the portfolios has led to lower fees and how this is, hopefully, a more temporary, market-related impact, but that has driven down the investment income here in the most recent quarter. And I suspect that is what is driving action in the stock price today. But you also highlighted some initiatives you have taken to grow the specialty finance strategies and how those should help rebuild that income through additional churn. I am just curious to what degree—and I realize there is no definite time frame—how soon should we start to see the benefits of those initiatives that you have taken and outlined? Shiraz Kajee: Yes. I think that it will take a few quarters. If you step back for a moment, the churn commentary goes specifically to both our asset-based lending and life science portfolios. Historically, those assets have had a contractual duration of five or six years, but an actual duration of about two years. So it is a combination of bringing more of those assets into the portfolio, which we expect to do this year, and then letting those mature and start to repay over the next twelve to twenty-four months. That is a typical life cycle of that churn that will get back to a more normalized nonrecurring-yet-recurring fee income portion of our gross investment income. Additionally, the strategic initiatives include strategic sourcing arrangements—particularly on the asset-based lending side—additional origination team members on both the ABL and life science teams, and then, less predictable from a timing perspective, we continue to see some attractive opportunities in potential portfolio and team acquisitions in specialty finance, though those are a little less able to predict. Erik Edward Zwick: Thank you. I appreciate the color there. And then, just more importantly from my research and investigating, credit performance is ultimately one of the biggest predictors of long-term ROE and performance for BDCs, and you have outlined your very limited loss history and that the portfolio remains very clean from a nonaccrual perspective. Also, comparing your internal risk ratings from last quarter to this quarter, there has been an improvement there, but we are seeing kind of the opposite at other BDCs. So I wonder if you could just talk about the improvement that I noticed here in the most recent quarter from your internal risk rating perspective. Shiraz Kajee: Yes. I think, as you know, we do not judge it quarter to quarter. There are always some names coming in and names coming out underneath those risk ratings. What we like to point to is the watch list is about 2.2%. If you go back over the last five years, it has been a little higher, a little lower, but 2.2% is actually the average going back to 2020. So to your commentary, we are looking for more consistency across the credit performance, and that is what we are happy about and comfortable with. It is also an example of how we have talked for a long time that the specialty finance assets, the ABL assets, are much less volatile than cash flow–oriented loans. That is why the watch list is so low, and we expect it to stay that way. Erik Edward Zwick: Thank you for taking my questions this morning. Michael Gross: Thank you. Operator: Thank you. Our next question comes from Rick Shane with JPMorgan. Your line is now open. Rick Shane: Hey, guys. Thanks for taking my question. Look, the implied ROE on your new dividend based on current book is about 6.8%, which is roughly SOFR plus two. That seems like a relatively low margin given the return and risk profile of the company. And again, I realize great track record on credit, but this is a levered portfolio. There is inherently credit risk in it. How do we think about this going forward? Are you saying that the return profile for the company is likely to be altered—or for the industry is likely to be altered—long term because of some of the dynamics we are seeing in terms of the broader flows to private credit? Or how should we think about the dividend in the context of your long-term return objectives? Michael Gross: I think we set it at a level where we have confidence it is exceeding the near term. In the long term, as Bruce alluded to in his commentary, we have several levers and initiatives that give us comfort that over the medium to long term, we should see our earnings move back toward the $0.40 level that we have experienced in the past and get to the higher ROE and ROI that we expect and have experienced. The other thing is our focus continues to be on total return. Obviously, that takes account of losses. We feel very good about where we are because of the credit quality, and that is something that is sustainable. Rick Shane: Got it. And when you think about those levers to get back to the $0.40 of core earnings, what is the path? Recasting the portfolio is a gradual process. Is the most immediate opportunity a modest degree of enhanced leverage? I am trying to figure out not only what the destination is but what the path looks like as well. Michael Gross: Fair question. We touched on this earlier in terms of timing. Potential portfolio acquisitions, particularly around the asset-based industry—which we have done in the past given the fragmented nature—have shown more opportunities. Those would be more difficult to predict, but more immediate should they come to pass as we bring portfolios in. The most recent, as you may recall, was in 2024 when we brought in the Webster factoring portfolio. Those are difficult to predict but are immediately accretive and also strategic in terms of expanding our ABL footprint either geographically or by industry. The other levers you heard generally revolve around expanding our sourcing across specialty finance, in particular ABL and life sciences. It is a combination of additional originators and strategic sourcing arrangements where we are creating partnerships with existing ABL players. As you know, we are incredibly conservative, so having a broader pipeline and expanded origination opportunity set allows us to bring more of these short-duration ABL and life science loans into the portfolio. We also know they will churn out fairly quickly with a roughly twenty-four-month average duration, so you will start to see those come into the portfolio this year and begin to exit as early as next year. That velocity in those two asset classes will contribute additional nonrecurring, recurring fee-based income. Rick Shane: Got it. And then, philosophically, you guys are conservative. Your credit results are evidence of conservatism. For some types of lenders—if you are a credit card lender—there is an efficient frontier; it is not a zero-defect business by definition. If your loss rates are too low, you are leaving too much opportunity on the table. I would argue that BDC lending is, in fact, a zero-defect business. One of your most thoughtful competitors years ago said to me, “There is no spread that makes up for a bad loan,” and that has always stuck with me. But I do wonder if even within a zero-defect construct, is there a concern that you are too far from that line of zero defect and that there is a little bit of widening you can do and still maintain a zero-defect objective? Bruce Spohler: That is a phenomenal point. The way we address our, let us call it, ultra-conservative approach to this requirement to be zero defect in private credit is by moving increasingly into these specialty finance strategies. The reason that we have zero defects is in large part because of the leadership of our Life Sciences and ABL teams. Secondarily, they come with collateral, tight documentation, and borrowing bases. There has been no degradation in the documentation in Life Sciences and ABL. The performance of these asset classes, in addition to the leadership of those teams over decades and multiple cycles, allows us to take on more risk in those strategies than we would as a team focused exclusively on cash flow lending because you have that downside protection of underlying collateral—be it cash and IP in Life Sciences and working capital assets in Asset-Based Lending. We are extremely cognizant of your point, and therefore it further aligns with our conservative culture to do more in these specialty finance, collateral-based strategies. Michael Gross: I would add that, in terms of where we are and where others are on the risk spectrum, the jury is still out. We have had a seventeen-year run without a real credit cycle. What we are seeing this quarter and last quarter is public and private BDCs with significant NAV degradation, with the storyline behind it being that it is temporary and mark-to-market. The jury is out on whether that is truly mark-to-market and recoverable. When you think of software exposure, that mark-to-market may be permanent and can actually become worse. We are very comfortable where we have been—on documentation and not pushing the envelope on traditional direct lending—because to your earlier point about spread, it is not just spread that you cannot make up for; it is bad documentation that prevents you from getting to the table early enough to protect your interests. In the past, are there deals that we passed on because we were too conservative and they worked out just fine? Yes. But had we applied that same mentality as a portfolio approach, we would be sitting on a lot of loans today that we would be really worried about. To the earlier comment about rebuilding NII, the good news is that given how low our watch list is and that we have no defaults, the team is not focused on restructurings. They are focused on growth and how to rebuild in a way that we can be profitable for the long term. Rick Shane: Guys, thank you very much. I appreciate it. I realize they are pretty hyper-philosophical type questions, and I appreciate the thoughtful answers. Michael Gross: Thanks, Rick. Appreciate the questions. Operator: Thank you. And as a reminder, it is star one if you would like to ask a question. We will go next to Robert Dodd with Raymond James. Your line is now open. Robert Dodd: Hi, guys. I have got a first question—the second question basically already asked—but I have got a slightly different way of looking at it. On the comprehensive portfolio, paybacks—right, you would always rather get your money back than lose it. It surprised me a little bit that it was so strong and the portfolio shrank so much relatively speaking in this quarter when there is this sense that the banks are not looking to go heavily risk-on right now. They are one of your primary competitors on ABL lending. It is a fragmented market. Was the real driver of that payoff simply seasonal? It seems like a market where I would have expected repayments on ABL or competitive takeaways to be more muted. You were very successful on getting a lot of capital back—that is a good thing and a bad thing. Any thoughts on what drove that dynamic? Bruce Spohler: Under the hood in asset-based lending, there are three primary sources of repayments. There is the traditional refinance to another ABL lender or maybe to a cash flow loan. Then there is what I would call temporary repayment because most ABL facilities have a large revolver with seasonal draws. In our $194 million of ABL repayments, some of that is seasonal repayments, and most of it was not a borrower exiting the platform and canceling their facility. The third dynamic—which we did not have in Q1 but to touch on your broader question—is that sometimes in asset-based lending when we feel the fundamental performance of the business is not going in a direction we are comfortable with, the beauty of ABL is that because we have strong documentation, we can start to turn up the pressure on that borrower and create alternative sources of liquidity. We can wind down our exposure with that borrowing base by increasing reserves and ineligibles such that our advance rates continue to contract in our favor. That will drive an exit or repayment, not necessarily because we got refinanced or there was a temporary paydown, but because we have applied some pressure and encouraged them to refinance us with somebody else. That is also a dynamic our Life Sciences team has used selectively from time to time. A key element of our specialty finance strategies is that you have the ability to wind down exposure and take down advance rates given how tight the documentation is and the underlying collateral support. Specifically to your question in Q1, it was really temporary repayments of facilities rather than a true refinancing or an agreed-upon exit. Robert Dodd: Got it, got it. Thank you. And then the second one—it is basically related to Rick’s question. I agree that zero defect is the goal. But when you look at the portfolio, have you been, with the in-house teams, so strict in pipeline construction that the result is you have really high-quality assets but maybe not enough “good” assets in the flow? So when a great asset repays, you do not have a flow of acceptable, probably zero-defect but maybe not “great,” to moderate the size of the portfolio more? Is expanding distribution—like signing a deal with a bank to see more ABL deals—part of moderating the flow? Bruce Spohler: When you are saying yes to about 5% of the opportunity flow, the way to expand funded investments is to expand the funnel so that 5% becomes a much bigger absolute number. The quality of deals we generally see from ABL banks is higher quality—it might not be their quality because they are measured based on the borrower’s risk rating, rather than the collateral—whereas we can look at the collateral and say, “That is phenomenal collateral.” As Michael touched on with the AI initiative, there are a number of businesses that we lend to that may be impacted by AI. If we have collateral, some of those companies may not survive, but we will likely liquidate ourselves out and be fine. To your specific question, there is no such thing as a “great” private credit deal; you are taking on the ability to potentially lose money. Everything we do is looking for “good.” The more deal flow we have with underlying collateral that checks the SLR box for “good,” the better. Expanding that pipeline by getting more from ABL banks also increases the level of the operating performance of those borrowers. It is really the combination of a much larger pipeline and high-quality collateral—both in ABL and Life Sciences—that we believe, if things go sideways (and we always assume they will), we are going to be fine because of the additional collateral support beyond just traditional ownership support in a borrower. Robert Dodd: Got it. Thank you. Operator: Thank you. And our next question comes from Finian O’Shea with Wells Fargo. Your line is now open. Finian O'Shea: Hey, everyone. Good morning. Thanks for having me on. Can you hit on the fee change, the break to 17.5% on the incentive fee—appreciating that. How did you and the Board come to that number? Michael Gross: It was not a long discussion. It was initiated by us, not the Board. We looked around at what others were doing and thought it was the right thing to do. Finian O'Shea: Okay, that is helpful. And then did the concept of the hurdle rate come up, given the story now is growing earnings—which is tough for a BDC to do—you have been working at that for a long time; it is not the easiest thing to deliver on. Do you think a higher hurdle rate would motivate or align the team better to achieve higher earnings? Michael Gross: No, actually a lower hurdle would do that in terms of incentive fees, but that was not something we were going to consider. The team, frankly, has never focused on our hurdle rate. That is not their job; that is not how they are motivated or compensated. The hurdle rate we have had since inception goes up and down with rates—it is the right place to be. Finian O'Shea: All for me. Thanks so much. Operator: Thank you. At this time, there are no further questions in queue. I will now turn the meeting back to our presenters for any additional or closing remarks. Michael Gross: No further comments other than to thank you all for your participation today. We recognize it is a very busy period of time and there is a lot going on within the private credit space, both in the public and private BDCs, and as always, the entire team is available for any questions that you may have to follow up with. Thank you. Operator: Thank you. This brings us to the end of today’s meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good day, and welcome to the Brink's Company First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would like to turn the conference over to Jesse Jenkins, Vice President, Investor Relations. Please go ahead. Jesse Jenkins: Thanks, and good morning. Here with me today are CEO, Mark Eubanks; and CFO, Kurt McMaken. This morning, Brink's reported first quarter results on a GAAP, non-GAAP and constant currency basis. Most of our commentary today will be focused on our non-GAAP results. These non-GAAP financial measures are intended to provide investors with a supplemental comparison of our operating results and trends for the periods presented. We believe these measures allow investors to better compare performance over time and to evaluate our performance using the same metrics as management. Reconciliation of non-GAAP results to their most comparable GAAP results are provided in the SEC filings, which can be found on our website. We will also have commentary on the status of our pending acquisition of NCR Atleos. As a reminder, this transaction is subject to the completion of customary closing conditions, including regulatory approvals and approval by Brink's and NCR Atleos shareholders. Additional details, including risk factors related to the transaction can be found in the pertinent SEC filings. I will now turn the call over to Brink's CEO, Mark Eubanks. Richard Eubanks: Thanks, Jesse, and good morning, everyone. Starting on Slide 3. We're pleased with another strong quarter of growth and operational execution as we continue to transform Brink's into a more predictable and profitable enterprise. I want to thank all of our team members, especially those in the Middle East region, for their focus in this dynamic global economic backdrop. I could not be more proud of our teams for staying focused and delivering on our Q1 commitments. Our results were at the upper end of our first quarter guidance ranges, and we're off to a strong start to the year. First quarter revenue growth of 10% included 4.5% organic growth, driven mostly by 15% organic growth in ATM Managed Services and Digital Retail Solutions or AMS/DRS. The growth in the quarter was highlighted by the onboarding of Pandora in DRS and good momentum in AMS, especially in the Rest of World segment. At the segment level, Rest of World delivered 7% organic growth on strong precious metals activity in the global services line of business. Overall, organic growth, favorable revenue mix and good underlying productivity drove margin expansion of 10 basis points with over 100 basis points of expansion in both North America and Rest of World and 240 basis points of expansion in Europe. In total, Q1 EBITDA was $238 million with a margin of 17.3%, trailing 12-month EBITDA was $1 billion for the first time in our history this quarter, reflecting a more than $200 million increase since the end of 2022 as we continue to deliver profitable growth across our business. We also continue to improve cash generation with an increase of $66 million year-over-year in the first quarter. On a trailing 12-month basis, free cash flow exceeded $0.5 billion for the first time in our company's history with conversion from EBITDA of 50%. Operationally, we saw improvement in both days of sales outstanding and days payable outstanding. Coupled with EBITDA growth I mentioned earlier, total free cash flow has more than doubled since year-end 2022, with free cash flow now exceeding $12 per share. As I review the quarter, we delivered on our commitments with results at the top end of our guidance range. As I mentioned, I'm proud of our consistent execution during volatile market conditions and our team's focus on the heels of the announcement of our transformational acquisition of NCR Atleos. Supported by this strong first quarter, I remain confident in our ability to continue our trajectory and deliver our full framework for 2026. Turning to Slide 4. You can see the components of our value creation strategy, which remain unchanged for 2026 and are well aligned with the strategic rationale of the NCR Atleos acquisition. We expect organic growth in 2026 to remain consistent in the mid-single digits, driven primarily by new and converted customer growth in recurring AMS and DRS revenue, which is expected to approach 1/3 of our total company revenue by year-end. The acquisition of NCR Atleos is expected to accelerate our ability to capture these AMS and DRS customers by delivering a more vertically integrated AMS offering and lowering our cost base through increased network density on the retail side of our business. On a stand-alone basis for 2026, we expect EBITDA margins to expand by 30 to 50 basis points as we shift revenue to these higher-margin services and drive cost productivity across our operations. This mix shift is expected to continue after completion of the acquisition and cost efficiencies are expected to accelerate behind the $200 million of cost synergies that we previously identified as we eliminate duplicative SG&A and public company costs, optimize our service delivery network and finally, drive global procurement savings. Both companies have delivered meaningful improvement in cash generation over the last few years, and we expect that will compound as we combine our 2 businesses. In addition to working capital improvements, we've already completed a secured financing arrangement that will allow us to absorb the $1.6 billion of NCR Atleos bank debt at a rate that is more than 1 full percentage point better than their current level. While we're focused on the near term on reducing leverage, we expect to produce a combined $1 billion of free cash flow from the 2 companies, providing flexibility to maximize value creation through strategic investments and shareholder returns. Shifting back to the quarter on Slide 5, I'll provide some commentary on performance by line of business. Starting with Cash and Valuables Management, or CVM. Organic growth was 1% in the quarter with good pricing discipline offsetting a couple of percentage points of AMS/DRS conversions. Our Global Service business was also strong again this quarter despite lapping a robust first quarter of 2025. Precious metals movement remain volatile and trends can change rapidly, but we factored in the current favorable trends into our second quarter guidance. AMS/DRS revenue grew organically approximately $50 million in the quarter for a rate of 15%. This was the 13th consecutive quarter of at least 15% organic growth in AMS/DRS as we continue to build momentum in these important businesses. It's important to note that in the fourth quarter of last year, we saw strong growth related to onetime equipment sales, primarily in North America that impacts the sequential comparisons. Factoring in this dynamic, growth in the quarter was in line with our expectations and positions us well to deliver our guidance for the full year. In DRS, we continue to see positive momentum with large enterprise customers in North America, including the onboarding of Pandora during the late fourth and early first quarters. In AMS, we're lapping some large wins in the prior year like Sainsbury's, while we stage for other large deployments, including some in the Rest of World segment. We continue to see positive AMS trends with banking customers, including in Southeast Asia, where we recently won the largest national bank in Indonesia with about 5,000 ATMs. Looking to the balance of the year, we expect AMS and DRS to accelerate sequentially, supported by our strong pipelines and DRS backlogs, including Paradies that will lead us directly into the next slide. On Slide 6, I'd like to highlight an example of the type of wins we're delivering with DRS. Paradies is a leading travel retailer and restaurateur, operating over 700 stores in airports across North America. They offer major brands like Chick-fil-A, Tumi, Starbucks today and Jimmy John's just to name a few. Paradies came to us to help solve common dilemmas they see across large global retail and quick-serve organizations. I've often discussed DRS as a true win-win for both Brink's and retailers, and that's clearly the case here with Paradies. We designed a bespoke solution incorporating both front office recyclers and smart safes that integrate directly with Paradies POS software. Our solutions are expected to help them with several pain points across their global footprint. Among other things, we're able to reduce cash handling time for managers and employees, unlocking productivity and efficiency within their stores. Our solution digitizes cash quickly and tracks transactions down to the teller level, reducing operational shrink across the business. We are also able to simplify service delivery for customers as we shift our key quality service deliverable from arriving within a certain appointment window to providing overnight electronic deposits for faster access to working capital. This shift creates flexible routing and scheduling options for Brink's, allowing us to arrive when needed or when easily added to an existing scheduled trip into the area. We completed a successful trial phase with Paradies and are planning for the full rollout across their entire footprint over the balance of the year. While the solution we designed for Paradies is unique to their specific needs, the problems we're solving for customers are universal. Our DRS offerings have a clear and demonstrated value proposition for retailers of all sizes. As we close more of these deals, I remain confident that we're in the early stages still of our efforts to expand our DRS business across the retail landscape in all geographies that we serve. On Slide 7, you can see our methodical progress towards 20% EBITDA margins in North America. In Q1, EBITDA margins in this segment expanded by 170 basis points year-over-year, driving trailing 12-month margins to 19.5%. Revenue mix has been a big contributor to this progression. It was another great quarter of AMS/DRS growth in North America as we continue to convert customers and install new DRS units, including the Pandora win that we mentioned last quarter. Global Services revenue growth was also strong this quarter despite an elevated prior year period comparable. Our shift to higher-margin flexible service recurring revenue is unlocking operational productivity across the business. Over the years, we've improved and standardized our service delivery network to enable profitable growth. This improvement is clear in the numbers as we continue to deliver improvements in revenue per vehicle and labor as a percentage of revenue. This is setting the stage for continued momentum post closing of our NCR Atleos acquisition as we layer on additional volume to our more efficient network. I'm confident increased scale will position us to drive further expanded margins well beyond our preliminary 20% targets. Turning to Slide 8. I'd like to provide a brief update on the NCR Atleos transaction. While we've been publicly engaged with shareholders over the last 8 to 10 weeks, we've been working hard diligently behind the scenes to progress this transformational acquisition forward. At the end of March, we successfully completed a refinancing of the secured portion of the bridge loan, increasing our capacity while unlocking attractive rates and improving certain conditions in our credit agreement. Just last week, we filed our registration statement and are progressing towards a shareholder vote over the next few months. We're making good progress on the regulatory front as well with filings submitted in many jurisdictions and reviews progressing as expected. NCR Atleos first quarter results will be filed after the market closed today, and we understand them to be in line with our business case modeling and on track with our full year projections. Though NCR Atleos will continue to operate independently until closing, we expect our integration management team to work closely with NCR Atleos to plan and prepare for the execution of the potential cost synergies. Importantly, we've created a dedicated integration management team within Brink's that is isolated from the day-to-day operations of our business and will be responsible for driving program execution of cost synergies after closing. While we're still in the early process in many ways, we're making good progress and continue to expect closing will occur by the end of the first quarter of 2027. The more we interact with our internal teams, our customers and the NCR Atleos management teams, the more encouraged I am by the potential of this combination. Supported by strong momentum in AMS and DRS and ATM as-a-Service, it remains clear that this is the right strategic direction at the right time to accelerate our growth and bolster our business for the future. Before I hand it over to Kurt to walk through the financials, I want to thank our team for embracing the power of our strategy. We've lifted our performance by consistently delivering on our external commitments while improving our service levels to our customers, even redefining the definition of what service quality means. Our team is focused on continuing our efforts to move the business forward behind AMS/DRS customer offerings that deliver clear win-wins for both the customers and for Brink's. I'm encouraged by the strong results we delivered, the strong momentum supporting us and I'm even more optimistic about the future potential as we combine with NCR Atleos and position ourselves to accelerate growth, profitability and value creation. And with that, I'll hand it over to Kurt to discuss the financials, and I'll come back for Q&A. Kurt? Kurt McMaken: Thanks, Mark. I'll begin on Slide 10 with a look at Q1. Revenue increased 10% with 5% constant currency growth and a 6% tailwind from foreign currency. Adjusted EBITDA was up 10% to $238 million with operating profit up 12%. Both operating profit and EBITDA accelerated 10 basis points year-over-year on favorable revenue mix, pricing discipline and productivity in both labor and fleet. Earnings per share was $1.80, up 11%. In the quarter, we completed approximately $30 million of share repurchases prior to the NCR Atleos acquisition announcement, reducing outstanding shares by 5%. As Mark mentioned earlier, trailing 12-month free cash flow was $502 million at the end of the quarter, representing conversion of 50%. I would like to call out that we have enhanced our cash flow disclosures to highlight cash flows related to the NCR Atleos acquisition, which were $2 million in the quarter and are expected to be between $50 million to $60 million for the full year. We believe it is important to isolate these cash flows for investors so they can get a better picture of the true underlying cash generation of the business. These cash flows are included in our expectations to get to approximately 2.3x by the end of 2026. Similar to timing from the prior year, we are currently ahead of our full year cash conversion guidance after Q1. We expect the timing of certain cash tax payments and cash investments over the balance of the year to return us to our target level of 40% to 45% by the end of the year. On Slide 11, total organic growth was $56 million or more than 85% of the growth came from higher-margin subscription-based AMS and DRS. The $8 million of CVM growth was in line with expectations and represents volume growth in Global Services and strong pricing execution, partially offset by the conversion of customers to AMS and DRS. FX contributed $71 million of growth in the quarter with favorable year-over-year rates primarily in the euro and Mexican peso. Shifting to the right side of the slide, growth of $128 million generated $23 million of EBITDA, expanding margins by 10 basis points. As you will see from our guidance for Q2, we expect expansion to accelerate into the second quarter as we continue growth into AMS and DRS. Moving to Slide 12. Starting on the left. Operating profit was up $18 million to $168 million with a margin of 12.2% on strong productivity, pricing and line of business revenue mix. Interest expense was $64 million in the quarter, up about $6 million year-over-year and in line sequentially with the fourth quarter. For the full year, interest expense is expected to be just over $250 million using current interest rate expectations. Tax expense was $29 million in the quarter, representing an effective tax rate of 27.6%, in line with the prior year rate. Interest income and other was down $6 million year-over-year, primarily due to lower interest income related to the prior year repatriation of cash from Argentina. Income from continuing operations was $75 million. Depreciation and amortization was $64 million, primarily reflecting increased depreciation from growth in AMS and DRS equipment. In total, first quarter adjusted EBITDA was $238 million, up $23 million year-over-year with margins expanding 10 basis points. Let's move to Slide 13 to discuss our capital allocation framework. Our capital allocation framework has remained consistent during Mark and my tenure, including through our transformational investment in NCR Atleos. Our leverage at the end of the first quarter was 2.7x net debt to adjusted EBITDA. During 2026, we expect net debt leverage reduction to be the primary focus of our capital allocation as we position our balance sheet for the NCR Atleos acquisition. Over the year, we expect to reduce our stand-alone leverage to approximately 2.3x. While we expect leverage to be approximately 3.4x, assuming Q1 2027 closing, we are currently expecting to be below 3x by the end of 2027. We continue to believe that 2 to 3x is the right leverage to balance capital efficiency and appeal to existing and potential equity investors. Our capital allocation framework has generated meaningful shareholder value over the last several years. The growth acceleration potential into high-margin recurring revenue AMS and DRS is expected to continue to drive margin expansion and compound cash generation for years to come. With clear line of sight to a combined free cash flow of $1 billion, we expect to have the flexibility to make strategic investments and return capital to shareholders in the future. Moving to guidance on Slide 14. Our framework for 2026 remains unchanged. We expect to deliver mid-single-digit total organic growth, supported by mid- to high teens organic growth for AMS/DRS. Using rates as of yesterday, we are currently expecting to see an FX tailwind for the full year of between 2% and 3%. EBITDA margins are expected to expand between 30 and 50 basis points with conversion of EBITDA to free cash flow of between 40% and 45%. In the second quarter, we expect revenue between $1.37 billion and $1.43 billion, reflecting organic growth in the mid-single digits. Using yesterday's spot rates, FX is expected to be a year-on-year tailwind of just below 3% at the midpoint. Adjusted EBITDA is expected to be between $245 million and $265 million, reflecting 10% growth and margin expansion of approximately 40 basis points at the midpoint. EPS is expected to be between $1.85 and $2.25. And with that, we are happy to now take your questions. Operator, please open the line. Operator: [Operator Instructions] The first question comes from George Tong with Goldman Sachs. Keen Fai Tong: In DRS, can you perhaps quantify how much of the growth came from conversion of traditional cash-in-transit customers versus greenfield wins? Richard Eubanks: Yes, sure. We have -- again, George, a good quarter for us in Q1 kind of everywhere in DRS. But particularly as you think about convergence, again, we stay on track what we've seen in prior quarters. So about 1/3 of the installs really coming from conversions of existing customers, which, as we've talked about previously, gives us a little bit of headwind in CVM, but of course, get the benefits of the better margin and certainly recurring revenue. The 2/3, though, really, we continue to be excited about because these are new customers that are either unvended or were previously vended by some other solution. You can see -- we talked about the Pandora deal a little bit in the call. We had it in our presentation last quarter, where we were able to really provide an enterprise solution for a customer that we were able to identify, negotiate and deploy fairly rapidly to collapse our time to revenue. We didn't get a chance to talk about it much last quarter, as you know, given the deal announcement. But if you look at, again, this quarter, another really nice deal here with Paradies, that's one of the airport operators for food and quick serve and retail. And again, just the opportunity to work with customers like that to provide a unique solution, whether that's leveraging hardware, software, POS integration and even some of our cash forecasting and balancing software really allows us to tailor a solution to almost any retail environment as we look to streamline and optimize the total cash ecosystem inside these retail stores. And this is something we'll continue to see going forward. Keen Fai Tong: Very helpful. And then you expect AMS/DRS growth to accelerate sequentially given the strong backlog. What are your latest thoughts on what sustainable medium-term AMS/DRS growth can be? Richard Eubanks: Sure. I think -- we think this mid- to high teens organic growth will continue, George, here, certainly this year. And I don't know what your medium term is, but we've got a view as we go into '27 and get this deal closed, we can do -- continue to accelerate that more. So we're excited about it. And I think if you look at our backlog coming out of Q4 into Q1, team is excited about what we've got lined up for the second half of this year as we're installing those in Q1 as well as Q2. But you can see the organic growth rates are continuing. Although we were a little bit higher in Q4, about 22%, as we mentioned previously, we had a pretty significant amount of equipment sales, particularly in North America. But even that was still in the high teens from an organic perspective, and that continued into Q1. Q1 is typically a little bit lighter just given the fact that we don't do a whole lot of installations during Q4 retail season because most of our retailers are -- it's a busy season, particularly North America and Europe, where they don't want us in their stores installing. So we tend to carry a good backlog into Q1 and Q2. Operator: The next question comes from Tobey Sommer with Truist. Tobey Sommer: I'd like to double-click on AMS and DRS again. How would you describe the geographical differences you're seeing in customer uptake and demand? And then what do you think it takes to light a fire under financial institutions in North America for this to take off? Richard Eubanks: Yes. Good question, Tobey, because we're really starting to to see more broad AMS/DRS growth around the world. And you can see, particularly in Latin America in the quarter, we're seeing Mexico continue to have a good run here in DRS that is allowing us to not only convert customers, but continue to improve margins and build out an installed base. We're seeing that in Argentina as well. And then, of course, in Brazil, we've been having success, and that continues. We're seeing more AMS and DRS, but particularly, I called out AMS in the Rest of World segment, which is really good because these are big cash markets that are kind of much earlier cycle when it comes to AMS/DRS conversion. But last quarter, we talked about AMS Security Bank down in the Philippines that we're currently deploying. We also then talked this quarter about Indonesia, although we've had some success in Indonesia previously. This is a pretty big deployment there. So we feel good about that. We're seeing banks in Rest of World as well as Latin America continue to either make decisions or continue to look at better ways to serve their continued ATM needs. If we move to the Northern Hemisphere, Europe and North America, of course, Europe is our most highly penetrated AMS/DRS market. And again, a good -- continue to have good progress there and a good outlook as we think about Q2 and Q3. But North America, certainly, our DRS trajectory continues to go higher. And you see it in our margins, and I called it out in the North American deep dive there, we continue to see the good mix benefits from DRS, particularly as we see going forward. The last part of your question was around North America banks, particularly U.S. banks. And that's something that we're continuing to have lots of discussions. And as we think about the services across the entire continuum for ATMs and ATM managed services, we're starting to get up those opportunities. And whether that's some of the off-branch bank at work ATMs or whether that's specific services and/or managed services on the on-branch, the full outsourcing continues to be a little slower than -- certainly a lot slower than the Rest of the World. I think this is one of the things that we think about with the Atleos acquisition, Tobey, and getting to a full vertical solution where customer outcomes can be better controlled and I think create more confidence with those customers about a full outsourcing. And so this is something that we're keenly aware of and thinking about and certainly part of our long-term thesis on the business to support both growth and being a catalyst for those banks to do outsourcing as well as increasing our density and participation in our retail footprint. Tobey Sommer: If I could ask a specific question on DRS. Is this -- are you finding this service is more valuable or less valuable to customers based on their business models as sort of like, I don't know, a stand-alone big box as opposed to an area like in an airport where retail is clustered or a mall because you've had a couple of marquee customers that you can talk about that sort of fit that latter bucket. Richard Eubanks: Yes. I'd say it's more about the idea around disclosure, Tobey, and customers being willing to talk about it, to be honest, because we are seeing DRS, we don't get to highlight all of our DRS wins as we've talked about previously in retail. But we're seeing strong value propositions, everything from the SMB mom-and-pop coffee shops all the way up to the big box guys. And many of those solutions can look similar maybe in the middle of that bulge. But when you get to the smaller or you get to the larger, they're certainly more sophisticated and can be more complex. We think the complexity is helpful for us because we can solve some of those problems with more technology and an integrated service model. And then on the low end, on the smaller customers, we're able to, frankly, lower our cost to serve to allow us to provide a better value proposition as we build more density. And as I think about one of the other big opportunities, and we talked about that last earnings call about the Atleos integration is building out more density across our network that again is going to lower our cost to serve and ultimately be able to provide better value propositions to customers, both small and large, but ultimately provide a much more compelling solution than they're able to either self-perform today or even than what we can deliver today from a cost perspective. So again, those benefits continue to accrue, and we think there's a definite network effect that we can create as we build out that density. Tobey Sommer: If I can ask one last one, and I'll get back in the queue. With respect to cash, conversion from EBITDA. You had some numbers in your recent filing that gave us a look at what your expectations are for a number of years for stand-alone Brink's. But maybe you could touch on the opportunity or what the combination with NCR Atleos does to the opportunity to increase that conversion over time. Kurt McMaken: Yes. Tobey, it's Kurt. Maybe I'll jump in here. I would say, first of all, just from a profitability perspective, certainly an opportunity there. The synergies will help on flow-through for sure. Then you go below the OP line and below the EBITDA line, we definitely see opportunities in terms of capital efficiency from both the CapEx and working capital perspective, and we talked a little bit about it. I mean we have to obviously develop that further together, but certainly see opportunities there to drive increased conversion on that. Richard Eubanks: I think the other area, Tobey, is that we think about, and frankly, we're seeing benefit now in our business as we really ramped up our efforts in and around global supply chain and procurement is getting better payment terms as we operate as one large enterprise versus 52 countries. And we've talked about that transformation that's been going on in the business for some time. We're really starting to see some of those benefits. And we think that putting together 2 companies of similar size and scale and purchasing power would only help that in the future as we think about managing payment terms, managing our balance sheet, managing our receivables in the same way as we think about common customers. So the working capital benefits that we're achieving -- sorry, improvements we're achieving now. By the way, Atleos is doing a pretty good job of that, too. We think only together can we really drive not only kind of in contract changes, but also just efficiencies in our systems and better follow-up and operational execution on credit and collections and payment terms. Kurt McMaken: And maybe I just might add that's a good point, Mark, one other thing. If you look at cash interest and cash taxes, there'll be opportunities there as well with the combined firm. And so that's another final area. Operator: The next question comes from Tim Mulrooney with William Blair. Samuel Kusswurm: This is Sam on for Tim. Maybe I'll pivot away from some of the AMS/DRS questions, some good ones were already asked and ask more about your Latin America business actually. So this year, you'll be moving past some of the Argentina inflation impacts for the first time in a while. So how are you thinking about the growth rate and margins for this business? And then I noticed a competitor of yours just made a pretty sizable acquisition in Peru. Curious how this might impact the level of competition you face in this region. Richard Eubanks: Yes. Thanks. Good to hear from you. First of all, I'll address the Peru acquisition. We're not in Peru. Actually, we were in Peru years ago and actually exited the business -- exited the country. But for us, we're -- we're very comfortable with the geography we have today. And as we've talked about previously, our strategic focus is really about moving further up the stack around DRS and AMS more around technology and service efficiency versus really expanded geography. Now we will have some expanded geography or we expect to have some expanded geography post the NCR acquisition that will allow us to kind of reassess what resources we have in which markets and how best to optimize cost and the supply chain there. But for us, again, this wasn't much of a strategic lever for us. We didn't have any cost synergies there because we don't have any businesses there to combine. And really, the market is pretty isolated from our perspective. So we don't see that competitive pressure, let's say, in the region from this acquisition, particularly. More generally, we love Latin America from a fundamental perspective, high cash usage in these markets, good margins. We have good businesses, good leadership teams. And as you point out, Argentina is a place as you look at the kind of FX trends here in the last 6 months as we get to the back half of the year at current rates. Argentina is not a headwind at all. And so from an FX perspective. So that's really interesting because it's a good business for us. We have a good position down there, and it's good margins. And so as we think about going forward, it's going to be less noise and effectively will be something that investors will be able to get a better look at on an apples-to-apples basis without as much noise. The other thing that we think about also down there is the AMS market. It's a huge ATM market, and we're in the biggest markets down there in Brazil, Argentina and Mexico, Colombia, Chile. And certainly, there's activity already going on down there. We've talked about it, but there's a lot left to go. And the banks down there are pretty sophisticated operators. They are relatively consolidated. And so the discussions are progressing well, we have several active networks down there as well as active pilots with existing banks that we're working to convert here in '27 and '28 -- I'm sorry, '26 and '27. Kurt McMaken: Sam, just I'd add too. I mean, you should expect the margins to get better sequentially, and that's what we're seeing. Richard Eubanks: Yes. I think it's -- and Sam, just of note, as you look at our Q1 performance and Q2 guide, this $10 million to $11 million of EBITDA that's above -- was above the midpoint of our guide of our framework should flow through to the balance of the year. And that's -- part of it is this LatAm margin improvements. And as you can see, the EBITDA margins are benefiting in Q1 kind of over our midpoint at the high end of our guide for a couple of reasons. One is the continued AMS/DRS mix benefits, but also we had a strong quarter in BGS. And our Global Services business, I mentioned on the call, given the -- all the volatility in the Middle East that we've seen, there's been a lot of movement of precious metals around the world. And in and out of all of the big financial centers around the world, that likely -- in our guide, we assume that's going to continue into Q2. And as we look out to second half, these markets are volatile. Hopefully, we'll have peace by then and things will settle down. And we're not assuming the kind of that same performance in the back half that we've seen in Q1. Kurt McMaken: So if you think about progression, Sam, it's very typical to look at kind of a 45% of our EBITDA in the first half, 55% in the second half is very typical for us. We're a little bit ahead of it this year. And as Mark said, we see that flowing through for the year. So I think good start. Samuel Kusswurm: Got it. Super, very helpful. And I was going to ask about BGS next, but you already beat me to it there. So maybe I can leverage this next question and maybe address fuel prices. I think I know that your contracts generally have fuel surcharges that are rent into them. But I guess I'd be curious if that's actually captured the full impact that you're seeing right now. And if there's any impact to margins that you might expect for the remainder of the year from this? Richard Eubanks: Yes. So we've been -- you know it well. We've been pretty good at ensuring that fuel doesn't necessarily impact us over the long term adversely. Of course, those indexes and changes, some are monthly, some are quarterly, some are biannually, whatever that we recapture that. But if anything, maybe it could be delayed a quarter. But those -- the fuel prices were in -- we had them in Q1, and you can see our performance, again, was way above our midpoint and at the high end of the guide. So we think that our teams have been pretty good at covering that and ensuring that our pricing discipline maintains those margins. If we go forward we see that likely to be a blip. Some of the things we -- some of the stuff we've seen around the world, we heard about some of these interruptions and fuel and so forth. We haven't experienced that. We haven't experienced it in anything other than episodically, let's say, okay, airports were closed in Dubai for a bit. But other than that, we really haven't had any real kind of structural supply impact and aren't expecting that going forward. Kurt McMaken: Yes. So in our guide and our framework contemplates that, Sam. So we've been good about covering it and still feel good about continuing to cover it. Richard Eubanks: Well, thanks. Listen, we appreciate everyone's time. I appreciate your support and interest in the company and look forward to speaking with you either next few days or when we're on the road at conferences coming up here in May and June. Have a great day. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to the Philips First Quarter 2026 Results Conference Call on Wednesday, 6 of May 2026. During the call hosted by Mr. Roy Jakobs, CEO; and Ms. Charlotte Hanneman, CFO. [Operator Instructions]. Please note that this call will be recorded, and replay will be available on the Investor Relations website of Royal Philips. I'll now hand the conference over to Mr. Durga Doraisamy, Head of Investor Relations. Please go ahead, ma'am. Durga Doraisamy: Hello, everyone, and welcome to Philips' First Quarter 2026 Results Webcast. I'm here with our CEO, Roy Jakobs, and our CFO, Charlotte Hanneman. Our results press release and presentation are available on our Investor Relations website. The replay and full transcript of this webcast will be available on our website after this call concludes. I want to draw your attention to our safe harbor statement on the screen and in the presentation. I will now hand over to Roy. Roy Jakobs: Thanks, Durga, and good morning, everyone. Thank you for joining us today. I will start with an overview of our Q1 results and our outlook for the balance of the year. Charlotte will take you through the quarter and our guidance in more detail. We started '26 with a clear proof that our strategy is delivering, growth, margin expansion and strong order momentum despite the volatile environment. At the same time, we remain closely connected to our customers and employees. This includes those impacted by the situation in the Middle East. We continue to prioritize their safety, support and continuity of care. Against this current backdrop, we reiterate our full year guidance. Looking at Q1. Order intake grew 6%, reflecting continued momentum. Comparable sales increased 4% with growth across all business segments, led by personal health. We also expanded margins. Adjusted EBITDA margin improved by 40 basis points to 9%, despite higher tariffs. This marks our sixth consecutive quarter of delivering on our commitments, even as we operate in an uncertain and dynamic environment. Disciplined execution and focus on what we can control underpins our progress. We are on track to deliver the full year outlook we set in February, which includes currently known information within an uncertain macro environment. Our strategy remains anchored in three pillars: focused value creation, innovation-driven growth and disciplined execution. Let me take you through the first quarter in that context. Starting with our first pillar, focused value creation. We execute specific strategies by segment. And we invest with discipline, focusing on interventional monitoring to drive growth. We also drive growth geographically with North America as the key engine. You can also see this in our Q1 results. Equipment order intake grew 6% and with solid growth across D&T and Connected Care. North America led the growth, building on strong prior year comparison. Europe also performed strongly across several modalities. Looking at D&T, Order intake increased in the mid-single digits. Growth was driven by sustained momentum in image-guided therapy as our market-leading Azure platform continues to drive strong demand. Precision Diagnosis delivered solid order growth outside China. Globally, MR order intake was solid, with increasing interest in our healing free systems. Last year, 75% of our MR systems shipped were Helium free. For our customers, resilience and MRI is being tested more than ever. Helium supply is tightening geopolitical developments in the Middle East are adding further pressure to that. Costs continue to rise. As a result, health systems are seeking uninterrupted imaging and reliable service in everyday clinical practice. Philips is leading the shift to helium-free imaging with our high-performance BlueSeal technology, we are setting the new industry standard in MRI resilience, enabling uninterrupted operations and reducing dependence on scarce helium. We have installed more than 2,200 systems globally, saving over 6 million liters of helium. Building on this, we also unveiled the industry's first helium-free 3.0T MR systems. We expect regulatory clearance in 2027, positioning us to transition to a fully helium-free MR portfolio and extend our lead over competitors. In CT, we are seeing a strong funnel for our spectral technology. In the quarter, Verida, the industry's first AI-enabled detector-based spectral CT gained traction following its launch at RSNA last December, with initial orders secured in Europe. The first system installed in Q1 is already delivering results. At Nuestra Senora de Rosario University Hospital in Madrid, it is demonstrating seamless workflow integration and clinically relevant insights and importantly, without added operational complexity. Turning to Connected Care. Order intake grew in high single digits, mainly driven by monitoring and supported by enterprise Informatics. Demand was broad-based across all regions with particular strength in North America and Europe building on a strong prior year comparison. We continue to expand enterprise partnerships with large integrated delivery networks. These customers are investing in enterprise patient intelligence medical device integration and cybersecurity. They are increasingly adopting our enterprise monitoring as a service model to improve clinical, operational and economic outcomes. This reinforces our position as a partner of choice for enterprise-wide data-driven care delivery. Moving to Personal Health. This segment delivered another quarter of broad-based growth, driven by strong consumer sellout and continued market share gains. We drove this through active expansion and diversification of our channel footprint, adding more than 3,000 distribution points in Europe. At the same time, we strengthened our presence with key global retail partners through increased listings and expand placement. This included IPL expansion broader distribution of interdental products and more than doubling on bay distribution in the U.S. Our second pillar, innovation, is another key driver of both momentum and growth. Across modalities and products, we are accelerating innovation towards scalable AI-enabled hardware and software platforms. And that is already translating into stronger regulatory momentum for approvals of new product introductions. In Q1, we received 20 510(k) clearances and premarket approvals, more than doubling year-on-year. In MRI, we received FDA 510(k) clearance for SmartHeart our AI-powered cardiac MR solution. Just like SmartSpeed is a clinical application that extends software and AI-led innovation across the installed base. SmartHeart automates complex planning workflows in 1 click and does that under 30 seconds, simplifying operations and boosting productivity. It also reduces patient breaths by up to 75%, improving patient experience in a big way. NCP, we received FDA 510(k) clearance for both spectral CT Verida and our Rembra Wide-bore CT. Launched at the 2026 European Congress of Radiology this platform features an industry-leading 85-centimeter bore. It is designed for high throughput environment with an AI-enabled workflow and improve diagnostic confidence. In Image Guided Therapy, we received clearance for DeviceGuide, an AI-driven solution, fully integrated with our Azurion platform. It enables real-time automated detection and visualization of mitral valve repair devices during minimally invasive procedures. We also launched IntraSight plus ,integrating intravascular imaging and physiology into a single system to simplify workflows and improve efficiency in the cath lab. Looking beyond product innovations to our future transformative interventional platform introduced at our CMD in February. We made progress in advancing clinical validation. Building on our ecosystem of more than 100 clinical partnerships, we added a share of our Research Consortium in Q1. Seven clinical studies are now underway to demonstrate the benefits of AI and robotics assisted workflows and minimally invasive treatments for brain aneurysms and liver tumors. In Personal Health, AI is embedded in our propositions. For example, the Philips High-end Shaver 9000 Prestige Ultra. It uses intelligent sensing and AI-driven adaptation to respond to each user skin and hair type. Delivering a more personalized shave every time. This innovative proposition not only won the TIME's invention of the year for the groundbreaking features, with also significantly increased sales and margin demonstrating our leadership in this domain. Since creating the hybrid shaving category, we have sold more than 50 million OneBlade handles and 100 million blades. This growing installed base supports profitable recurring revenue from consumables with strong replacement blade performance in the quarter. In Oral Healthcare, we infused new Philips Sonicare 5700 to 7300 series models in the U.S., featuring next-generation Sonicare technology. In China, we launched Sonicare 7000 at the South China Dental Show, reinforcing our position as a professional or care leader and strengthening momentum with the dental community. Across Philips innovation continues at scale throughout our portfolio. We remain the largest medtech applicant as the European Patent Office in 2025, a strong proof point of the depth of our innovation engine. And this is not just about today. This leadership is fueling the next generation of innovations coming through our pipeline and positioning us well to drive accelerated growth. In our third pillar, disciplined execution, it all starts with patient safety and quality, our top priority. It ensures we bring innovation to market with the high standards of patient safety and well-being. We're making strong and steady progress building on the improvements delivered over the past 3 years. And importantly, we are now benefiting from the work we have done to make Philips simpler, leaner and more agile, strengthening the foundation of our execution. Field actions were reduced by about 20% year-to-date. This is on top of a reduction of around 40% in 2025, reflecting increased discipline and process effectiveness. Importantly, these improvements in our quality processes are also enabling the innovation momentum I highlighted earlier. We also maintained close and constructive engagement with global regulatory authorities including ongoing leadership level dialogues with FDA and other regulatory bodies worldwide. This underscores our commitment to quality, compliance and continuous improvement in serving our customers. It carries through to our supply chain, a critical enabler of execution. Over the past 3 years, we have simplified, regionalized and localized our operations to be closer to our customers. Our focus is clear: deliver on consistently superior customer experience through a high-performing supply chain, day in, day out. During the quarter, developments in the Middle East increased volatility across logistics and input costs, including materials and components. Through active management of our logistics network, we maintained stable supply chain operations while stepping up cost mitigation activities, which Charlotte will further discuss. Importantly, customer service levels remain strong and in line with previous quarter and we remain vigilant in managing ongoing developments in supply and cost. And as we look ahead, we will continue to deepen the simplicity, agility and resilience as these are critical capabilities for navigating the increasingly turbulent environment. Turning to commercial and service excellence. In Connected Care, we saw further traction in our enterprise monitoring as a service. As health systems adopt enterprise monitoring, demand for enterprise informatics solutions is also increasing. These solutions now represent a growing share of both our order book and sales across various periods. In the quarter, we saw strong demand for capsule device integration and clinical surveillance across care settings driven by effective cross-selling across our enterprise informatics and monitoring platforms. In Diagnostic Imaging, we expanded our partnership with AdventHealth through a 5-year enterprise service agreement. It enables our full service model across modalities, while supporting a long-term imaging infrastructure focused on quality and performance. Turning to the regions. Fundamentals remain supportive across our markets, particularly in North America where demand remains strong and the landscape continues to segment. We continue to see stable activity levels across hospital systems with no signs of disruption among larger systems. Cost pressures and workforce shortages persist, driving further consolidation among larger health systems. Demand for secure productivity and cybersecure enhancing platforms is increasing. This reinforces our expectation that North America will remain a key growth engine in 2026 and over the medium term. In Europe, capital spending remained broadly stable with an improvement in some markets during the quarter. Demand conditions remain stable, supporting our execution in the region. Select international regions continue to increase investments in health care and digitalization as reflected with strong wins in India and Brazil. In China, centralized procurement continued to increase in Q1. particularly in modalities such as ultrasound and CT, which have shorter lead times. This is driving longer decision cycles and a more price-focused environment. As a result, we are seeing lower order conversion consistent with recent trends. These dynamics continued in the quarter, contributing to ongoing pressure on equipment demand. At the same time, underlying health care demand remains intact, particularly in procedure-driven segments. We remain focused on maintaining competitiveness, selectively driving our portfolio and executing with discipline in this more price-sensitive environment. In Personal Health, consumer demand remains healthy in North America, and momentum continues across several markets globally, even as geopolitical developments create uncertainty. We are managing these dynamics with agility while maintaining a strong focus on execution. Charlotte will now discuss our first quarter performance in more detail and our outlook for 2026. Charlotte Hanneman: Thank you, Roy. I will start with segment level performance. In Diagnosis & Treatment, comparable sales increased by 2%. Image Guided Therapy delivered high single-digit growth, continuing its multiyear momentum and building on a strong prior year comparison. Performance was broad-based across all regions with particular strength in North America, led by the premium configurations of our Azurion platform, higher service revenues and coronary intravascular ultrasound. We are reinforcing this momentum by leveraging AI to automate product testing, reduce release cycle times by 25% and accelerating time to market for new innovations. Precision Diagnosis sales declined in the low single digits in Q1, as expected, mainly due to order book rebuilding and the segment's higher exposure to China. Innovations, including EPIQ CV, point-of-care ultrasound, BlueSeal MR and CT 5300 continued to drive growth with solid uptake in markets such as Western Europe and Latin America, reflecting their scalability. Adjusted EBITDA margin rose 30 basis points year-on-year to 9.8%, driven by sales growth, underlying gross margin from recently launched innovations productivity measures and favorable mix effect. These favorable impacts were partially offset by higher tariffs, cost inflation and currency effects. Now moving to Connected Care. Comparable sales increased by 3%. Monitoring delivered mid-single-digit growth with particular strength in North America and Europe. Growth was driven by higher installations of IntelliVue patient monitors and continued traction in enterprise monitoring as a service. Sleep & Respiratory Care grew in the low single digits with the obstructive sleep apnea portfolio, delivering strong double-digit growth outside the U.S. led by particular strength in Japan, our second largest market. Enterprise Informatics sales declined slightly, reflecting inherent quarterly unevenness and lower implementation and deployment cycles. Adjusted EBITDA margin declined by 60 basis points to 2.9% as sales growth and productivity measures were more than offset by higher tariffs, cost inflation, lower cost absorption and currency effect. In Personal Health, comparable sales increased by 9% in Q1 with all 3 business contributing. Growth was broad-based, led by double-digit growth in North America and a strong contribution from international regions. China contributed modestly, benefiting from an easier comparison base. Sellout remains strong globally with channel inventory maintained at appropriate levels. This momentum was supported by strong demand for recently launched innovations, including the high-end i9000 shaver with AI-powered SenseIQ technology and the Sonicare 5000 to 7000 series. Adjusted EBITDA margin expanded by 60 basis points to 15.8% as growth and productivity measures more than offset the higher tariffs, cost inflation and currency effect. Advertising and promotion spend increased year-on-year, consistent with our commitment to continue investing in the business to drive consumer recruitment and sustain long-term demand for our recently launched innovations. We are also leveraging AI to strengthen consumer engagement, embedding it across 94% of digital assets and generating over 27.8 billion searchable data points, 100x increase. This enables more personalized consumer interactions, improves content reuse efficiency and enhances our ability to drive future sales through more targeted and effective marketing. Finally, sales in segment Other of EUR 177 million increased by EUR 37 million compared with the first quarter of 2025, mainly reflecting activities related to a divestment. These activities are excluded from comparable sales growth and contribute only an insignificant amount to adjusted EBITDA. Adjusted EBITDA for the segment increased by EUR 7 million to EUR 11 million, mainly driven by lower costs. Now turning to group results. Comparable sales increased by 3.7% in the first quarter with growth across all segments and regions, led by North America and Western Europe. Adjusted EBITDA margin increased by 40 basis points year-on-year to 9%. Margin expansion was driven by sales growth, favorable mix effects and productivity measures, partially offset by higher tariffs and cost inflation. Product productivity delivery in 2026 is off to a solid start with Q1 delivery of EUR 126 million, on track to deliver our EUR 1.5 billion 3-year savings commitment. Execution is progressing at pace, underpinned by plans already in place. Actions in Q1 were led by operating model simplification, including streamlining central functions and reducing organizational layers as well as procurement initiatives such as SKU rationalization and supplier consolidation. We are also seeing early contributions from footprint optimization and AI-enabled efficiencies. Service productivity was another contributor, including through more remote troubleshooting and fewer on-site visits with benefits most visible in ITT and across Europe. In parallel, we continue to execute tariff mitigation actions. Overall, we remain on track with good visibility to deliver our 2026 productivity objectives. Against the backdrop of rising input cost inflation, we are accelerating mitigation actions, further sharpening our focus on productivity, cost discipline and structural efficiencies. Adjusting items came in at EUR 61 million, less than half of last year's EUR 143 million. This significant improvement reflects our continued focus on structurally reducing adjusting items. A one-off gain in Diagnosis & Treatment from the reversal of an acquisition-related provision and cost phasing also contributed to the year-over-year reduction. Income tax expense increased by EUR 17 million in the quarter, primarily due to higher income before tax. Financial income and expenses were EUR 47 million, broadly in line with the prior year. And net income rose to EUR 146 million, primarily due to higher earnings. Adjusted diluted earnings per share from continuing operations were EUR 0.23 in the quarter. compared with EUR 0.25 last year, primarily reflecting the adverse currency effect on nominal earnings and a higher diluted share count. Free cash flow in Q1 was an inflow of EUR 28 million. Excluding the impact of the prior year U.S. Respironics settlement payout, free cash flow improved by EUR 94 million year-on-year. This improvement was driven by higher earnings, improved working capital and lower adjusted items. Moving to the balance sheet. We ended the first quarter with EUR 2.6 billion in cash after a $265 million payment for the SpectraWAVE acquisition announced late last year. This acquisition reflects the disciplined, value-focused M&A strategy we outlined at our CMD, including a disproportionate resource allocation to our interventional platform to reinforce our coronary leadership. Integration is progressing well with the core foundations in place and commercial momentum building as planned, positioning the business to scale and capture growth in coronary interventions. Net debt was EUR 5.5 billion at the end of Q1. The leverage ratio improved to 1.8x on a net debt to adjusted EBITDA basis from 2.2x in Q1 2025, driven by higher earnings and reflecting our disciplined capital allocation. Now turning to our outlook. Amidst continued macro uncertainty, we remain focused on disciplined execution of our plan. Based on the current status, developments in the Middle East are expected to impact sales in the remainder of 2026, though not materially at the group level. At the same time, supply chain and logistic constraints are expected to drive cost inflation. Against this backdrop and based on our Q1 performance, our outlook for the full year remains unchanged. We expect comparable sales growth of 3% to 4.5%, with growth in each quarter within this range led by North America and the international region. We continue to expect comparable sales in China to be stable this year with growth in Personal Health, offsetting a slight decline in health systems against the backdrop of subdued near-term market conditions. Across segments for the full year, we continue to expect growth within this range with Connected Care and Personal Health at the upper end and diagnosis and treatment at the lower end. We are encouraged by the better-than-expected adjusted EBITDA margin performance in Q1, driven by innovation, productivity and cost discipline with some benefit from lower-than-anticipated tariff impact. Consistent with last year's approach, our full year 2026 outlook includes currently known tariffs, which are marginally more favorable than assumed in our February outlook. However, uncertainty remains. Also, while we are pursuing tariff refunds related to the International Emergency Economic Powers Act, our 2026 outlook does not include any potential benefits from these refunds. We are also seeing input cost headwinds, including freight, electronic components and plastics as well as other inputs affected by higher energy costs. We are actively mitigating these pressures. Over the course of the year, we expect to offset these pressures through supply chain optimization, productivity and selective pricing actions. At the same time, we continue to closely monitor cost developments across our supply chain. For the balance of 2026, we expect some near-term pressure on margins consistent with our plan, reflecting the annualized impact of tariffs, higher inflation and foreign exchange. As a reminder, last year, the higher tariffs did not impact our adjusted EBITDA meaningfully until Q3 due to the natural lag between inventory and a flow-through to the P&L. Accordingly, we reiterate our full year adjusted EBITDA margin guidance range of between 12.5% and 13%. Our full year free cash flow outlook also remains unchanged at between EUR 1.3 billion and EUR 1.5 billion. As previously indicated, our outlook excludes the ongoing Philips Respironics-related proceedings including the Department of Justice investigation. With that, I would like to hand it back to Roy for his closing remarks. Roy Jakobs: Thanks, Charlotte. To close. We delivered a solid start to the year and order intake momentum continues. In April, we signed a long-term strategic partnership with WellSpan Health in the U.S. It expands our role as the preferred provider across all imaging modalities and advances a system-wide approach to imaging and diagnostic technologies. Importantly, this partnership is also a strong validation of our innovation and platform strategy, bringing together our capabilities to deliver integrated long-term value for customers. It underscores strong customer trust and our value proposition and long-term partnerships. These relationships matter even more in the current operating environment. Our strategy is clear, and we remain focused on advancing our strategic priorities, driving innovation and strengthening our differentiation and competitiveness. At the same time, we are executing with discipline, staying focused on what we can control and closely monitor the evolving macro environment. Against this backdrop, we reiterate our full year outlook, which includes currently known information, but an uncertain macro environment. Thank you, and we will now open the line for questions. Operator: We will now open the line for questions. [Operator Instructions]. Your first question comes from Hassan Al-Wakeel of Barclays. Hassan Al-Wakeel: Roy, Charlotte, a couple, please. Firstly, if you could please talk to the building blocks of the mid-single-digit order growth in D&T for the quarter. the sustainability of U.S. market strength based on your customer conversations? as well as the softness in China precision diagnosis given centralized procurement and how your share is progressing here across the different modalities and related to this, I wonder if your thinking has evolved for China order and revenue stability this year across D&T. And then secondly, Charlotte, another strong quarter on margins, and you've been consistently talking about gross margin benefits from innovations. It'd be great if you could help break up the quarter's EBITA performance across productivity, mix and innovation and how sustainable you think each of these are. And also what you're seeing from cost inflation, specifically around freight and memory chips and what's assumed in guidance? Roy Jakobs: Let me go to the first one. The mid-single-digit D&T growth. So if you look to the buildup of that, actually, that is a continued very strong order intake in IGT which actually is trending at high single digits and above. So very, very strong and that, of course, over multiple quarters. Then you see that we also had mid-single-digit PD order intake outside of China. But then, of course, China is affecting the PD order book as well. But we see a very strong overall mix, and we see increased demand, and particularly also for MR. We called out, of course, the helium-free, but also we have seen just a broad-based interest in the MR solution really growing also as a modality in itself. And that also gives us confidence for the further conversion in due course of the year into the latter part of the year from a sales perspective. Then U.S. is a strong contributor to that, has remained very strong. And actually, also from our customer dialogues, see that strength continuing. Actually, we see a very healthy market where patient volume is strong, the procedures are growing. But as we also said before, it's not evenly spread across all health systems. So the bigger systems are winning more. And that's also we are well positioned with our platform-based solutions. So that's actually where we see that we kind of are continuing to close these long-term partnerships. You also saw that in the quarter with Advent, with WellSpan so we had more. So that's really working out, and we see that U.S. actually will continue to be a strong contributor for us. Then Europe actually was also strong. So I think I want to call that out that Europe was doing well and is picking up, but then China at the other hand, is showing continued cautious development. Q1 was in line with our performance expectations. So it's not that it's unexpected that it's not performing that strongly. We do see differentiated performance by modality. So IGT and MR are solid. CT and ultrasound are the most exposed to centralized procurement and therefore, they have the biggest impact. And then on the consumer side, you saw that actually PH grew but was on easier comps but we do see some sales sellout momentum in PH. And that's also what we expect for the rest of the year, and essence of similar trend of subdued kind of medtech portfolio that PH contributing and therefore, actually, the full year China sales are expected to be stable, and that's also as we have planned it. So in that sense, kind of this is tracking alongside what we plan for, where the biggest growth has to come from North America, Europe and international region. China is contributing as the market gives the opportunity. So we are not relying on the China recovery in the rest of the year. We are actually counting on strong momentum in North America and Europe, in particular, to do that. And in that perspective, actually, we see that where we have been focusing our strategy, it's really coming also to fruition because North America, IGT, extreme Stronghold. Monitoring is doing really well as well there. We see the other momentum going up. So I think we're well positioned to execute our plan as we have built it for the year on the growth side. And maybe that's a nice bridge to Charlotte to then also talk to the margins. As, of course, we have revolving developments there. Charlotte Hanneman: Thank you very much, Roy. And hello, Hassan. So indeed, as you said, we were pleased with how the margin has developed with a 40 bps expansion in Q1 despite the impact of tariffs. So if I break that down for you in a little bit more detail. Yes, we saw a positive impact coming from volume, from the business mix. But indeed, as you mentioned, also from higher gross margin from innovations. So CT 5300, I called it out before, is helping us from a gross margin perspective. We also see point-of-care ultrasound, which we recently launched also at a higher gross margin, also helped lift our margin. And then we see the continued momentum also from our MR BlueSeal at a higher margin as well. So that is certainly helping us. Of course, we continue to do our productivity work. We are pleased with our EUR 126 million of productivity in Q1. You've seen it last year. We finalized our EUR 2.5 billion program last year. It's a real strong muscle we have built and that we are now expanding spending on, which is really creating self-help in what is a turbulent situation. So with this productivity, we're nicely on track there. Of course, offsetting that is tariff and also a little bit of input cost inflation. One thing that's good to mention is that the tariff impact was a little bit lower than anticipated initially, also after, of course, the Supreme Board struck some of the tariffs. So if I then look forward, Hassan, based on your question, what does that mean for the outlook. So a few different components here. Of course, we started well in Q1 which is helping us we are seeing inflation and to your point, also in freight, in components and in plastics. But offsetting that is us really leaning in to mitigating that with supercharging AI, further reducing our bill of material cost and also doing selective pricing. And then the other component is also tariffs being a very modest tailwind for us versus our expectations as well for 2026. Operator: Your next question comes from Richard Felton of Goldman Sachs. Richard Felton: Two questions for me, please. First one is on China. You called out central procurement for ultrasound and CT. How much exposure does Philips have to those modalities in China now? And what level of price adjustments are you seeing perhaps linked to that, how much of the low single-digit decline that you called out in precision diagnostics was due to China? That's the first one. Second question is sort of slightly sort of longer-term question, I suppose, on the sleep business. ex U.S. in kind of broad terms, how has performance been as Philips has returned to the market OUS in terms of growth market share? Could you also perhaps talk a little bit about your innovation strategy in sleep? Roy Jakobs: Yes. Thank you, Richard. So on China, we have seen indeed that kind of the centralized procurement is being applied mostly on ultrasound and CT. That is because the specifications are being seen as more generic and therefore, they put them under the centralized procurement to a bigger extent. We have seen that, that also has significant margin implications in terms of the pricing pressure that you see in those segments. So volumes are actually holding, but you see that the value is decreasing, and that is putting the downward pressure. Actually, in our IGT and MR business, we see that they are for biggest majority outside of centralized procurement because they are so specific and also don't have the alternatives that they don't put them into the centralized procurement. So that's something in the centralized procurement approach in China that we see currently as they expand that across the country. In terms of the devices, kind of, you see that it's a very small part of it. So actually, there's not a big hit. But the biggest hit is indeed in PD with the ultrasound and CT on. So that's kind of also, therefore, hitting the performance in the first quarter, and we can expect that also to pressure the rest of the year, which means that actually the dialing up in the other parts of the world will be really crucial. And as you know, that's also working. Now if you look to the BI China part, as we said earlier, kind of, that is around 15% of global. And in the mix, you see that kind of MR is 50% of that. So that's better protected. The bigger pressure is indeed on the CT and the ultrasound part. And then you have IGT percentage in China is slightly bigger than the 15%, but it has, of course, a strong contribution also from the other parts, and it's better protected from centralized procurement. So that's a bit of what I can say about the mix. And maybe lastly, it also really calls that we have the right strategy chosen for China because we said we want to compete in segments that we find we can differentiate. And still where we find we can differentiate is the MR BlueSeal for sure, and we see also that actually they are kept that out of the CT for biggest part. It's our IGT franchise, which is really differentiating. There's no kind of alternative in the market. We see ultrasound cardiac actually also being better performing. But of course, that's a smaller part of the cardiac -- of the ultrasound market in China. That's why you see that in the other ultrasound parts, there's bigger pressure. Then n sleep, I think if you look at sleep outside of U.S., we see strong double-digit growth that's led by Japan, but also it's coming from the markets where we are coming back. That's offset by the ongoing respiratory pruning effect. So that's kind of where you see the mix effect coming in. where the comparison is normalizing towards end of the year. So that also should improve towards the end of the year. And from an innovation perspective, actually, we have seen good resonance also driving that double-digit growth by the new masks portfolio that we have been introducing together with the device, the software updates we are dialing in. And that actually the ecosystem is still very strong. Actually, people are still waiting also in certain markets really for us to get back and to get back on our platform because they really appreciate the patient interface that we have built. And that's given us also a strong way back into the market. Maybe the other part on SoC, of course, we are working strongly on the mitigation of the regulatory part. So that's something that we're also making good progress on. We said kind of we cannot comment on what it will exactly mean, but we are still hitting every single mark in terms of milestone with the FDA and that's actually forging ahead also as planned. Operator: Your next question comes from David Adlington of JPMorgan. David Adlington: So maybe on cost, I think you may have addressed some of this. But obviously, GE, called out cost inflation, most notably on memory chips. I just wondered if you could sort of help give some further color there and maybe quantify the exposure? And then secondly, obviously, another great quarter for Personal Health care in terms of growth. I'm not sure if you quantify the contribution of price or not, that will be useful. And as we get into the second half and more difficult comps, how you're thinking about the growth profile in PH. Charlotte Hanneman: David, let me take the first one. So from a cost inflation perspective, and maybe a few things. So as I said earlier, we do see cost inflation impacts. We do see that, and we've taken that into account in our guidance. And we -- the expectation we have is that the elevated levels that we see today in freight, electronic components, plastic, we will see that come through for the remainder of the year. But at the same time, we've included mitigation actions that we are taking, including, for instance, reducing our bill of material cost even further, going hard after AI-enabled savings and also selectively increasing our prices. And we have a lot of confidence based on the muscle we've been building over the past few years and also what we're seeing again transpire in Q1 from a productivity perspective. On top of that, some of the tariff tailwinds that we're seeing after February are also helping us. So there is a little bit on that. And then your second question on Personal Health and the effect of pricing. So we had another stellar quarter in Personal Health in Q1 with particularly North America doing very well with double-digit growth in North America. Of course, we were a bit helped by China, but only relatively little. Pricing from a pricing perspective, it is relatively flat. We saw a slightly positive pricing, which is probably mostly attributable to the innovations that we've been seeing like the 9000 shaver, like the new Sonicare range that we've introduced. So that has helped pricing a little bit. If I look to the remainder of the year or the full year, I should say, so we have reiterated our guidance from 3% to 4.5%. And we've also said that PH will be at the higher end of the guidance, and we're reiterating that today because, as you said, the comps are getting a little bit more difficult as we get through the remainder of the year. At the same time, we see very good momentum in Personal Health as well. Roy Jakobs: And maybe one addition. What is also helping it, David, is, we have been re-expanding our retail distribution. So actually, we have been getting listings and placements in the web shelf and particularly of big retailers. And that actually we gives us additional sustainable growth opportunity for the quarters to come. So it's the combination of really great innovation, but also now having a better access event the consumers that actually gives us confidence that this is a sustained growth path and that we are in line with the guidance that Charlotte just provided. Operator: Your next question comes from Veronika Dubajova of Citi. Veronika Dubajova: I will keep it to two, please. One is kind of big pick your question on patient monitoring. Obviously, one of your sort of competitors suppliers of changing ownership. I'm just curious on how you're thinking about what impact that might have on your business and whether this is strategically positive and negative and net neutral is this an asset that would have made sense in the context of Philips, if you can kind of share your thoughts on that, that would be super, super helpful. And then my second question, is just circling back to some of the inflation commentary. Maybe Charlotte, can you give us a flavor for why you think you are in a better position to mitigate some of the headwinds than GE Healthcare. Would just love to understand what you think you have in your back pocket that's obviously enabling you to maintain your margin. And if you very briefly could comment on your Q2 margin expectations, that might also be helpful. Roy Jakobs: Yes. Thank you, Veronika. Let me take the first one. So on the patient monitoring. So you saw that actually the strong momentum continues, strong order intake. Actually, we are playing a platform play there that actually really resonates well with our customers. And as part of that, actually, we have strong partnerships. Masimo is part of that. We don't think that actually there will be any change. That's also not what kind of has been signaled because we have the biggest access to customers globally in terms of monitoring base. So there's a real intrinsic interest to actually connect with us to the customer. And there's also mutually interest from us to actually be providing in a vendor-neutral way consumable solutions that are out there in the market. And that has been benefiting the partnership with Masimo in past years, and we believe that will be also going forward. So we see it as at least net neutral. And I think we are excited to work also with any new owner there to kind of grow the franchise and make it work for our customers. And to differentiate also first competition because this is one of the strongholds the combination that we have a very strong cybersecure platform with the broadest data reach with the medical device integration and the consumables actually makes it very appealing in a very complex environment for our customers to do business with us, and that has been driving all these long-term partnerships and also the share gains in monitoring along the way. Charlotte Hanneman: Yes. Thank you, Roy. Let me take your second question, Veronika on inflation. And if I think about where we are in the year, let's first start with, in Q1, we had a very solid Q1 with margin expansion ahead of our expectations. So that gives us confidence that, again, we are able to not only compensate some of the headwinds we're seeing, but even expanding our margins despite that. Then, of course, we're seeing cost inflation. We're seeing it in freight, and we see it in electronic components and in plastics, but we have already started taking mitigation actions. Those will -- we started building them. Those are a little bit back-end loaded, and they will start coming in the second half of the year. And to take you through what we're doing. First of all, we're doubling down on bill of material productivity. We've always said there's more to go after, and we're now doing that with increased feed. We're going after our AI-enabled efficiencies, where we've seen some early progress already in Q1, and we continue to see that as well. And then as well, we're doing selective pricing as well. So the other element is really the tariff tailwind that we're seeing a little bit that we -- we're seeing also in Q1, and we'll see that versus our expectations being a little bit better going forward. Now you also know that we've been a little bit prudent in the way we've put our full year guidance out as well. So that, of course, has given us a little bit of buffer as well. So now to your question on Q2 specifically and Q2. So if we think about Q2, a couple of things that I think are important to realize, of course, Q2 is the last quarter where we still didn't have the full impact of our tariffs in 2025. So -- and you know, we've spoken about it a lot of times the way the tariff impact flows into our P&L, which first goes into inventory, and then it flows into our P&L. So we have, again, a tough comparable from a tariff perspective. And then also, we see the cost inflation, of course, starting to hit us. We have already taken the mitigation actions, but it will take a little bit of time before that starts positively impacting our P&L. So we, therefore, expect our mitigation impact to be a little bit more back-end loaded. Operator: Your next question comes from Julien Dormois of Jefferies. Julien Dormois: The first one relates to the mitigation initiatives that you are taking, and you mentioned selective pricing initiatives. So could you just walk us through what are the segments where you have the more leeway and at what speed we could see those pricing initiatives contribute to margin? And the second question is more specific on Enterprise Informatics. You indicated that sales were down low single digits in Q1, and you mentioned the usual unevenness in revenue generation. But if you could shed more light on why that happened specifically and then what we should expect for the remainder of the year and maybe also in the midterm, that would be helpful. Charlotte Hanneman: Julien, let me take your first question on pricing. So yes, we've called out also last year, you might remember, selective pricing as well, and we've already put some of that in place last year. We, of course, focus there where we have leading positions, and that's where we increased our prices. So I'll give you a few examples. We're increasing our prices in Image Guided Therapy. We're doing that in hospital patient monitoring. We're doing that in some of our service contracts. We're doing that in some of our time and materials. So we have a very granular plan in place to increase prices where we can. As you rightfully mentioned, some of that will flow through in 2026 and some of that will take a little bit longer as it needs some time to flow through the order book and will then benefit us in 2027. But I think it's fair to say that we've learned from COVID. And also there, we've been able to build up a much stronger muscle when it comes to price increases and price discipline, which is now helping us implementing that with a little bit more speed. Roy Jakobs: Let me then go to EI. So in EI, we see a couple of trends as we also alluded to when we had the Capital Markets Day. One is actually, we see continued order uptake. We saw that picking up strongly in the second half of last year. We also saw it again in the first quarter, and we have a very good funnel. So we see that there's healthy demand that's also on the back of the cloud migration and the cloud offering that we have, but also the integrated diagnostics trend that we see coming out in the market is really generating increased interest. If you then look at the sales trend, this is indeed more patchy. Sales drills orders quite a bit in EI. Furthermore, you see that if customers migrate in or out, those give quite big hiccups because actually that's the lumpiness that's kind of inherent to that business. The other part is that you also see that the orders that we are taking now more and more also go into a SaaS model, where you see that kind of the revenue flows in over a longer period of time. And that actually gives you more recurring attractive revenue stream for the longer run, but of course, it gives a bit of a hiccup in these quarters. So we see positive interest. We see the integrated diagnostics story really picking up with customers and of course, fueled by AI and the data play, and we are really working how we can tap into that. And we see the funnel growing also supported with what we're doing with Amazon. And then lastly, you also saw that kind of on the monitoring side, the Capsule and HPM combination is already working. So you see also this kind of combination play really driving impact. So we are kind of positive on that notion as well that, that will come through in due course of the year. Operator: Your next question comes from Hugo Solvet of BNP Paribas. Hugo Solvet: I have 2, please, quick ones on margins. First, short term. Charlotte, on the Q2 margin, could you maybe just clarify your earlier comments? Is there a scenario where margin in Q2 be within the full year guidance range? And second, a bit more long term, when we think about the full year 2028 targets, you have around 600 to 700 bps of buffer for wage input cost, tariff macro and so on. What's the level of confidence that this buffer can accommodate for higher input costs given where they are at the moment? Charlotte Hanneman: Yes. Thank you very much, Hugo. So let me start with your first question on Q2 margin. So based on what I just said, first of all, the incremental tariffs weren't in effect in Q2 2025. as well as the cost inflation that we're seeing with the mitigation timing being back-end loaded, I expect the Q2 margins to be lower year-on-year in Q2. I also feel very confident that in the back end of the year, we will be able to get those mitigation factors in because we have very, very strong plans in place and very granular plans in place to start offsetting that. But Q2 in that sense will be a little bit of a lower quarter from a margin perspective. Now to your second question on the longer-term margin outlook, as we said in February, we -- of course, as we stood there in February, we knew that the world was a turbulent place. We didn't quite know how turbulent it would get, but we absolutely did take into account that there would be something that we would be seeing. So as a result, and we were also very transparent about the buffer that we took at that point in time, especially given the ability we have to also step up from a mitigation perspective, I don't -- I feel equally confident as I was in February that we'll be able to get to the mid-teens adjusted EBITDA margin by the end of 2028 based on what we know today. Hugo Solvet: Thank you very much and congrats on EBIT. Operator: And your next question comes from Aisyah Noor of Morgan Stanley. Aisyah Noor: My question is just on D&T and your competitive outlook in Europe following the launch of an ultrasound by United Imaging in this space. And as well on the recent launch of Verida for you, just how that's progressing and how we should be thinking about the sales contribution for 2026? Roy Jakobs: Yes. Thank you, Aisyah. And I already called out Europe actually picking up and performing well in Q1. And that's also in particularly for D&T, where we see actually that -- and then within D&T also PD actually is doing really well in Europe. So we see a few trends. One, MR already was picking up strong. So we see that continued. And also if you look to the BlueSeal penetration now, actually, that's really kind of going well, and we see a good funnel. on the MR side. Then also with the new Verida launch, actually, we see very strong interest in Spectral and how that now with a better workflow is really helping to support high-volume throughput at high-quality imaging. We've secured the first order already. We have an installation ongoing. So actually, very good reference as well, very strong clinical support. So actually, we have a kind of good expectation that Verida will be doing really well in Europe, and we see the first proof points of that coming through. Then lastly, ultrasound. Ultrasound actually is also doing well. Indeed, we had some competitors as well in this space, but actually ultrasound in Europe has been already starting last year, picking up very strongly after we kind of came out with our latest EPIQ launch and also the Flash. We have good order momentum of ultrasound in Europe, strong positioning. So actually, we are quite excited about the momentum in Europe, how that is increasing and especially also how our AI-based, but also, I would say, high productivity and performance solutions really hit the mark in a market that needs to be also kind of conscious of the spend in the environment that we are in, but that seems to work well. Operator: Due to the time, the last question today comes from Graham Doyle of UBS. Graham Doyle: Just 2, please. Just the first one, just on inflation again. Just to get some context on this. Obviously, you guided in Feb, and there's been obviously volatility. But is there any -- how meaningful is the incremental headwind? So is it something that was comfortably within your buffer? Or are you doing other things to sort of mitigate? And then, Roy, just on China, you mentioned a few times at the CMD and then today about kind of playing to win in certain segments. Is there any way within reason that you kind of identified to us the areas where you understand that perhaps you can't win and therefore, you've built it into your guidance that you kind of know that there's areas where you're probably deprioritizing. Is that possible to maybe contextualize that for us? Charlotte Hanneman: Graham, thanks. Let me take your first question on the inflation. So indeed, yes, we guided in February only 3 months ago, although a lot has happened. So as I said before, we are seeing an incremental headwind in plastics, in also freight. It's good to know as well that energy, we have hedged for 2026. So we will not see any impact from higher energy -- direct highly energy prices. There are a few components here, right? It's -- first of all, we did already better in Q1 than we thought. So we are a little bit ahead of where we thought we would be, which is giving us confidence. The second component is we are -- after the Supreme Court struck some of the tariffs in February, we're seeing some tailwinds as a result of that, that we are that we are taking into account as well, which is offsetting some of the inflation. And then the third component is we have launched already additional mitigation activities, including bill of material price reductions, including also optimize the way we look at freight and where we use air freight versus boat in order to also optimize the spend there and also leaning in even harder in what we know and do very, very well, which is driving further cost discipline. We've also -- we've always said there's more to go after. So we're doing that now with double speed as well. And putting that also in the context of what I said earlier that we have put a prudent guide out, all of that actually comes to a place where we can reiterate our guidance of 12.5% to 13% for the full year. Roy Jakobs: And then on China, indeed, I think the differentiated play is becoming more important. And to give you some examples where we see that actually, we have really the right to play and to win is, I called out MR. Actually, we have one of the biggest installed base of the helium-free already in China. And we just go also the notion that we have a green part support from the regulatory body and PMA to kind of get an accelerated approval for the 3T because they're so excited about the new innovation that this will bring to China. So that's a good example on MR. IGT is also really doing well, and we have a kind of good momentum, and we see that also well in demand in the market. And also sound, I called out there's different dynamics. You see that the cardiovascular, we are still unique, but it's, of course, a smaller segment in totality and you see quite brutal competition on GI. The same with CT spectral, Actually, we have, again, one of the stronger installed bases of CT Spectral in China. But if you look to the more generic CT, that's really very strong competition. So that's kind of where we said that's not our game play. And then we exited DXR because we said that's so commoditized. That's not our game in China. We also exited the value play in China, which is the lowest price segment because that will be very strongly locally favored and also at price points that are not attractive to us. So -- so we made distinct choices. Actually, within those segments, we also see that we are really trending with market or even kind of doing well within the market momentum. But yes, there is just a subdued overall market environment that we have to operate in. But I think we have been making the right choices. We're sticking to that. It's also in line with the plan. And also, as we showed in the results, it's also in line with the results that we have in Q1 and also for the full year expectation. So, in that sense, I think we derisked China in our plan. We're playing there to tap the opportunity that we have. And last but not least, China is not only a demand market, of course, there's also innovation happening in China that we want to stay close to, including AI innovation that's going very rapid. Robotics is developing very rapidly in China. And then, of course, there's also still components and sourcing that we get from China. So that China for us is a wider market than demand only, and that's why we kind of keep a strong footprint there, but in line with demand, we have kind of opted for a more selective go-to-market. Operator: That was the last question. Mr. Jakob, please continue. Roy Jakobs: Yes. Thank you all for attending the call, as you saw, we have a strong start to the year with growth orders and sales and margin expansion despite a very turbulent environment we operate in. We have the confidence reiterated our full year guidance. Of course, a lot of work to be done, but we have the actions in place, the plan in place and the team that is working it. So thank you for your attention again. Have a further great day. Operator: This concludes the Royal Philips First Quarter 2026 Results Conference Call on Wednesday, 6th of May 2026. Thank you for participating. You may now disconnect.
Operator: Good morning and welcome to the Healthpeak Properties, Inc. First Quarter 2026 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Andrew Johns, Senior Vice President of Investor Relations. Please go ahead. Andrew Johns: Welcome. Today's conference call contains certain forward-looking statements. Although we believe expectations reflected in any forward-looking statements are based on reasonable assumptions, these statements are subject to risks and uncertainties that may cause actual results to differ materially from our expectations. A discussion of risks and risk factors is included in our press release and detailed in our filings with the SEC. We do not undertake a duty to update any forward-looking statements. Certain non-GAAP financial measures will be discussed on this call. In an exhibit to the 8-K we furnished to the SEC yesterday, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. The exhibit is also available on our website at healthpeak.com. I'll now turn the call over to our President, Chief Executive Officer, Scott Brinker. Scott Brinker: Thanks, Aj and welcome to Healthpeak's first quarter earnings call. Grateful for our team who delivered a first quarter with excellence in execution, one of our WE CARE core values. In early January, we completed the once-in-a-decade buying opportunity at the Gateway campus in South San Francisco for a small fraction of replacement cost. We're already driving leasing momentum at the campus with 62,000 square feet of signed leases and letters of intent. We also have 113,000 square feet of active proposals and tours at the campus. In March, we completed the IPO of our senior housing business in a unique and creative transaction. The $240 million of current year FFO from that portfolio is now being valued at a multiple that's roughly 20 turns higher than Healthpeak. That differential highlights the growth potential in Janus Living but also the incredible opportunity in Healthpeak at the current stock price. Despite selling about 18% of the business in the IPO, our exposure to senior housing is essentially unchanged from December 31 because we closed more than $700 million of acquisitions on our balance sheet prior to the IPO. The timing of the acquisitions was very intentional to capture the multiple arbitrage for our shareholders. Janus Living already has the cost of capital to do accretive acquisitions. As the 82% owner of the company, those acquisitions will benefit Healthpeak earnings. As an example, we expect the IPO proceeds to be accretive to Healthpeak by roughly $0.04 per share once fully invested and stabilized. The value of our best-in-class outpatient platform is being rewarded in the private market by world-class institutions. In March, we closed a joint venture recap with Blackstone on a fully occupied outpatient portfolio at a 6.1% cash cap rate. The transaction raised $170 million in proceeds and we now have a template for future recaps and acquisitions with Blackstone. We're progressing additional transactions that would generate proceeds of $700 million or more at cap rates about 200 basis points inside what's implied in our current stock price. We bought back $100 million of stock in April at a 10-plus percent FFO yield. The buyback was accretive and allowed us to increase our 2026 earnings guidance. Our stock price is clearly mispriced versus intrinsic value, so we'll continue to evaluate leverage-neutral stock buybacks to drive earnings and value accretion. We also paid more than $200 million in dividends to shareholders in the first quarter, which equates to an outrageously high 7.5% annualized dividend yield, especially in light of the solid payout ratio. Turning to operating results. The strong fundamentals in Outpatient Medical that we spoke to with the merger announcement 3 years ago continue to be validated. Since closing the merger, we signed more than 10 million square feet of renewals at cash re-leasing spreads of positive 5.8%. Last quarter, the spreads were positive 5.4% and once again, with very modest TIs. Half of our renewals were done in-house, saving $5 million in leasing commissions last quarter alone. Our leasing costs continue to be substantially below the peer group, resulting in strong net effective rents, which drives superior cash flow and ultimately earnings growth. We've been successfully getting 3% escalators in the outpatient business on both new leases and renewals for about 5 years now. Over those 5 years, our same-store NOI growth has averaged positive 3.5%, which is 30% higher than the previous 5-year average. So definitely an improvement in that business. We're advancing a number of strategic and highly pre-leased outpatient developments with our health system partners but not yet far enough along to announce publicly. In Senior Housing, our 1Q results were phenomenal across the board. Entry fees set an all-time high for the first quarter, incredible work by our team and operating partners and we'll provide all the details on the Janus Living call. Turning to life science. M&A activity, biopharma stock prices and capital raising are all trending positively. In fact, April was the most active month for biotech equity issuance since early 2021. Healthpeak total occupancy in life science increased sequentially and we still expect our year-end 2026 total occupancy to increase versus the prior year. Our leasing pipeline is broad-based from venture-backed biotech to large-cap pharma. Traditional wet lab accounts for the vast majority of the pipeline but we do have flexibility. Our robust well-located buildings allow us to capture alternative users when it makes economic sense. To summarize, senior housing performance was outstanding and we created enormous value with the IPO. Our outpatient portfolio and platform is being rewarded and richly valued in the private market and our lab business has massive upside as the pendulum starts to swing in our favor. I'll turn it to Kelvin to review our first quarter results and our improved 2026 outlook. Kelvin Moses: Thank you, Scott. We started the year strong and continue to execute our stated plans to position each business to deliver long-term earnings growth. We are very pleased with the success of the Janus Living IPO, which strengthens our investment management capabilities and expands our reach to a broader base of investors. We are translating this momentum into our operating platform by adding key talent in asset management, investor relations and acquisitions, advancing our technology initiatives and delivering our platform to our senior housing operating partners to achieve excellence in execution across the portfolio. We continue to attract interest from institutional capital across the enterprise, including our recently announced outpatient medical joint venture with Blackstone. These partnerships further validate our platform, relationships and capital allocation philosophy as investors look at Healthpeak as a platform aligned for growth. Turning to the results for the first quarter. We reported FFO as adjusted of $0.45 per share and net debt-to-EBITDA of 5.4x. In Outpatient Medical, fundamentals continue to show strength and our team is translating this into leasing opportunities with key relationships. During the quarter, we executed nearly 1.1 million square feet of leases, including several large renewals with leading health system partners, including Baylor Scott & White, Norton Health and HCA. Across our leasing activity, we achieved 5.4% cash re-leasing spreads on renewals, 79% tenant retention and ended the quarter at 91% total occupancy. Average annual escalators were 3%, consistent with what we have achieved on average since the Physicians merger. And leasing costs this quarter were modest at just 10% of annual rents, producing strong cash return. A good example of this execution is the Baylor cancer center in Dallas, where we completed 10-year lease renewals across the entire 458,000 square foot campus during the last 2 quarters. Leasing costs were minimal at just over $1 per square foot per year, reflecting strong second-generation returns that drive earnings growth. And most importantly, this outcome was achieved through direct negotiations with Baylor and McKesson, leveraging decades-long relationships and in-house operating platform that can deliver tangible outcomes for our clients. Finally, we ended the first quarter with a very active leasing pipeline, including 318,000 square feet of leases executed since April and approximately 700,000 square feet under LOI. Turning to Lab. During the first quarter, we executed 141,000 square feet of leases, 92% of which was new leasing. We also have approximately 355,000 square feet under LOI, of which approximately 80% was new leasing and approximately 75% on currently vacant space. We saw a range of deal sizes in those commitments, including 4 deals greater than 50,000 square feet and South San Francisco continues to see the strongest active demand of each of our markets. We ended the quarter with total occupancy up to 77.7%. And for the balance of the year, we expect to continue to capture occupancy from the benefit of new leasing commencements, which will support occupancy growth of at least 100 basis points versus year-end 2025. And finally, Senior Housing. We will continue to provide a brief update on senior housing with detailed commentary on the Janus Living earnings call to follow. For the quarter, Janus Living delivered total revenue growth of 35% and adjusted EBITDA growth of 42%. Healthpeak's ownership totaled 81.6% of the outstanding shares of Janus Living, which represents roughly a $5.7 billion market value. Shifting to the balance sheet and guidance. In January, we repaid $103 million of secured mortgages on 2 of our senior housing properties. And in March, we closed on a new senior unsecured delayed draw term loan totaling $400 million, which remains undrawn. We will have through December 2026 to draw down the term loan. And ending with guidance. Following the IPO, Janus Living is consolidated into Healthpeak's financial statements with a deduction to earnings for the noncontrolling minority interest. We now incur incremental public company costs and temporary earnings drag from the cash proceeds on the balance sheet. These impacts are expected to be offset by the senior housing portfolio outperformance and deployment of $750 million of cash into acquisitions through year-end. As a result, we expect the IPO to be earnings neutral to Healthpeak in 2026 and it will be accretive in 2027 and beyond as the capital deployment into acquisitions flows through to Healthpeak's earnings. In April, we repurchased $100 million of our stock at an implied FFO yield of over 10%. The repurchase is accretive to earnings and supports raising our FFO as adjusted guidance to a range of $1.71 to $1.75 per share. With that, operator, please open the line for Q&A. Operator: [Operator Instructions] Your first question comes from Nick Yulico with Scotiabank. Scott Brinker: Nick, are you there? I'm going to say your perfect record's intact, you're always first, but I'm not sure. Operator, I'm not sure, maybe he's having a connection problem. Let's go to the next question. Operator: Perfect. Your next question will be from Farrell Granath with Bank of America. Farrell Granath: This is Farrell. My question is on your life science portfolio. And when thinking about the commentary, it's seemingly much more positive in how you're thinking about your pipeline and increased interest. And I'm curious how that maybe has influenced or even changed your thinking and timing on opportunistic life science investments going forward? If that has actually moved up the time line or if there is a line of sight of when you think that would be a strategic use of capital? Scott Brinker: Well, the one we acquired in late December, early January, Gateway, is doing really well. So that's a positive. That was a unique opportunity. It's our biggest market. We have a dominant footprint there. I think the best team and the best footprint. We dominated there for years and I think that will be even more true with this purchase. And it had a lot of yield in addition to upside. So that was a unique opportunity. I'm glad we did it. We're already getting the benefit of that. I think that will fall into '27 and beyond as well. So congrats to Scott and the team. We're looking at some other things in our core markets but our threshold is pretty high for using capital. Obviously, we did the buybacks in April. That was a very accretive use of capital. We have a number of transactions underway. Our sources and uses this year was $1 billion of recaps and sales and $1 billion of acquisitions. We've essentially done the $1 billion of acquisitions and buybacks and we have a number of transactions underway. So we need to make sure we get that done before we would consider anything opportunistic in life science. But there's no shortage of opportunity. There's -- that is for sure. I mean, a lot of these private buyers are just totally upside down. At this point, we're mostly having conversations with lenders. So there is opportunity but we're going to be really careful and disciplined about which markets, which buildings and obviously, pricing valuation. Operator: Your next question is from Seth Bergey with Citi. Seth Bergey: Just given kind of the pipeline and the leasing activity you've been able to accomplish, how does the kind of Gateway acquisition kind of compare to your initial underwriting expectations? And just given kind of the positive comments on the pipeline, is there anything kind of changing in terms of the lease economics that you're discussing with life science tenants? Scott Brinker: Well, we didn't put much lease-up into our Gateway underwriting in year 1. So I'd say we're already ahead of schedule. Certainly, the pipeline is strong and I would have guessed and the rents that we're signing are at or above underwriting. So that's all positive. I don't think there's much contribution to 2026. But definitely, as we look into '27, '28, the upside from that portfolio should start to materialize in our earnings. So the momentum is definitely positive in the Bay Area. I mean San Francisco had a red x on it in real estate 5 years ago, now it's the hottest market in the country and we're certainly getting some benefit of that. Operator: Your next question is from Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: Kelvin, I believe you said that you expect lab occupancy to increase 100 basis points by the end of the year, year-on-year. Can you just walk through some of the components that's driving that between commencements and known move-outs? And does the team have any visibility into any known move-outs in 2027 at this point? Kelvin Moses: Yes. Thanks for the question, Austin. We have about 400,000 square feet of expirations in 2026. And behind that, we have just over 0.5 million square feet of commencements that will fully offset those expirations. So we expect net absorption into year-end. We're sitting here in May. So still ample amount of time for the team to try to convert some of our pipeline into occupancy in the fourth quarter as well that may trickle into 2027 but certainly still a window here to try to capture some incremental occupancy by year-end. There is about 50,000 square feet that we expect to exit the portfolio in the second and third quarter. So we do know about the potential vacate of 2 tenants in particular, midyear. But generally speaking, our focus is on total occupancy, driving net absorption throughout the year and seeing occupancy grow and subsequently produce earnings growth. So we're on track for that and the pipeline is certainly giving us promise that we'll be able to achieve net absorption this year. Operator: Your next question is from Ronald Kamdem with Morgan Stanley. Ronald Kamdem: Just wanted to stay on the life science portfolio for a second. I think you talked a little bit about sort of San Francisco and the activity there. Maybe commentary on some of the other markets. And if I could just ask about the 2027 expirations again, in terms of known vacates, just any sort of early color there because it would seem like there's a potential that same-store could be up next year if occupancy is rising this year. So I think we're all just trying to figure that out. Scott Brinker: Quickly on '27, it's still early. But as we look through that list and the conversations we're having, I think the renewal rate will be a lot higher in '27 than it has been in '26. So I don't know, plus or minus 50% or better but it's still early. So we'll update throughout the year as we get more clarity. But the leasing pipeline, the signed but not occupied leases is all positive. So we do feel like the trajectory on occupancy is definitely positive. And if we look at M&A and capital raising, that's extremely positive. It feels like that's always a leading indicator to the pipeline, which obviously leads into the actual leasing. So definitely, the trajectory is as good as it's been in a number of years, which feels good and we're well positioned. We've got the right team and footprint and the credibility and capital as a landlord to win deals. So definitely feeling a lot better about the momentum in that business. In San Diego and then I'll ask Scott Bohn to comment on Boston but we've got activity on virtually every vacancy in the portfolio. It doesn't mean we'll sign all those leases but there's activity. We brought in Denis Sullivan 6 months ago, former CIO and CFO of BioMed. He's just doing a fantastic job. So we've really got a great team on the ground to drive that activity as well. Scott, do you want to comment on Boston? Scott Bohn: Yes. Sure. Boston, I mean, Boston is still working through the biggest supply-demand imbalance of the 3 markets. But you really have to dig into what is competitive to our portfolio and how our portfolio is performing specifically. If you look at West Cambridge where the bulk of our opportunity is, from a space perspective, we've had some great success, a great win with the lease we executed with a large cap pharma in the quarter. There's also been some nice absorption in and around our portfolio in West Cambridge. So we're really happy with what's going on in that particular submarket in Greater Boston. And Claire and team are doing a great job out there capturing the demand that is available. If you look back 6 months versus today, it's markedly different feel in that market from a demand perspective. Operator: Your next question is from Rich Anderson with Cantor Fitzgerald. Richard Anderson: Nice quarter, nice set up here. It reminds me of the paired share REIT structure but I know it's not that. So don't get me wrong but very, very unique indeed. So congratulations. I wanted to talk about life science leasing a little bit more detail. Kelvin and Scott, you mentioned up 100 basis points at least by the end of this year versus 2025. I'm wondering if -- what do you think about how that will look? Will that be, I'm guessing not a straight linear line from today till the end of the year but more like an EKG? And I'm just curious how the pace of occupancy will go from here? Do you think you have a step down next quarter or step up? Like I just want to sort of prepare people for what it could look like even if the end game is up 100 basis points. Kelvin Moses: Yes. Thanks for that, Rich. I'll start. This is Kelvin. I think most importantly, we ended the year at 77% total occupancy. We ended the quarter at 77.7% total occupancy. So already making progress towards the 100 basis point goal of total occupancy improvement this year. Very difficult to give you precision around the quarter-over-quarter cadence of occupancy but just really want to focus you on year-end, given we have net absorption embedded in our portfolio with the execution that Scott and team were able to get completed starting last year that are flowing into this year. The 2 million square foot pipeline is probably worth giving a little bit more context on because there are opportunities to get new prospective tenants into more move-in-ready space. And if we are successful, that could lead to incremental occupancy capture in the fourth quarter, again, into 2027. So no perfect cadence that we can give you from an occupancy standpoint but total occupancy captured by year-end is our focus and the entire organization is working towards that goal. Operator: Your next question is from Michael Goldsmith with UBS. Michael Goldsmith: Just on the guidance, you raised the full year outlook by $0.01. Same-store NOI guidance is flat. Now we expect interest expense to be $20 million higher and G&A to be $5 million higher. So can you just walk through kind of what's driving the $0.01 raise? Is it the first quarter beat? Or maybe said another way, if you annualize your first quarter core FFO of $0.45, you get to a number well higher than your guidance. So can you just kind of walk us through the model and how we should be thinking about the cadence of earnings through the balance of the year? Kelvin Moses: Yes. No, thank you for asking the question. This is Kelvin again. But I'll give a little bit of context as it's important to get this right. But the Janus Living IPO has certainly proven to be extremely successful for Healthpeak. I think first, the outperformance in the senior housing business fully offsets the impact of the transaction, making the IPO neutral to Healthpeak's earnings in 2026. And then the second point would be, as Scott mentioned in his prepared remarks, we anticipate capturing about $0.04 of accretion on a run rate basis as the cash on balance sheet is deployed and the senior housing acquisitions stabilize and contribute to earnings. So some of that benefit will start to come into 2026, offsetting the IPO dilution and we could generate plus or minus $0.03 of earnings in 2027. So really important to highlight the earnings contribution from Janus Living. Through the first quarter, we mentioned earlier that we've already invested $1 billion of capital, $714 million in senior housing and we are making progress towards our capital recycling target of $1 billion. So $270 million of proceeds already received. I think we made the right decision to invest the $714 million in senior housing acquisitions in Q1 on balance sheet prior to the IPO and contributing those assets to Janus Living to own the largest share in the platform. And going forward, that will result in earnings growth, as I mentioned before. But I think the first quarter is a little bit elevated because of those on-balance sheet acquisitions that we made in Q1 but we do anticipate that the subsequent quarters will come down. And if you look at our kind of run rate average based on the midpoint of our guidance, that's about $0.43 per share of FFO, plus or minus $0.01 each quarter. But as we get proceeds back from our recapitalizations and seller financing repayment, that will have an impact on the earnings trajectory in the back half of the year. So a number of moving parts, wanted to make sure we walked through that. But we are certainly pleased with the opportunity to raise guidance $0.01 here and the success of the Janus Living IPO. Scott Brinker: And Michael, just one addition, the debt, $650 million of senior notes that we -- we'll have to refinance in June. Those are like 3.5%. So that's an additional headwind in the second half of the year versus the first half, just the final piece of that puzzle. Operator: Your next question is from Michael Carroll with RBC Capital Markets. Michael Carroll: Just wanted to see if you guys can provide additional color on the life science setup? I know that the pipeline appears solid and is growing. But how has tenant activity changed? I mean are they making decisions any quicker than before? I think the focus for them previously was really on the prebuilt space but have any larger customers willing to make longer-dated decisions on some of the space that maybe requires longer build-outs yet? Scott Brinker: I'll give a few comments on the background -- backdrop and I'll let Scott comment on specific activity. But if you think about the real drivers of supply and demand, M&A, capital raising, new supply, all those things are moving in our favor in a very dramatic way. It's just the downturn is so severe that it's taking some time to climb out of it. It's a long pendulum for this particular cycle but it is swinging in our favor. I mean all of those things really do move the needle on supply and demand over time and that's what drives the business. It's as simple as that. And we're out competing in the marketplace. There's a few really strong competitors, obviously. But those 2 or 3 groups are capturing the vast, vast majority of the tenant demand. And I think that, that will continue. And in fact, it's an opportunity for us. A lot of the new supply is going to alternative use. We're simply just not leasable in this marketplace. So the backdrop is clearly moving in a positive direction from both supply and demand standpoint. Scott, do you want to comment on the... Scott Bohn: Sure. Michael, I mean there are some larger tenants in the market who would be more apt to take more of a shell type space. But broadly speaking, the bulk of the pipeline and activity is still looking for maybe more move-in ready space or space that takes more minimal TI. Part of that is kind of the speed to getting into space, kind of shortening that decision window post funding. But also that type of transaction is less risky for the tenant, right? If you're going into a new build of a shell space where it's a full build-out, even if it's a turnkey TI, there's still inherent risk to the tenant. It's just a more complex build for them. So if they have the option today to go into a space that's a very nice second generation space that's well built out, that fits what they need with minor modifications, they're opting to do that. And so I think one thing that is an advantage to our portfolio that we talk about all the time is having a wide variety of spaces at different price points to accommodate all of the demand within the market. We look at the tenant list, the broker sheets and really try to focus on having an option for every tenant on there versus just focusing on a selected group of tenants who are looking for Class A trophy space. Operator: Your next question is from Juan Sanabria with BMO. Robin Haneland: This is Robin Haneland sitting in for Juan. I was just curious on the Blackstone JV. What's the opportunity set to grow here going forward? Would you be more interested in additional recaps or acquisitions? Scott Brinker: Yes, it could be both. It's a great group to partner with, obviously, extremely knowledgeable, enormous balance sheet with different pockets of capital to do different things. And we've got a great platform for them to participate in what we think is a really compelling business, with stable but growing cash flows and great relationships and footprint to really drive activity. And we would co-invest but as a minority share, we did a 20% interest in this recap, probably fair to say anywhere between 10% and 20% going forward. And we could do recaps and/or acquisitions and we're already looking at a number of things with them. Operator: Your next question is from Michael Stroyeck with Green Street. Michael Stroyeck: Can you provide some thoughts on lab re-leasing spreads? Obviously, there's still plenty of vacancy at the market level, likely will be for some time and your biggest peer is guiding to some pretty ugly re-leasing spreads. So I guess are you concerned that there could still be downward pressure on rents over the near term? Scott Bohn: Sure. This is Scott. I mean, I think overall lab rents in our portfolio around $60 a foot, right? And I think that you're going to have some rents that are above that, some rents that are below that. But overall, I think we're generally in line with that. But I think we focus on the total all-in economic package versus the face rent. I think in -- the better read overall, in my opinion, is what we're seeing in demand in the pipeline and those all-in economics that we're capturing across deals over time, they're going to drive both occupancy and earnings. Operator: Your next question is from Wes Golladay with Baird. Wesley Golladay: You seem to be getting a little bit of traction on the permitting at the mixed-use Alewife project. Can you give us an update on what's going on there and a time line for that project? Has that changed at all? Kelvin Moses: Yes. No, happy to give an update. In fact, a week ago, we received our preliminary planning Board initial approval. It's not the final approval for the entitlements but certainly a step towards that objective. It's been a long process, as you know, working through the entitlement effort there but a very rewarding project that we now have Hines partnering with us on the multifamily opportunity. The mixed-use project is plus or minus 5 million square feet, half of which will be multifamily residential that Hines will be leading. So we have the opportunity to complete entitlements this year towards Q4 of 2026 and could see a groundbreaking of a residential building by Hines at some point in 2027 or 12 to 18 months after receiving entitlements. So working towards that objective and certainly making great progress with the city of Cambridge. Operator: Your next question is from Vikram Malhotra with Mizuho. Vikram Malhotra: I guess just maybe, Scott, if I can step back, you're calling for the bottom, you're saying there's more activity. A bunch of your peers are still seeing occupancy falling and maybe pointing out much more challenging, I guess, conditions. So maybe if you could dig in a bit more sort of what are some of the differences, maybe geography, maybe product type and maybe it's the tenant type as well. I'm just sort of trying to square kind of how divergent the trajectory and commentaries have been from your peers on that side. Scott Brinker: Yes, Vikram, even when the sector was going bananas in 2020 and 2021, I mean we stayed really disciplined. In terms of what we bought or what we developed, we shut off capital allocation way before anybody else, public or private. It turned out to be the right decision and now we're buying when nobody else can. It's actually a pretty good opportunity. We're already getting great results from that capital allocation decision with the Gateway purchase and potentially more to come. But we've always had a philosophy of concentration as a way to reduce risk. I know that sounds odd, use of diversification to reduce risk. But in life science, it's really the opposite. Concentration in dominating local markets is really the way to go. Creating flexibility and pathways to growth for tenants, really dominating the broker networks just given our footprint. We've got a great team in all 3 markets. So I think all of that plays a factor. We do like having multiple price points, right? It's not all A+ even though maybe you'd like to be in that office, not everybody wants to or can afford it. So we like to have multiple options at different price points and suite sizes as long as it's in the right submarket. That philosophy, I think, has paid off in terms of how we're approaching the market. But we're not in a lot of these kind of secondary, tertiary markets. I won't name them. But we've really -- you could -- our entire footprint is in 5 submarkets in the entire country. I mean, you could probably tour it in 1 day if you could -- if you could figure out the travel to Boston, which is a long flight. Otherwise, I mean, you literally can see the entire portfolio in 1 day, it's so concentrated. But that's proven to be the right decision. So I think it's all of those things together that are driving our view of the outlook maybe versus some others but I can't obviously speak for them. Operator: Your next question is from Jim Kammert with Evercore. James Kammert: Is it reasonable to assume that the vacancy in the lab portfolio has, on average, basically the same NOI per square foot contribution or rent per square foot as the occupied portfolio? Just trying to think about that latent earnings potential as it leases up over time. Kelvin Moses: Yes. Maybe I'll start. Over the last 12 months, we've been able to achieve 5% cash re-leasing spreads on average. This quarter, we did 3.5%. Scott had just mentioned our portfolio average rent per square foot is around $60 triple net. Each market is different. Each lease in each space is different. So we're able to exceed those in-place rates but we also might have some leases that come in a little bit lighter. So what I would suggest is, looking back at our cash re-leasing spreads, which we continue to get in excess of our existing kind of in-place leases, that should contribute to earnings growth over time. Most importantly, it's a total occupancy story. As we gain occupancy, these are spaces that are currently not producing income and there's even a drag associated with those spaces. The occupancy capture is really going to drive earnings. So I think that should be the focus. That's how we look at the earnings opportunity and we have 2.5 million square feet of opportunity in the lab portfolio to really drive earnings growth. Operator: Your next question is from Mike Mueller with JPMorgan. Michael Mueller: I apologize for trying to squeak a second one in here but it's a clarification. On the supplemental development and redevelopment page, what does active versus total mean in the capacity and percent lease columns? And then the real question was, with the seemingly better view on lab occupancy, why didn't you update that same-store outlook? Scott Brinker: Yes, active redev in development, I mean, a lot of these projects are substantial. So as we lease certain floors or portions of the building and deliver them and the tenant starts to pay rents, we take those particular suites or floors out of the active development pipeline. They're obviously no longer under active development. So that's the differential or explanation between active versus total, Mike. Kelvin, do you want to take the other? Kelvin Moses: Yes. And Mike, for your second question, I think over the course of the year, we'll have an opportunity to reevaluate same-store amongst all of the segments. This quarter, the focus was certainly on the senior housing outperformance in the first quarter that really drove the guidance modification for the senior housing segment. But as we make progress over the course of the year, we'll certainly evaluate the updates that will have a total same-store impact. So for this quarter, we thought it was appropriate to provide the update on senior housing. Scott Brinker: I want to add, ordinarily, we don't even update the segments, which I think is appropriate here. We felt like we didn't have a choice because Janus Living is now providing its own guidance, obviously, on same-store and it's substantially higher than the original healthy guidance. So we didn't -- we really didn't have a choice but to update the segments. But we really focus on the total portfolio. Same-store is really a terrible metric. They ignore so many things. So it's not how we run our business. Frankly, we'd prefer to just ignore it entirely. Operator: Your next question is from Omotayo Okusanya with Deutsche Bank. Omotayo Okusanya: Yes. Solid execution. So congratulations, both DOC and Janus. Post the quarter, there's kind of significant leasing activity both on the MOB and Lab side. Again, curious if we just kind of conceptualize what's happening in terms of that kind of people activity. And also, if you could just talk a little bit about kind of economics, whether it's kind of changed materially in any way versus leasing activity in 1Q and realizing that there may also be some mix changes as well in regards to the April activity versus the 1Q activity? Scott Brinker: 1Q is just always slow, Tayo. You can go back as many years as you want. It's just always the lowest quarter of the year but the pipeline in both businesses is tremendous. We expect occupancy to grow in both outpatient and life science through year-end. So the trajectory in both businesses is very positive. I wouldn't focus too much on quarter-to-quarter. It's just 1Q is always light on both leasing, execution as well as capital -- CapEx and this year was no different. Omotayo Okusanya: Can you talk a little about economics? Scott Brinker: Economics, well, yes, look, I'll do one at a time. In outpatient, they continue to be really strong. I mean we're getting 5%, 6% re-leasing spreads on several million square feet of renewals every year. We're pushing 3% escalators almost across the board with very, very modest leasing costs, which is a critical distinction in terms of TI and LC. I mean it's very modest. So the net effectives are really strong in that business. Mark and team have really built a nice pipeline. And we're optimistic about the trajectory in that business. As we were 3 years ago when we announced the merger, it's actually exceeded our high expectations. So that's all good. And in life science, obviously, I think Scott has given you a lot of color on, the pipeline is building. It's broad-based from biotech to pharma and wet lab and everything in between with continued strong leasing economics. And again, the total focus is not just the face rate but TIs and LCs and all the concessions that come with it. So positive momentum on pipeline and leasing economics in both of the segments, Tayo. Operator: Your last question is from Farrell Granath with Bank of America. Farrell Granath: Just coming back in with a secondary question. Just digging in a little bit more on the life science occupancy. I was wondering if you could bridge between the offsetting of the vacancies with your new leasing potential dispositions and also your redevelopment that you saw? What were the benefiting factors from those 3 buckets? Kelvin Moses: Yes. Farrell, this is Kelvin. I think for the quarter, we saw total occupancy uplift from net absorption. And over the course of the year, as I described earlier on the call, we have the potential of continuing that trajectory to end -- to year-end with total occupancy ahead of where we ended 2025. We sold a 100% leased campus through a contractual purchase option in the first quarter in Salt Lake. So it obviously had an impact on occupancy. We articulated that, I think, on the last quarter call. We don't have the intention of additional dispositions in the lab portfolio right now. But as we get more leasing traction on our development and redevelopment, that will obviously benefit total occupancy. And then we have the same-store operating portfolio that we are focused on driving total occupancy capture there as well. So making progress in all categories but no intention of disposing of life science assets right now. Operator: There are no further questions at this time. The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Operator: Good morning, and welcome to Edgewell's Second Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Chris Gough, Vice President, Investor Relations. Please go ahead. Chris Gough: Good morning, everyone, and thank you for joining us this morning for Edgewell's second quarter fiscal year 2026 earnings call. With me this morning are Rod Little, our President and Chief Executive Officer; and Fran Weissman, our Chief Financial Officer. Rod will kick off the call and then hand it over to Fran to discuss our second quarter 2026 results and full year fiscal 2026 outlook. We will then transition to Q&A. This call is being recorded and will be available via replay on our website, www.edgewell.com. During this call, we may make statements about our expectations for future plans and performance. This might include future sales, earnings, advertising and promotional spending, product launches, brand investment, organizational and operational structures and models, cost mitigation and productivity efficiency efforts, savings and costs related to restructuring and repositioning actions, acquisitions, dispositions and integrations, impacts from tariffs and other recent developments such as the conflict in the Middle East, changes to our working capital metrics, currency fluctuations, commodity costs, energy and transportation costs, inflation, category value, future plans for return of capital to shareholders, the disposition of our Feminine Care business and more. Any such statements are forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995, which reflect our current views with respect to future events, plans or prospects. These statements are based on assumptions and are subject to various risks and uncertainties, including those described under the caption Risk Factors in our annual report on Form 10-K for the year ended September 30, 2025, and this may be amended in our quarterly reports on Form 10-Q filed with the SEC. These risks may cause our actual results to be materially different from those expressed or implied by our forward-looking statements. We do not assume any obligation to update or revise any of these forward-looking statements to reflect new events or circumstances, except as required by law. During this call, we will refer to certain non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is shown in our press release issued earlier today, which is available at the Investor Relations section of our website. This non-GAAP information is provided as a supplement to, not as a substitute for or as superior to measures of financial performance prepared in accordance with GAAP. However, management believes these non-GAAP measures provide investors with valuable information on the underlying trends of our business and allows more meaningful period-to-period comparisons of ongoing operating results. As a reminder, our results this quarter reflect 1 month of the Feminine Care business classified as discontinued operations. Prior period results have been recast to reflect this presentation. The results of the Feminine Care business are reported separately from continuing operations. All of our commentary today, unless otherwise stated, on performance and our outlook will reflect continuing operations, including our Wet Shave, Sun and Skin Care business. With that, I'd like to turn the call over to Rod. Rod Little: Thank you, Chris, and good morning, everyone. We appreciate you joining us for our second quarter fiscal '26 earnings call. We delivered a strong second quarter with top line and bottom line results ahead of our expectations, reflecting the actions we've taken to strengthen the business, improving our execution and delivering innovation that is resonating with consumers. The top line strength, together with solid gross margin performance and disciplined execution enabled us to deliver adjusted earnings per share and adjusted EBITDA ahead of our outlook. Importantly, these results reflect continued progress in our strategy execution, concentrating resources on the categories and markets where we have clear competitive advantage. And we're seeing this show up in improved consumption and market share performance, including in the United States. Internationally, we continue to see solid market share performance across our key markets. In the U.S., we delivered accelerating consumption growth and share gains, both value and volume. U.S. value share increased by approximately 50 basis points in aggregate in the quarter with gains across branded manual shave, shave preps, Grooming, Sun Care and skin care. This is an important inflection point for the company as we expect to transition to a growth profile in the second half of the fiscal year. While we continue to operate in an uncertain environment, we're executing against 4 priorities that we expect will drive both our near-term performance and our long-term strategy. These priorities are international markets, innovation, productivity and our U.S. transformation. These priorities are at the center of how we allocate capital and focus, directing our resources where we see the strongest linkage between investment, improved execution with the highest returns. This focus is evidenced in our simpler, higher quality portfolio with a stronger margin profile post the Fem Care divestiture, which we completed in February. We are moving forward with flexibility to allocate investments to the categories where we believe we have global scale, clear competitive advantages and momentum. This is Wet Shave, Sun and Skin Care and Grooming. We're also more regionally balanced with roughly half of our sales in North America and half in international markets. Within the portfolio, Wet Shave now represents approximately 60% of our sales, and our Sun, Skin Care and Grooming businesses combined are now approaching 40% of total sales, with Grooming now over 10% of the business. With that context, let me give you an update on our progress across each of our 4 priorities. First, durable international growth. We saw a return to growth in the quarter with continued good underlying consumption and market share trends broadly across nearly all key markets. While slower first half sales reflected timing and phasing impacts versus last year, we believe we are now positioned for strong sales growth throughout the remainder of the fiscal year. Second, compelling innovation. We remain committed to delivering consumer-led locally designed innovation across our portfolio. We are now positioned to realize the benefits from the investments we made in fiscal '25 when we expanded Billie into Australia, Bulldog entered premium skin care across Europe. We took Schick into premium skin care in Japan with the launch of Progista, and we broadened CREMO's range in the United States and Europe, driving meaningful growth. We are also equally excited about the remainder of fiscal '26. We have a robust second half innovation pipeline, including Hydro and Intuition relaunches in Japan, new Wilkinson Sword and Hawaiian Tropic launches in Europe and meaningful launches across Grooming and Sun Care in the U.S. Together, these initiatives reinforce innovation as a key driver of our strategy. All of this is supported by a significant step-up in A&P spend that's focused on brands and markets where we see the strongest linkage between investment, distribution gains, household penetration and repeat rates. Third, productivity through supply chain optimization. We are executing our productivity agenda with consistency and urgency. This quarter, we delivered approximately 220 basis points of gross productivity savings. These actions are an important driver of our profit profile, softening tariffs and inflationary pressures, simplifying the organization, improving speed and service levels and creating capacity to reinvest behind our core brands. We continue to make progress on our Wet Shave manufacturing consolidation, an important program to simplify our footprint, modernize our shave technologies and capabilities and improve the structural economics of the business. Phase 1, consolidating the first 2 plants, which primarily support private label into our new greenfield site is nearly complete and represents the most operationally complex stage of the program. Throughout the transition, our priorities are clear: protect customer service, maintain on-shelf availability and minimize disruption for our retail partners. To support service levels, we're investing to protect fill rates, including, in some cases, running duplicate sites longer than planned as well as absorbing higher operating costs such as overtime and incremental airfreight. Importantly, the program remains on track to deliver the intended service outcomes and savings. As we reach steady state, we expect to begin realizing savings in fiscal '27 with a full run rate in fiscal '28, equating to roughly 2 points of expected company-wide gross margin improvement. Fourth, our U.S. commercial transformation. From an organizational perspective, we've simplified our U.S. structure to reduce complexity and accelerate decision-making with new leadership in place and clear accountability across our commercial teams. We're also investing behind core capabilities, insights, and analytics, media and content, category development and revenue growth management. We anticipate that this will improve how we execute at shelf with our retail partners and win with consumers. And these actions are already yielding results as reflected in the improved consumption and market share trends we're seeing today. We've also taken decisive action to increase investment in our 5 U.S.-focused brands: Schick, Billie, Hawaiian Tropic, Banana Boat and CREMO, shifting to a more sustained brand building and a balanced full funnel marketing mix. You can expect to see the step-up in spending in the second half of the fiscal year. We recently launched new campaigns and support for Billie and CREMO, a new Schick master brand, Do Right By Your Skin Campaign featuring Nick Jonas and our first Banana Boat campaign in 5 years. All examples of the kind of bigger, more impactful full funnel campaigns we're bringing to market with support coming soon on Hawaiian Tropic as we head into the sun season in the Northern Hemisphere. The new Schick campaign sharpens our focus with the skin first approach that treats shaving as the first step in skin care. This builds on our heritage and expertise in hair removal while redefining the category through a skin-first perspective. These campaigns build on the work we've done to identify consumer needs at a more granular level, driving sharper brand positioning and raising the bar on disruptive creative, full funnel and omnichannel excellence, delivered through our recently restructured marketing team and our new fully integrated agency partner. Moving forward, continued support on our core brands will be coupled with sharper insights, greater focus on innovation and renovation and continuing to push for excellence in revenue growth management and omnichannel execution to drive our growth. Overall, we expect these actions to strengthen our fundamentals and position us for growth over the longer term in the U.S. So as we look forward to the remainder of fiscal '26, we are reaffirming our underlying outlook for the fiscal year. We are encouraged by our second quarter and our first half performance and the progress we're making across the business, which increases our confidence in our ability to deliver our plan. At the same time, we're operating in an uncertain macro environment, and we have the bulk of our Sun Care season ahead of us. So we are maintaining a disciplined and balanced outlook. Since our prior update, overall risk has increased given the conflict in the Middle East. While we are maintaining our ranges, we see a modest incremental risk to top line, particularly in our Middle East markets as well as higher inflation risk, most notably from oil and higher fuel costs. At the same time, we continue to see a balanced set of opportunities and levers across the business to help offset these incremental headwinds. which is why we remain confident in our ability to manage through these items, and we are comfortable holding our adjusted ranges. Our confidence is grounded in the strategy I discussed earlier, durable international growth, compelling innovation, productivity and supply chain optimization and our U.S. commercial transformation. To reiterate the key underlying assumptions embedded in this outlook. First, we expect to return to organic net sales growth, driven by strong second half growth in international markets and a return to growth in North America as our U.S. initiatives continue to take hold through the second half of the fiscal year. Second, our plan includes a step-up in brand and A&P investment, most notably in the United States to support our commercial transformation and to accelerate our key brands. We believe this investment, together with our innovation pipeline will strengthen consumer response and drive higher consumption and market share over time. Third, we expect gross margin expansion, supported by productivity gains, pricing actions and tariff mitigation efforts that are expected to build as we move into the second half of the fiscal year, partially offsetting inflationary headwinds. Fourth, even as we invest for the longer term, we intend to continue to prioritize adjusted free cash flow generation through working capital improvement and disciplined spending. And consistent with this approach, our near-term capital allocation priorities remain focused on strengthening the balance sheet, most notably using proceeds from the Fem Care sale to pay down our revolver balance this quarter. Of course, underpinning all of this is the strength of our team and our ability to execute with excellence. The progress we made this quarter reinforces our conviction in our plan and increases our confidence in returning to solid sustainable growth beginning in the second half of our fiscal year, while expanding margins and cash flow in a way that builds long-term shareholder value. With that, I'll turn it over to Fran to walk you through our results and outlook for fiscal '26. Fran? Francesca Weissman: Thank you, Rod. As Rod outlined, we are pleased with our performance as we closed out the first half of the fiscal year with better-than-expected top line results and in-line gross margin performance. Additionally, we are increasingly encouraged with the improved consumption results and market share performance of our brands, reflecting the continued progress being made against our focused strategies. As we transition to growth in half 2, supported by further investments in our brands, we have confidence in our ability to execute our plan, but remain mindful of the dynamic environment in which we are operating. And as a reminder, our results this quarter also include approximately 1 month of Fem Care reported in discontinued operations. Now let's turn to our performance in the quarter on a continuing operations basis. Organic net sales decreased 240 basis points this quarter, better than our expectations as strong performance in Grooming and better-than-anticipated branded Wet Shave were more than offset by expected declines in Sun Care, driven by phasing of orders to Q1 and in private label Wet Shave. North America organic net sales decreased 4.8%, driven by the volume declines in Sun Care and Wet Shave, partially offset by double-digit growth in Grooming and modest growth in Skin. International organic net sales increased 1% as growth in Wet Shave was partially offset by declines in Sun Care and Grooming. Importantly, we delivered growth in several of our key markets. As we pivot to growth in half 2, we are encouraged by our market share performance. We have grown or held market share in nearly 80% of our markets, which is up from approximately 70% in Q1. Wet Shave organic net sales declined less than 1% as gains in men's and women's systems were more than offset by declines in disposables and prep. International Wet Shave grew 3.6%, largely driven by volume growth, reflecting continued category health, solid distribution outcomes and strong in-market activation. North America Wet Shave declined 6%, driven by continued challenged category and channel dynamics. In the U.S. razor and blades category, consumption was down 130 basis points in the quarter. Our value share declined 10 basis points overall, reflecting an improvement from Q1 trends. However, our branded share increased 40 basis points, led by Billie, which continued to grow share up 40 basis points, while our other brands held share. Sun and Skin Care organic net sales decreased approximately 4.5%, driven by the expected phasing in Sun Care that I just reviewed, partially offset by growth in Grooming and Skin. In the U.S., Sun Care category consumption grew approximately 17% in the quarter. Our value share grew 180 basis points, driven by volume gains in Hawaiian Tropic, partially offset by slight declines in Banana Boat. Grooming organic net sales growth was approximately 6%, led by approximately 38% growth in CREMO, partially offset by expected declines across other brands. Wet Ones organic net sales grew about 1%, and our value share was approximately 65%. Turning to the P&L. Adjusted gross margin decreased 310 basis points, in line with our expectations. Productivity savings of approximately 220 basis points were more than offset by 420 basis points of core inflation and tariffs, 70 basis points of unfavorable mix and promotional levels net of pricing and 40 basis points of unfavorable currency movements. We continue to expect productivity, tariff mitigation efforts and pricing to accelerate in the balance of the year and to deliver gross margin rate expansion for the full year versus fiscal '25. A&P expenses were 11.3% of net sales, down from 11.6% last year, primarily due to promotional activation timing. We continue to anticipate spending increases in the balance of the year to support the new campaign launches outlined by Rod earlier. Adjusted SG&A was 20.1% of net sales compared to 19.6% last year, primarily driven by higher consulting and corporate expenses and unfavorable currency impacts, partly offset by lower people costs. Adjusted operating income was $49.4 million or 9.5% of net sales compared to $66 million or 12.8% of net sales last year, primarily reflecting the impact of lower gross margins, higher SG&A expenses and partially offset by lower A&P. GAAP diluted net earnings per share from continuing operations were $0.09 compared to $0.43 in the second quarter of fiscal '25. Adjusted earnings per share from continuing operations were $0.60 compared to $0.69 in the prior year quarter. Currency reduced adjusted EPS by $0.04 in the quarter. Adjusted EBITDA was $73.8 million, inclusive of a $2.7 million unfavorable currency impact compared to $84.7 million in the prior year. Net cash used by operating activities was $71.6 million for the first 6 months of fiscal '26 compared to $70.5 million last year, primarily due to lower earnings. As a reminder, cash flow is presented on a consolidated basis for both continuing and discontinued operations. In the quarter, share repurchases totaled approximately $16 million. We continued our quarterly dividend payout, declaring a $0.15 per share dividend for the second quarter and returned approximately $7 million to shareholders via dividend. In total, we returned $23 million to shareholders during the quarter. Now turning to our outlook for fiscal '26. Consistent with what Rod shared, we are reaffirming our underlying expectations for the year as our first half performance and continued progress against our strategic priorities increase our confidence in our ability to execute our plan. At the same time, we remain mindful of an uncertain macro backdrop and the fact that the majority of the sun season is still ahead of us. With that context, I'll walk through our fiscal '26 guidance and address a couple of key components of its savings for the fiscal year. Our organic net sales range remains unchanged from previous outlook. We expect organic net sales to be down 1% to up 2%, excluding FX tailwinds. Underlying this outlook for the second half, we expect International to deliver mid-single-digit growth, supported by innovation and continued share momentum in our key markets, while North America is expected to improve and grow low single digits as our commercial initiatives gain traction. We continue to expect Q3 to be our strongest sales quarter due to increased sun shipments and seasonal timing, while remaining mindful that weather and in-season demand can influence quarterly phasing. Looking ahead to Q3, we expect net sales to be up in the range of 2% to 3%. Moving to adjusted gross margin. Our expected gross margin rate accretion on a constant currency basis remains unchanged. Reported gross margin accretion is now anticipated to expand by 50 basis points, down 10 basis points due to unfavorable FX. We expect gross margin to expand in half 2, which is consistent with what we shared previously as pricing actions, tariff mitigation efforts and productivity initiatives reach full run rate. The near-term impact of oil price spikes and other operating costs to protect service levels are putting pressure on inflation, which we are working to mitigate through a combination of productivity, volume absorption and mix management, which are disproportionately in Q4. From a phasing standpoint, we expect Q3 adjusted gross margin to be in the range of 44% to 45%, a sequential improvement from the second quarter, with Q4 shaping up as our strongest gross margin quarter of the year, driven by annualization of tariffs, productivity and mitigation initiatives reaching full run rate, improved capacity utilization as well as lapping of last year's onetime headwinds. Our year-over-year A&P rate is expected to increase 70 basis points for the full year, in line with our previous outlook. As Rod mentioned, we're taking action to increase investment in our 5 U.S. focused brands, Schick, Billie, Wine Tropic, Banana Boat and CREMO. From a phasing perspective, we've shifted spend from Q2 into Q3 to support the launch of our brand campaigns timing, and we expect Q3 to be the highest A&P spend quarter of the fiscal year in the range of 15% to 16% of net sales. Adjusted EPS remains unchanged from the previous outlook. Adjusted EPS is expected to be in the range of $1.70 to $2.10. This outlook reflects the impact of expected share repurchases, which were completed in the second quarter to offset current dilution and assumes an effective tax rate of 22% to 23%. Adjusted EBITDA remains unchanged from previous outlook and is expected to be in the range of $245 million to $265 million. Given the phasing impacts that I just addressed, we expect to generate about 40% to 45% of second half adjusted EBITDA and adjusted EPS in the third quarter. Our adjusted free cash flow expectations, excluding the cash impacts of the Fem Care divestiture are unchanged and in the range of $80 million to $110 million for the year, including expected improvements in working capital. Please note, adjustments related to the Fem Care divestiture include taxes related to the sale, working capital and deal-related expenses. Fiscal '26 represents the peak year for capital and investment spending tied to our plant consolidation and broader supply chain transformation. This program is time-bound, not open-ended. And as we move beyond fiscal '26, we expect capital intensity to step down as the new footprint reaches steady state. At the same time, we expect the benefits to build through improved service, lower unit costs and better working capital efficiency. Turning to leverage. We expect our balance sheet to continue to strengthen as the year progresses, reflective of our new lower debt position and supported by accelerating operating cash generation and disciplined capital deployment. For full year fiscal '26, we expect adjusted net debt leverage to end the year in the range of 3.3x to 3.5x, which includes an estimated 0.3 to 0.4 negative turn impact from temporary Fem care divestiture timing and related items. The leverage ratio during this transition period is temporarily higher as the net debt reflects our post-close balance sheet, including cash balances impacted by working capital and other items related to our divested Fem care business, while EBITDA excludes discontinued operations. This difference temporarily inflates the ratio in the near term and is not indicative of our underlying earnings power. And finally, we remain committed to a disciplined capital allocation strategy. The net proceeds from the Fem Care divestiture after taxes and transaction costs have been directed towards strengthening our balance sheet and reducing debt while also supporting continued investment in our core brands with capital expenditures to drive innovation and productivity. For more information related to our fiscal '26 outlook, I would refer you to the press release that we issued earlier this morning. And now I'd like to turn the call over to the operator for the Q&A session. Operator: Our first question comes from Nik Modi with RBC Capital Markets. Nik Modi: Rob, can you just -- I guess one of the clarification questions is, how much inflation do you think you'll have to offset as a result of what's going on in the Middle East? If you could just help us kind of frame and quantify that. But more importantly, I just really want to get into your mind about the guidance. There's just so many moving pieces. Obviously, you had a lot going on in the quarter. There's a lot going on in the world. And I'm thinking of it more directly from like flights are getting canceled overseas that might impact tourism because of fuel shortages that could impact Sun Care. Thinking about inflation for the consumer with gas prices during the summer, which could squeeze the ability to consume Sun Care products and other products across your portfolio. So just there's a lot like incremental headwind I see coming. But the fact that you're confirming guidance, I just wanted to kind of get behind some of that and hopefully, you can unpack that for us. Rod Little: Nik, thanks for the questions. I will start with the overall guidance perspective, and then Fran can hit the expected inflation from the Middle East activity for both this year and I guess, a thought towards next year, even though it's quite premature, Fran can hit both of those. So look, as we look at our guidance for this year, we're halfway through, right? And we're on track halfway through the year, where we thought we'd be on both quarter 1 and quarter 2 when you put those together. So that's point one. We're holding our outlook for the fiscal year guide across all elements, as you point out. I think there's a couple of things going on. First is despite the incremental headwinds coming at us, we took a more balanced planning stance overall. And so we had a plan that had more flexibility and more levers in it if we did hit some incremental headwinds, which we're now seeing. So the headwinds we see, oil, commodities, the cost piece, and then I think as you're pointing out, this consumer demand question, I don't know where that goes, but it's something we're thinking about. And then the cost levers to offset that, we've been aggressively working those, and that's part of not changing our guide as we take some of that incremental cost in. We have offsets in other places. Importantly, we're maintaining our A&P stance. We are not cutting brand investment, and we're not cutting A&P to do this. It's other productivity efforts, it's overhead efficiencies and making some tough calls there. But I think the single thing I'll point you to that gives us optimism and confidence that we can deliver the guide is the step-up in the second half in sales rates, right? We have accelerating consumption and market share data in the U.S. now. You all see that in the scanner data, 26 weeks of consecutive volume share growth, and it's accelerating in the U.S. Fran referenced 80% of our global category country combinations are holding or winning market share. That's the healthiest position we've been in. So there's a broad-based momentum in the business. Distribution is now confirmed, right, in the planogram resets. So that's now in as expected. International, we've talked about phasing all year that it would be more of a second half phase plan. As an example, Shave internationally in Q2 was at 4%. The phasing was primarily in Sun Care, down in the first half, second half up. And we've got the new campaigns and new innovation all launching with incremental investment behind them. And the content is really, really good, very different than the past when you look at the content we're putting out there and how we're reaching consumers. Final data point for you is, April is off to a good start. We're seeing the step-up we expected to see in the month of April, which just obviously closed for us in line with this guide that we've put out. So we're seeing that step-up happen. So final thing before I throw it to Fran around balance. Look, I think your commentary around flights being canceled, travel potentially at risk to some tourism markets here in the second half behind higher oil or maybe jet fuel not available in some cases. We've got line of sight to those risks. We think we're balanced equally with what has been a good start to the sun season domestically here with the category up double digits. Us ahead of that, winning market share from a consumption perspective. And we've not changed our outlook for the year, partly because 80% of the seasons to come. We don't know what will happen with the weather, but we think those 2 pieces, the international tourism risk, the potential upside domestically, we think that's balanced overall, and that's part of what underpins our thinking. Fran, do you want to anything else there and then touch the inflation piece? Francesca Weissman: Yes. Thanks, Rod. Just taking it in 2 parts. If we think about fiscal '26 and the Middle East situation, clearly, things are still unfolding. But what we do have a line of sight to and what we have quantified for '26 is about $3 million to $5 million that's affecting us mostly in margin. We've got some top line pressures in the Middle East markets, as we could imagine. That's already factored into our Q3 outlook. And within the gross margin rate, we've got near-term increases around [ W&D ] and some commodities. Most of this gets trapped in inventory. So as this continues, we'll see more of the pressures coming through in '27. And while we have not sized that yet, our best expectation, if we took a snapshot right now, is probably in the size of what we anticipated tariffs to be, which we have more than mitigated this year through our productivity initiatives. As we look forward to '27 though, it's important to understand that we have strong mitigation factors. Our productivity is expected to accelerate, especially with the consolidation of our plants. We continue to focus on [ FRGM ] as well as mix management. And more importantly, pricing is going to be a lever, of course, that we'll consider both targeted pricing as well as inflationary pricing if appropriate. So still uncovering '27, and we'll come forward as we know more. But that's our best line of sight with what we know today. Operator: And the next question comes from Chris Carey with Wells Fargo Securities. Christopher Carey: One follow-up on the inflation and gross margin and then a question on North America. Regarding the inflation, if my math isn't wrong, I mean, there's a really big step-up in fiscal Q4, both on an absolute percentage basis and a change relative to last year. As you just kind of went through it, and I get tariffs lapping and productivity building, it's nevertheless a big number. So I was just wondering if you could just maybe drill even a bit deeper just on confidence levels around that gross margin and that you're kind of continuing to do the right thing for the business. And then regarding the North America piece, just is there a way to think about the underlying growth rates in North America in the quarter if you kind of normalize for Sun Care shipment timing and the sort of improvement that you're embedding in the business into the back half of the year? Rod Little: Fran, take the inflation, gross margin piece, and I'll take the North America one. Francesca Weissman: Sure. So when we think about half 2, we always anticipated that most of our profit, 2/3 of our profit was going to be in half 2. And actually now as we settled half 1, it's turning out to be closer to 60%. And a lot of that was on the back of improved sales performance, but also improved gross margin performance. And I think I would break out gross margin in 2 ways. We see a sequential improvement in Q3, but we always recognize that Q4 was going to be our strongest quarter for 2 specific reasons. One, what we're cycling and lapping from last year. You may recall we had onetime transitory items that were disproportionately hitting us in Q4. That's about 50% of the Q4 step-up, not to mention that tariff mitigation is at full run rate and also, we're annualizing tariffs in Q4 as well. So that is disproportionately driving Q4 to be slightly higher than what we're seeing in Q3. And then the last piece is just productivity initiatives. We've identified and finalized our productivity initiatives for the year. More of that is falling into Q4 because, as you know, we have over 120 days of inventory. So some of this gets trapped. But the good news is we already have a line of sight to that. So the way it's landing is just disproportionately more into July and August versus June. So those are the main factors that's really driving performance, and it's really in line with what we've expected. Rod, do you want to talk through? Rod Little: Yes. And Chris, on North America, I think you put your finger right on the point of inflection. In the first half and particularly in the second quarter in North America, Sun was down about 10% on the quarter, which is just reflective more than anything of a different of sell-in versus sell-out timing and then also those dynamics versus the year ago period, which is always tricky between quarters. Sun is going to be positive, right, in the second half of the year. In fact, we have total North America estimated in this guide up low single digits in the second half of the year. And so it's that flip on Sun and getting the consumption reads coming through where Sun turns positive. Grooming continues to be very positive for us. As referenced, CREMO was up 38% in the quarter just finished. That momentum continues in the back half of the year. And then we actually have Wet Shave performance improving on a relative basis versus where it was in Q2. And that's behind not only better distribution outcomes, but what we think is really compelling campaigns. And the Do Right By Your Skin Campaign that we launched in Schick last week with Nick Jonas, as an example, has had better-than-expected resonance with consumers and engagement. And so we're optimistic across all elements of the portfolio. And I think we're in a better position right now in North America commercially and where this business can deliver continued growth than we've been in 2 to 3 years. And that's really ultimately the big inflection in our business as we look not only to the back half of the year, but as we go forward to '27. So feeling good about second half, Chris. Operator: The next question comes from Susan Anderson with Canaccord Genuity. Susan Anderson: I guess maybe just a follow-up on that top line growth. I guess, how are you guys feeling about inventory at retail out there, I guess, particularly in time, obviously, the sellouts have been pretty strong. I guess do you feel pretty confident that the retailers will need to replenish given the strength there? And then also, are you seeing as you kind of roll out these new launches, whether it's Hawaiian Tropic or in Wet Shave in Europe, I think you said in Japan, are you getting any pipes or new shelf space that we should think about that will also help to drive that top line? And then maybe also if you could just talk about how you're feeling about the competitive environment with promotions in the Wet Shave category in the back half. Rod Little: Yes. I'll take the first part of that, Susan, and Fran can talk about the competitive dynamics and what we've got assumed in here. Look, I think the second half sets up really well for us in that we don't have any known retailer inventory stocking problem. In fact, we suspect in many cases with our brands, the inventory at retailers needs to be enhanced. And as we go into this, things are very balanced in the trade. And we know, in some cases, the inventory actually needs to be built back up in some cases, in some areas. And I think Sun is a good example. Our consumption has outpaced the market, which has been a healthy category. Frankly, more than we expected as we look at the first half of the year. And so that ought to lead to pull-through in the second half. Even if there's not great weather, I think we're positioned well to do what we've said here. And there's no big pipeline in the second half around new innovation going in that would create a mismatch or a problem for next year. But there are a lot of places where we did get incremental shelf space in the distribution outcomes that I think not only gives us confidence to deliver the second half of the year, but gives us momentum as we start to think about fiscal '27 and planograms in the year ahead, with the velocities we have and the consumption data we have. You mentioned Japan, yes, we got incremental shelf space in Japan in branded shape. It's a branded market. There's really not private label there, but also preps. We have significant growth in Japan in the preps category right now, and that is being driven as more of a regimen experience in Japan, where typically perhaps has not been a big part of the business. So we've got growth in that part of the business, a lot of it is distribution. Across Europe, we've had good distribution wins, some -- winning some tenders in the private label shave area of the business, also some wins in shelf space at shelf across Shave and Sun. And we've talked domestically here in the U.S. about some of the incrementality we've had across totality of Wet Shave, branded and also grooming. The grooming distribution gains are the biggest we've had primarily on CREMO, and that's body wash and APDO. So that we feel like is sustainable and rolls into '27. Francesca Weissman: Yes. And building on that, as we think about these distribution gains, we've talked at the last call around the importance of half 2 and the growth profile and distribution and planogram resets were factored into that. We have finalized that and they happen as anticipated. So a lot of these distribution gains are factored into our half 2 outlook. And when we think about promotional intensity, we still see the same level of promotional intensity that we've seen. It's factored into our outlook. It's not at a level that's higher than what we anticipated. And I think we see slightly more intensity, of course, in women's shave, but again, broadly in line with what we've already anticipated and built into our promotional plans for the balance of the year. Operator: And the next question comes from Olivia Tong with Raymond James. Olivia Tong Cheang: Can you potentially provide some goalposts for the next 12 months versus just the second half? You mentioned 120 days on inventory, which obviously pushes much of the higher costs that we're seeing out of the second half. You also mentioned some of the mitigation options you might have, including potential for inflation-related pricing as well. So should we assume that the gross margin gets hit more so in fiscal '27 than the second half fiscal '26? Perhaps could you give us some goalposts on commodities and what you're seeing from your suppliers on rate of change on cost inflation? And then the second part of the question around pricing promotion. Obviously, the backdrop has been quite challenging from a promotional perspective. So have you seen any changes of late in terms of your competition on promotion and provide some confidence around your ability to potentially take some targeted pricing at some point in the next 12 months? Rod Little: Olivia, so I'll start and Fran can add in if she needs to add in. Look, we are not obviously in a position to talk about '27 from a guide perspective. But as we look forward beyond the second half of the year, we know we've got some cost productivity levers that we've talked about that are bigger than normal. We expect next year to be a good cost productivity year for us as we start to get the initial savings tranche from the shave manufacturing piece, right? So we've got, I think, a good line of sight to cost productivity efforts around cost of goods and margin that continues beyond the second half. We're not going to size or quantify that. What we also know we have in the second half of this year that does not continue into '27 are some onetime things in the base that make that Q4 gross margin that Fran referenced earlier outsized in terms of increase versus prior period. And so I think we're into a more normalized range where I'm not going to predict we're going to grow gross margin at this point next year. We're not going to guide to that, but we've got levers that as we finalize our plans to be able to do that, right? We should be able to pull those levers in that way. The one piece I'll say as we go forward that it's a little different and unknown at this point, with this level of elevation, franchise it as our -- what we have line of sight to now is around what the gross tariff impact was on us a year ago, which we offset largely via cost productivity. I would expect that we would have some pricing power and some ability to take pricing if this elevated oil commodities basket holds where it is today because everybody is hit by that. And what's interesting for us is our business now, as you look at the new portfolio we have without Fem Care, 75% of our business is where we're growing or holding share in a very healthy position. So we've got 25% of our business in this U.S. shave bucket that has been the part of the business that's behind for us. I don't know if we're going to be able to price in that bucket, but international shave, sun skin grooming with the increased equity strength that we have and kind of the competitive dynamics around that. I would expect if these elevated commodity rates hold that we would be looking at taking some pricing next year. Again, there's no sizing or commitment to it, but that will be definitely a lever we'll look at for next year. And frankly, we just don't have this year in our toolkit at the same level we would with that. I think organically, when you look at sales growth as we go out into next year, the second half ought to be -- portend what's to come for '27 as we think about putting a guide out there in the next 5 to 6 months. We're not ready to do that. The second half should be a good proxy for sales growth. Anything you'd add, Fran? No. Okay. Operator: There are no more questions in the queue. I would like to turn the conference back over to Rod Little for any closing remarks. Rod Little: All right. Thank you, everybody. We appreciate your continued interest in Edgewell, and we'll talk again in early August with our Q3 results. Have a good summer. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and welcome to Geron Corporation First Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the call over to Dawn Schottlandt, Senior Vice President, Investor Relations and Corporate Affairs. You may begin. Dawn Schottlandt: Good morning, everyone. Welcome to the Geron Corporation First Quarter 2026 Earnings Conference Call. Before we begin, please note that during the course of this presentation and question-and-answer session, we will be making forward-looking statements regarding future events, performance, plans, expectations and other projections, including those relating to our 2026 financial guidance, our current RYTELO commercialization strategy and related opportunities in the U.S. and the EU, the therapeutic potential of RYTELO, other anticipated clinical and commercial events and related timelines, the sufficiency of our financial resources and other statements that are not historical facts, which, of course, involve risks and uncertainties that could cause actual events, performance and results to differ materially from those contained in these forward-looking statements. Therefore, I refer you to the risks and uncertainties described in today's earnings release and under the heading Risk Factors in Geron's most recent periodic report filed with the SEC, which identify important risk factors that could cause actual results to differ materially from those contained in these forward-looking statements and future updates to Geron's risks and uncertainties disclosures, including its upcoming quarterly report on Form 10-Q. Geron undertakes no duty or obligation to update its forward-looking statements. Joining me on today's call are several members of Geron's management team: Harout Semerjian, Chief Executive Officer; Ahmed ElNawawi, our Chief Commercial Officer; Dr. Joseph Eid, Executive Vice President of Research and Development and Chief Medical Officer; and Michelle Robertson, our Chief Financial Officer. With that, I'll turn the call over to Harout to review Geron's progress and strategy. Harout Semerjian: Thank you, Dawn, and good morning, everyone. In the first quarter, we made progress on our 2026 strategic priorities. We grew RYTELO through focused commercial execution and advanced our European commercial and pricing strategy while maintaining our financial discipline. We also further strengthened our leadership team by welcoming Timothy Williams, our new Chief Legal Officer and Corporate Secretary for Geron, along with 2 new Board members, Patricia Andrews and Constantine Chinoporos. Collectively, they bring decades of experience leading and advising biopharmaceutical company and will be instrumental as we execute on our strategic priorities and drive commercial growth for RYTELO. RYTELO first quarter net revenue was $51.8 million, an increase of 31% year-over-year and 8% quarter-over-quarter, placing us on track to achieve our 2026 net revenue guidance of $220 million to $240 million. We continue to see strong tailwinds in the treatment landscape complementing our refocused commercial strategy and driving RYTELO demand. We are focused on 3 key initiatives fueling our RYTELO U.S. growth strategy. On the commercial side, we're continuing to increase awareness and education for RYTELO amongst U.S. health care professionals with a refined engagement plan to help identify appropriate second-line patients faster, and complementing our field force efforts by increasing our in-person and digital presence across hematology forums through accelerated investment in our surround sound approach. From a medical affairs perspective, we are expanding our research partnerships and investigator-sponsored trial programs with the U.S. hematology community to increase our knowledge and real-world experience with RYTELO. Growing RYTELO demand in the U.S. market remains our priority. And we know from patients at HCP, there is an unmet need for low-risk MDS treatment options in Europe and an interest in RYTELO to help address that need. This quarter, we engaged in conversations with European medical experts, made progress with health technology assessment and conducted detailed research to better understand the European pricing environment. As a biotech company, we have an obligation to make our medicines available to patients, but we also have a responsibility to maintain a value that reflects our innovation and support our next wave of growth. We know the demand in Europe for RYTELO is real, and we are exploring an agent commercial strategy that could maximize RYTELO's value in Europe while maintaining its pricing integrity in the U.S. We expect to communicate our commercial plans for Europe before the end of the year once we have clarity on pricing and market opportunity. Financial discipline remains another top priority for Geron. We reported total operating expenses for the first quarter of [ $50.4 million ], down about 9% year-over-year, a testament to our financial discipline. A few first quarter dynamics such as annual bonus, severance from last year's restructuring and CMC investments to strengthen our supply chain for RYTELO led to a decrease in cash, which was in line with our expectations. We are on track to achieve our 2026 total operating expenses of $230 million to $240 million. With that, I'll turn it over to Nawawi to provide more detail on RYTELO's commercial performance and execution. Ahmed ElNawawi: Thank you, Harout. RYTELO's first quarter performance was incredible. Our strategy is built to support sustainable growth and ensure RYTELO reaches more eligible patients at the right point in their treatment journey when they are most likely to benefit. In the first quarter, we were able to grow demand 6% quarter-over-quarter and approximately 12% increase in prescribing accounts, expanding our footprint since launch to approximately 1,450 accounts. First and second-line patient starts on a rolling 12-month basis was 33%. RYTELO has the potential to make the biggest impact for lower-risk MDS patients in the second-line setting, which we currently estimate to be approximately 8,000 patients in the U.S. This patient segment is our primary commercial focus and our strategy is supported by the current NCCN guideline. The movement of luspatercept into the first-line setting, backed by RYTELO's broad label and growing real-world experience. And last but not least, the IMerge data, including the data presented at ASH 2025, suggesting treatment-emergent cytopenias are consistent with on-target activity. Our commercial execution is focused on 3 core initiatives. First, targeted engagement with high-volume community accounts. We are prioritizing centers that treat earlier line and second-line patients with our field engagements. Additionally, we continue to engage with lower volume accounts for those privately seeking salvage patients through digital tactics. Second, we are investing in the most effective marketing channels. This includes a strong emphasis on digital non-personal promotion and third-party educational platforms to create what we describe as 3D surround sound for RYTELO, ensuring consistent, high-quality messaging across multiple touch points. Third, we are executing cross-function through effective account management, leveraging data presented at ASH 2025 to proactively address the cytopenias and highlight the potential association with response while positioning RYTELO as the standard of care in appropriate second-line patients regardless of their RS. We believe our commercial strategy and investments are well aligned to bring RYTELO to eligible lower-risk MDS patients in the U.S. and position us to grow demand in 2026. I now turn it over to Joe to discuss our Medicaid and scientific engagement. Joseph Eid: Thanks, Nawawi. In the first quarter, we continue to engage closely with the hematology community to increase RYTELO's share of voice. Since the start of the year, we've had a presence at several medical meetings, including the Aplastic Anemia and MDS International Foundation, ASCO, and the 2026 Pan-Hematology Clinical Updates meeting. These are targeted peer-to-peer conferences that provide the opportunity for more detailed clinical dialogue and practical discussion among healthcare professionals. We are also looking forward to attending ASCO and EHA, where we will engage with hematologists to articulate the clear differentiation of imetelstat in low-risk MDS based on clinical efficacy, quality of life benefit and mechanism of action, generate advocacy within the KOL community and support investigator interest in research opportunities aligned with our medical strategy. These medical meetings enable us to further educate the hematology community on RYTELO's deep body of scientific evidence. Our messaging continues to be focused on the ASH 2025 data suggesting treatment-emergent cytopenias are consistent with off-target activity. We are seeing increasing interest from community hematologists understanding these data and learning how to incorporate these insights into their clinical practice. We were pleased to further reinforce the significance of these data with our recent publication in Blood Cancer Journal that examined the association between treatment-emergent cytopenia and clinical responses to RYTELO. We are also engaging with academic centers to support the high interest in imetelstat to advance ISTs and real-world evidence studies. Notably, we are seeing increased interest from centers in Europe wanting to contribute to preclinical, clinical and real-world evidence data generation. We expect initial real-world evidence data to be available in the second half of 2026. In addition, we are pleased to have achieved the inclusion of imetelstat in the National Comprehensive Cancer Network or NCCN, chemotherapy order template. This inclusion positions imetelstat as an active therapeutic versus supportive care for lower-risk MDS. The order template provide healthcare practitioners with clear guidance on administration, enabling imetelstat to be seamlessly incorporated into oncology practice workflows and supporting standardized and appropriate administration across treatment centers. This follows the NCCN guideline update in September 2025, recommending imetelstat as the preferred second-line treatment option in lower-risk MDS. Turning to our Phase III IMpactMF trial in relapsed/refractory myelofibrosis. The fully enrolled trial is projected at this time to reach the interim analysis death event triggered in the second half of this year. Imetelstat works on the foundation of the disease, which is why we believe it has the potential to be a first-in-class therapy in myelofibrosis. In myelofibrosis clinical trial conducted with imetelstat, we saw evidence of disease-modifying activity correlating with clinical benefit and overall survival through a reduction in mutation burden, specifically JAK2, CALR and MPL driver mutation. An improvement in bone marrow fibrosis and reduced telomerase activity, which is important as telomerase is significantly upregulated in cancers. For our IMpactMF trial, overall survival is the primary endpoint, and our confidence in this endpoint is supported by encouraging survival outcomes observed in the Phase II EMBARK trial, which informed the design of the IMpactMF trial. While our base case from a planning perspective remains progression to the final analysis in the second half of 2028, reaching the interim analysis represents an important milestone as we continue to advance the potential beyond lower-risk MDS. An earlier positive outcome would represent an upside scenario to our plan. I'll now hand it over to Michelle to walk through the financials. Michelle Robertson: Thank you, Joe, and good morning, everyone. For more detailed results from the first quarter, please refer to the press release we issued this morning, which is available on our website. Our first quarter 2026 results reflect our dedication to commercial execution and financial discipline which positions us well to achieve our 2026 financial guidance and advance our strategic priorities to create long-term value for patients and shareholders. In the first quarter, total net revenue for the 3 months ended March 31, 2026, was $51.8 million compared to $39.6 million in Q1 2025. Gross to net reductions increased to 21% for the 3 months ended March 31, 2026, compared to 13% for the same period last year. As volume increased, there was wider 340B utilization and expanded GPO contracting, which we foresee continuing as the business matures. For the remainder of 2026, we expect gross to net to be in the low to mid-20s. Research and development expenses for the 3 months ended March 31, 2026, were $15 million, consistent with $15.1 million in expenses for the same period in 2025. For 2026, we expect continued investment in CMC and our clinical development program and lower employee costs driven by the decrease in headcount as a result of the workforce reduction in December 2025. Selling, general and administrative expenses for the 3 months ended March 31, 2026, were $35.4 million compared to $40 million for the same period in 2025. This change was primarily due to lower general and administrative personnel-related expenses and decreased headcount, partially offset by additional investment in marketing programs. For 2026, we expect continued investment in our RYTELO commercialization strategy and lower G&A personnel-related expenses driven by a decrease in headcount as a result of the workforce reduction in 2025. Total operating expenses excluding cost of goods sold for the 3 months ended March 31, 2026, were $50.4 million compared to $55.1 million for the same period in 2025. The reduction is primarily related to decreased headcount as a result of the workforce reduction in December 2025. As of March 31, 2026, we had approximately $341 million of cash, cash equivalents, restricted cash and marketable securities compared to $401 million as of December 31, 2025. As a reminder, in the first quarter, we typically see a larger cash outflow due to the timing of annual bonus payouts. In addition, severance related to the strategic restructuring we announced in December 2025 was paid out in cash in the first quarter. The decrease in our cash also reflects CMC investments to strengthen our supply chain for RYTELO. We are reiterating our 2026 financial guidance. We expect RYTELO net revenue of $220 million to $240 million with a greater portion of growth anticipated in the back half of the year. Our total operating expense guidance of $230 million to $240 million reflects strong financial discipline and investment to support our commercial strategy. We are in a strong financial position and are on track to achieve our 2026 financial guidance as we execute on our strategic priorities to grow RYTELO while maintaining financial discipline. With that, I'll turn the call back to Harout for closing remarks. Harout Semerjian: Thanks, Michelle. We continue to build a patient-focused performance-driven culture at Geron, marked by a high level of cross-functional collaboration. Last month, we hosted our first all company national meeting, which was a great opportunity to bring this energized group together and rally around the mission, values and goals that drive us. We have the right team in place to execute on our strategic priorities, bring RYTELO to eligible patients and achieve our 2026 financial guidance. For the remainder of 2026, we are focused on growing RYTELO in the U.S., pursuing pathways to bring RYTELO to patients outside the U.S., advancing our IMpactMF trial, remaining financially disciplined and evaluating opportunistic innovation as we build Geron into a leading hematology company. Thank you again for your time and interest in Geron. Operator, we're now ready to start the Q&A session. Operator: [Operator Instructions] Your first question comes from the line of Tara Bancroft of TD Cowen. Tara Bancroft: So I have a question on MF. So I know we've been hearing this theme that physicians are very data sensitive in terms of awareness. So I was wondering if you had any updated thoughts on how you'll communicate the MF interim analysis this year. Like would you consider giving any numbers in that release at all? And then with that, I'm also wondering if you think that the interim outcome could have any read-through to potential uptake of RYTELO in MDS. Harout Semerjian: [ IMpactMF trial ] as you know, is fully enrolled, and we do project that we will do our interim analysis in the back half of this year. So that's still on track. Typically these thing, Tara, you know, the DMC would meet and obviously, we're blinded and we continue to want to stay blinded, depending on the outcomes obviously. But the highest likelihood, at least from a planning perspective, we see is that they tell us keep on going. And if they tell us anything else, then all the material, obviously, that we would communicate to the market accordingly. But Joe, do you want to add anything more? Joseph Eid: Yes. Tara, I think your question is how do physicians react to it. The second is disease or indication where you do have a proof of concept and an overall survival impact. So it definitely will have an effect, a positive effect because our message at MDS is that this is a disease-modifying agent, and having this proof of concept in Phase III with overall survival from an MF would definitely enhance and augment that awareness and that value [indiscernible] hematology. Operator: And our next question comes from the line of Gil Blum of Needham & Company. Gil Blum: Congrats on the progress. Just a quick one for us. As it relates to European markets, you guys said you may have conducted some market research. Just sounding -- listening to your messaging, it kind of sounds like you're considering moving forward on your own. Is this fair? Or is this still a question mark? Harout Semerjian: Gil, yes, in line with what we have said is we want to explore all options to bring RYTELO to patients in Europe. As you know, the European opportunity from a patient numbers perspective can be in line with U.S. opportunity. So it's quite significant from a patient numbers perspective. Of course, the second part of that is the pricing, which is a very key inflection point for us. That needs work, and that's kind of the work that we're doing. If you think about options for a company like us, it's really 3 different areas. One is the classical built-up model. The second on the other end is a full partnership with another pharma. We are not doing the first to be clear. That's not where we're pursuing a very big classical buildup. That's really not for us. Partnerships are always an option. But also what we are seeing in the marketplace still is an emergence of new models and new partners in Europe that can complement what we're doing because there are a lot of companies, U.S.-based biotechs that are having to put their thinking cap on and see how they can serve European patients. Many of them are choosing not to do anything about it, which we think is unfortunate for patients and for the mission. But at the same time, we want to make sure that we're doing a thoughtful work. So we're pursuing all these different opportunities, Gil. And before the end of the year, we will update the market in terms of where we land and what we think is the optimal way to bring RYTELO commercially to ex U.S. market. Gil Blum: And as a follow-up, will there be real-world data from imetelstat in low-risk MDS patients presented sometime this year? Harout Semerjian: Yes. Maybe I'll hand it over to Joe to address that question, it's a good question. Joseph Eid: Yes. Gil, we have a slew of research -- investigator-sponsored research, including real-world data that will be presented at the upcoming meetings in the second half of this year as we have been saying. Some of it will include the real-world utilization in MDS and how it's playing out in the real world. And the early indication that we have mentioned in the past is that the data reflects the IMerge data from responses as well as [indiscernible]. Operator: And our next question comes from the line of Corinne Johnson of Goldman Sachs. Corinne Jenkins: So I think you've talked about this one L2L share, and it's been pretty stable in the 30% range. Maybe you could talk to us about the tactics you're using to increase adoption in the earlier line population. And when you think we could start to see those educational efforts flowing through to changes in actual prescribing patterns in a more meaningful way? Harout Semerjian: Yes. I think if I heard you right, your question was about the first-line, second-line share of patients versus later. Okay, yes. So what we are communicating today, Corinne, is the share of our utilization in the first line, second line versus the later line is 33% this quarter with a 12-month look back. As you remember, last quarter, it was at 30% with a 12-month look back. So we continue to make progress in getting more and more of our patients in the first line, second line. And that's how we see our performance going forward is continuous progress, continuous growth quarter-over-quarter and that's the strategy we're pursuing, iterating our guidance for the top line between [ $220 million and $240 million ]. Operator: Our next question comes from the line of Emily Bodnar of H.C. Wainwright. Emily Bodnar: In terms of the 6% increase in demand in this quarter, what's your confidence in the sustainability of that for future quarters in 2026? And were there any seasonality impacts or other factors that you could specifically point to that helped increase demand in the first quarter? Harout Semerjian: Yes. Thank you, Emily. Yes, look, I mean, we're very pleased with where we are in Q1, where we have landed is in line with our expectations in terms of both top line growth, but also on the investment side. And our plan is to continue to grow quarter-over-quarter. That's the strategy we're pursuing regardless of seasonality, different things that will happen every year. We know that. But at the same time, we do expect a gradual and continuous growth quarter-over-quarter. This is one where we are communicating -- we have communicated that. We have a guidance for the year in terms of the top line. And we have also communicated that we think that growth would be more accelerated in the second half of the year, purely by the fact that we have done significant surgeries in Q4 and Q1 and a lot of these programs do need time to kick into action. And we want to continue to fuel this growth quarter-over-quarter. It's not -- we don't see it as like a total transformation inflection point between one day to the other. This is a story for us of continued growth quarter-over-quarter. We do believe that the potential is tremendous in this low-risk MDS area, and we look forward to serving more patients and continuing to grow the business. Operator: [Operator Instructions] And our next question comes from the line of Stephen Willey of Stifel. Stephen Willey: Just curious about the data you're seeing on the treatment duration and persistency front. I know that you've been in the market now, I guess, messaging the correlation between cytopenias and clinical benefit. Has that driven any measurable improvement in patient persistency over the last 4 to 5 months? And I just have a follow-up. Harout Semerjian: Yes, what we see in real world is really quite close to what we've seen in IMerge data in terms of patients -- average duration of patients staying on therapy on RYTELO. What we are pursuing is more patients in the first line, second line, and that would obviously increase the persistency of patients on treatment, right? So this quarter, we're up to 33% versus last quarter with a 12-month look back at [ 34% ]. So we want to see that number continuously and gradually grow. But within the line, at this point, what we see is really in line with what IMerge has shown us in terms of average duration of patients on therapy. Stephen Willey: Okay. And then I just guess with the business approaching breakeven and presumably some level of confidence into achieving profitability, at least on a non-GAAP basis before the end of this year. Just curious how active some of the peripheral BD efforts might be right now. And just whether or not there's a specific stage of development that you're looking for in an asset and whether you think there's both the appetite and bandwidth to potentially execute on a transaction before the end of this year? Harout Semerjian: Yes. Thanks, Steve. Look, I mean, ultimately, our main focus is on growing RYTELO, especially in the U.S. for the time being, exploring ways to bring RYTELO to ex U.S. patients as well. We continue to do that. We have a healthy cash position with even more disciplined from a financial perspective to ensure that we're executing per plan but doing it in a financial disciplined manner. And that provides us, Steve, with a lot of different optionality in terms of wanting to do deals, not having to do deals, staying opportunistic, looking at where else can we build our company in terms of our long-term aspiration of building hematology company that's consistent and sustainable. So that's ultimately where we want to go. So we do have optionality, Steve. It's too early for us to comment on will we do a deal or not. We're always in the market looking for opportunities, but our very focused efforts are now on execution and making sure that RYTELO grows in line with our expectations and really by focusing on those 8,000 patients in U.S. in the second line, which we believe we can really help more and more of them as the quarters come. Operator: I'm showing no further questions at this time. I'll now turn it back to Harout Semerjian for closing remarks. Harout Semerjian: Thank you very much, everyone, for joining our call today. We look forward to updating on our progress over the next quarters to come. Thank you very much. This concludes our call. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmett, Inc.'s Quarterly Earnings Call. Today’s call is being recorded. At this time, all participants are in listen-only mode. After management’s prepared remarks, you will receive instructions for participating in the question-and-answer session. I will now turn the conference over to Stuart McElhinney, Vice President of Investor Relations for Douglas Emmett, Inc. Please go ahead. Stuart McElhinney: Thank you. Joining us today on the call are Jordan Kaplan, our Chairman and CEO, Kevin Crummy, our CIO, and Peter Seymour, our CFO. This call is being webcast live from our website and will be available for replay during the next 90 days. You can also find our earnings package in the Investor Relations section of our website. You can find reconciliations of non-GAAP financial measures discussed during today’s call in the earnings package. During this call, we will make forward-looking statements. These forward-looking statements are based on the beliefs of, assumptions made by, and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance and some will prove to be incorrect. Therefore, our actual future results can be expected to differ from our expectations and those differences may be material. For a more detailed description of some potential risks, please refer to our SEC filings which can be found in the Investor Relations section of our website. When we reach the question-and-answer portion, in consideration of others, please limit yourself to one question and one follow-up. Thank you. I will now turn the call over to Jordan Kaplan. Jordan Kaplan: Good morning, and thank you for joining us. Our operating results were once again exceptional. First, we recorded approximately 100 thousand square feet of positive absorption for the second consecutive quarter. In the last six months, we delivered our best results since 2019, growing our leased rate by over 1%. Second, we executed over 450 thousand square feet of new leases, our best quarter ever for new leasing. Third, we posted record leasing to tenants over 10 thousand square feet. And fourth, we did all this while realizing meaningful straight-line rent roll up. We understand that everyone is watching our leasing for signs of a sustained recovery. While two quarters is not sufficient to call a bottom, we are becoming increasingly hopeful. We believe that this part of the cycle presents a rare opportunity to expand our portfolio at a significant discount to long-term value. Thus far, we have made two acquisitions, including an acquisition in which we and our joint venture partners paid $260 million for a portfolio of premium medical office properties located in the Beverly Hills Golden Triangle encompassing almost the entire 400 block of Bedford Drive. I am proud of the outstanding job done by our operations team and our capital markets group. These results reflect their sustained hard work. As we have discussed, we remain hyper-focused on growing our earnings through leasing, acquisitions, and the redevelopment of Studio Plaza, the Landmark Residences, and 10900 Wilshire. We have also been successful extending our debt at lower rates than are available to the broader market. Before I finish, I cannot help but mention recent referrals in the media to Jevon’s Paradox, which compares the impact of AI adoption on job growth and office demand to past transformative technologies such as personal computers, the Internet, and cloud computing. With that, I will turn the call over to Kevin. Kevin Crummy: Thanks, Jordan, and good morning. This April, a new joint venture managed by us acquired the Bedford Collection, a five-building, 246 thousand square foot medical office portfolio located in the Beverly Hills Golden Triangle. We hold a 13% stake in the joint venture’s $150 million of equity. The joint venture also borrowed $130 million secured by a nonrecourse, interest-only first trust deed loan maturing in April 2031. The loan bears interest of SOFR plus 170 basis points, which we have effectively fixed at 5.26% per annum through April 2030. The three development projects that Jordan mentioned are progressing nicely. In Brentwood, our multiyear redevelopment of the 712-unit Landmark Residences continues in full swing. At 10900 Wilshire in Westwood, we expect to commence construction this year to convert the property into a 323-unit apartment community. At Studio Plaza in Burbank, redevelopment is completed and leasing is well underway, with some tenants already taking occupancy. With that, I will turn the call over to Stuart. Stuart McElhinney: Thanks, Kevin. Good morning, everyone. During the first quarter, we signed 218 office leases totaling 909 thousand square feet, including a single-quarter record of 461 thousand square feet of new leases. We also signed 448 thousand square feet of renewal leases, and as Jordan mentioned, leasing was particularly strong from new tenants over 10 thousand square feet. Tenant retention remained strong, consistent with our historical average. Our first-quarter office demand was diversified across many industries, with legal, financial services, entertainment, real estate, and accounting representing the top five. Our leasing spreads also improved in the first quarter, as we continue to sign new leases that are more valuable than the expiring lease for the same space. The overall straight-line value of new leases we signed in the quarter increased by 5.3%. Cash spreads are lower by 7.7% as a result of our very healthy fixed 3% to 5% annual rent increases over the life of the expiring lease. First-quarter office leasing costs averaged $6.3 per square foot per year, significantly below the benchmark average for other office REITs, though slightly elevated for us due to exceptional new and larger leasing, which typically requires more tenant costs. Our residential portfolio continues to perform well, with cash same-property NOI up 4.2% compared to the first quarter of last year. Demand remains very strong across our markets; our portfolio remains over 99% leased. With that, I will turn the call over to Peter to discuss our financial results. Peter Seymour: Thanks, Stuart. Good morning, everyone. Compared to the first quarter of 2025, revenue remained essentially flat at $251 million. FFO decreased to $0.37 per share and AFFO decreased to $49 million, reflecting higher interest expense and lower interest income, partly offset by strong multifamily performance. Same-property cash NOI decreased 1.4% for the quarter. At approximately 5.4% of revenue, our G&A remains the lowest among our benchmark group. In terms of guidance, we still expect our 2026 diluted net income per common share to be between negative $0.20 and negative $0.14, and our fully diluted FFO per share to be between $1.39 and $1.45. We expect the FFO gains from the Bedford acquisition to be largely offset by higher assumed interest expense, reflecting the flattening interest rate curve. For information on assumptions underlying our guidance, please refer to the schedule in the earnings package. As usual, our guidance does not assume the impact of future property acquisitions or dispositions, common stock sales or repurchases, financings, property damage insurance recoveries, impairment charges, or other possible capital markets activities. I will now turn the call over to the operator so we can take your questions. Operator: In consideration of other participants, please limit your queries. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw, please press the corresponding key. At this time, we will pause momentarily to assemble our roster. We will now open the call for questions. Our first question comes from Steve Sakwa with Evercore ISI. Please go ahead. Steve Sakwa: Yeah. Thanks. Good morning out there. Jordan or maybe Stuart, could you guys maybe just expound a little bit on the leasing volume? Obviously, the new leasing was quite strong, and we are just trying to get our arms around whether there were any larger leases that might have kind of skewed the quarterly volume here. If you could provide any insight on how many over 10 thousand got done this quarter versus historically done, just to kind of gauge the breadth of leasing activity. Stuart McElhinney: Yes, Steve, it is Stuart. As we said, it was a record amount of leasing in that over 10 thousand category, the most we have ever had. There were a number of deals between 10 thousand and 20 thousand square feet, and there were a few deals over 20 thousand square feet. So very strong across a bunch of industries—entertainment, legal—so it was a wide variety of industries in that larger category, and it is the strongest leasing we have had of that size ever. Steve Sakwa: Okay, thanks. And then maybe a follow-up, Jordan. Can you provide any additional valuation metrics—kind of yield, return on equity, stabilized yield—on the Bedford transaction? Obviously, we can back into a price per foot, but any kind of going-in cap rates or return on equity that you could share for Douglas Emmett, Inc. would be helpful. Thanks. Jordan Kaplan: We agreed with the seller not to give out that information, although you do have the back-end of price per foot—I think they gave it to you. It is around $1,000 a foot, very high $900s. It is a portfolio that I have been trying to buy since the 1990s, and I am beyond pleased with the deal. I think that we are particularly lucky that it came up at a time when it was a good time to buy almost anything. I am very, very pleased with the deal. Steve, next time you are out here, we will walk you around it, and you will, I think, be surprised by the amount of control we have. Anything else? Steve Sakwa: Those were my two questions. Thanks. Jordan Kaplan: All right. Thanks, Steve. Operator: Our next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead. Alexander Goldfarb: Sure. And good morning out there. Jordan, you mentioned Jevon’s Paradox, so I had to Google that to look what that is. But are you seeing that, or were you just making that comment on its own? Do you have real anecdotes that you are seeing in the marketplace of people saying, because of AI and all the innovations going on, we actually need to hire more? I am just curious if it was just a comment that you threw out or you are actually seeing it in leasing discussions? Jordan Kaplan: Our leasing is really picking up, as you saw. I cannot say I have seen that exact thing happening. But the reason I was so thrilled to read about that is that I feel like I have been saying it now for a year or two years about AI. As AI empowers people to be more efficient and effective, I just think the result will be people will want to hire more people who can do that. Now there are some people, if they do not embrace it, who are going to feel left behind, and I am sure that will happen. But if you said to me the number of people employed—or the more direct statement that your offices are going to be empty because no one needs to hire anybody—I do not believe that one bit. And if you look back at all the technologies in the past that made that same prediction—that people were going to, whether stay home or whatever the case may be—the exact opposite has happened. I was surprised to see it show up from a guy from the 1800s talking about coal, and as things became more efficient, he thought less coal would be used, but in fact more got used. There are many examples since then. Alexander Goldfarb: Okay. And the second question is, I know I have asked you before about the South Bay, like El Segundo and those markets out to LAX, but just hearing recently about more demand for aerospace and defense and that community’s long history. As you think about acquisitions—especially since you have shown you still have a lot of JV capital that wants into the market—would you reassess and possibly consider entering some of those markets if you feel like the aerospace/defense has renewed legs over this cycle? Or is your view—or maybe Kevin’s view—that there is enough acquisition demand in your traditional markets and maybe you are not so sure how long the aerospace demand is, so you are going to stick where you are versus possibly entering some new submarkets? Jordan Kaplan: I think the problem with those other markets that you are mentioning is that people can still build, and if aerospace really picks up down there, they are going to build more facilities for them. That always worries me in a market because you do not have to just be good at getting in; you have to be really good at getting out at the right time. I am much more comfortable here where even in a period like COVID, real estate recession, etc., we have—throughout it all, and I know we have lost lease rate over the last, whatever it is, six years, for the most part due to COVID—such durable demand here and such an extreme limit on supply. I am just very comfortable buying here. I look at all the other factors—the wealth here, the homes, the people that are working here, the other drivers like universities, the industries that have focused their research here, especially medical and tech research. I just have a lot more comfort here than making a farther-out bet. And as you said, I do feel there are more deals, and we are saying that to our JV partners and so on. Everyone is focused on it. Alexander Goldfarb: Thank you. Operator: The next question will come from Anthony Paolone with JPMorgan. Please go ahead. Anthony Paolone: Thank you. Jordan, you talked about just finding bottom here, but can you maybe step back and give us your thoughts on LA in general and how that is playing into tenant behavior and desire to sign leases? Just a little bit more on-the-ground terms of what the feedback has been from prospective tenants. Jordan Kaplan: When you say LA in general, I know you are saying as opposed to another one of the gateway markets, but LA in general in many aspects just generally feels like it is coming back. You see it in the leasing. We see it in the differences of policing and attitudes in the cities that we are operating in, the way things are—people are done with the kind of permissiveness that was incubated by COVID. We see a lot of ways where things are coming back. And, of course, we are just seeing a lot more tenant demand. I hope it holds up. Anthony Paolone: Okay. And then at Studio Plaza, you said it sounds like the tenants started to take some space there. When should we think about that just being put to bed in terms of stabilized and up and running? Jordan Kaplan: We will call it stabilized when we get up into the 90s, and we are working our way towards that. The tenants are moving in. And separately, I am very pleased with the mix of tenants. While it was definitely great to have a tenant there that stayed for 30 years, it was always sort of a risk hanging out in our future. When Warner Brothers moved out, I will admit, I was frightened, and I was talking to Kevin about it. I am so happy now to see a real good mix of tenants, good demand for the building, leasing it up, and a good mix of some tenants who provide amenity to the building. The whole thing is working extremely well, and the way we redid the building—so it is one of my greatest happinesses and relief to see how it is moving now. Anthony Paolone: I mean, do you think it is another year to get to 90-plus or two years out? Stuart McElhinney: Tony, we are not going to give a specific timeline. We are pleased with the pace so far. When it is stabilized, we will move it back into the in-service portfolio, but we do not like to give individual building data. We do not want to put a timeline on ourselves. Anthony Paolone: Okay. Operator: Our next question comes from Jana Galan with Bank of America. Please go ahead. Jana Galan: Thank you. Congrats on the strong start to the year. The spread between the leased and commenced occupancy continues to widen. When you think about the expected commencements, the forward pipeline, and then the expiration schedule, does it seem like this quarter has been kind of the trough in the occupancy number? Stuart McElhinney: As Jordan said in his remarks, we are not ready to call a bottom. We are certainly pleased with the pace of leasing in the last few quarters and hope that continues. We are really pleased to see that lease-to-occupied spread widen out. Jordan Kaplan: Three and a half now. That means we have been doing a lot of leasing. Stuart McElhinney: Of course, those folks will need to move in, which will happen over the next few quarters. With the larger leases that we are signing, that takes a little longer than our typical tenant. So the commencement dates are out a little further than, you know, the 2.5 thousand-foot tenant that we can get in very quickly. But hopefully that spread stays wide. We need to do a lot of leasing, and when that spread is wide, that means that we have done a lot of leasing and those folks need to move in. Jana Galan: Thank you. And can you give us maybe just rough estimates for the under 10 thousand that would be maybe like a two-quarter lag, and then maybe the larger—or any kind of rule of thumb for us to think about in modeling? Stuart McElhinney: For the typical 2.5 thousand-foot tenant, we can get them in very quickly. We build a lot of move-in-ready spec suites; that is a program that we are very aggressive about. We try to have all of our buildings have a couple of those suites ready to go. Those can move in extremely fast. But a more typical average for that smaller tenant is a few months, so they can be moved in within a quarter or two of when we sign the lease. For the larger tenants, it really depends on the level of build-out. Studio Plaza has some significant build-outs going on, so some of those folks will be moving in next year. That is really deal-specific. Jana Galan: Thank you. Operator: Our next question comes from Seth Bergey with Citi. Please go ahead. Seth Bergey: I guess just a follow-up on some of those comments on the signed-not-commenced spread. How much of that 350 basis points is smaller tenants you can kind of get in quickly versus skewed by some of the larger leases that will take a bit longer to get those tenants moved in? Stuart McElhinney: I do not have the breakdown between small and large in that signed-not-commenced spread. I know a lot of it is still our under-10 thousand-square-foot tenants, so I suspect we will have steady move-ins throughout the rest of 2026, and then some of the larger tenants are going to take a little longer, like I said. Seth Bergey: Great. And then just as a follow-up, I know you are not ready to call bottom here, but what are you seeing in terms of tour activity or kind of the forward pipeline that gives you confidence that things will improve over the coming quarters? Stuart McElhinney: It is the good activity that we have been seeing these last six months—that has continued. The pipeline is good. Healthy activity, tours, calls—all the metrics we look at all seem very healthy. Operator: Our next question comes from Upal Rana with KeyBanc Capital Markets. Please go ahead. Upal Rana: On the Bedford acquisition, is there any kind of mark-to-market— Jordan Kaplan: Yeah, you are cutting out. Upal Rana: Can you hear me now? Jordan Kaplan: Yes. Upal Rana: Okay. On the Bedford Collection, is there a mark-to-market opportunity there or any kind of expected rent growth that you can achieve there? Jordan Kaplan: I think there is always a small mark-to-market opportunity in everything we have been doing, but not a stunning one like when you sometimes buy a building from a bank where the rent is less than half on an old lease. That is not there. We own a lot of medical office—it is not our first foray into that product type. We own probably about 1 million square feet of medical office. It is a fantastic product. We love the tenants. They are very sticky. They invest a lot of their own money in the space. So we are very pleased to add to that. Upal Rana: Okay. Great. That was helpful. And then could you maybe talk a little bit on the potential to do additional external growth opportunities that you are seeing in the market? I know you have talked about developing resi and trying to buy stabilized office, which you have been doing, but just curious what kinds of opportunities you are seeing and the depth that you are seeing out in your markets. Kevin Crummy: We are seeing a lot of activity, and more than half of it is off-market where somebody reaches out. We are feeling pretty good about the engagement that we are having with people. We just need to close the gap and come up with pricing that makes sense. And as we have said, we are focused on office. Upal Rana: Okay, great. Thank you. Operator: Up next we have John Kim with BMO Capital Markets. Please go ahead. John Kim: Good morning. With the Bedford Collection, you announced that you have a third of the Class A office space in Beverly Hills. I am wondering if you could talk about what kind of scale advantages or pricing power that provides you. Kevin Crummy: There are several advantages we get from the market control we have across our portfolio. On the operating side, there are tremendous synergies. We have looked at the last 10 or 11 acquisitions we have made, and we are able to lower operating expenses on average about 20%, so it is meaningful savings. We do that because we are so localized. We have such concentrations of buildings close to each other that we can have expensive people shared across properties. We do not have to have a manager at every single building or a very expensive engineer at every single building. We also negotiate very large contracts across our portfolio, so that gets us better pricing. Even more important than the operating side is on the leasing side: it gives us the ability to offer space to any tenant and fit them into our portfolio. If we already have them in the portfolio and they are growing or they are shrinking, we can move them across the street into one of our other buildings that has space that will work for them. Generally, with the small tenants that we have, our goal is not to rip out the space every time and spend $200 a foot rebuilding it. The spaces are built out pretty standardized, and we want to move tenants into a space that already works for them in configuration—with the conference room and the offices the way they like it—and spend a little bit of TIs, new paint, new carpet, whatever that is, get them in quickly, and not spend a lot of capital. That is why you see our leasing costs on average are so much lower than other office REITs you will look at. Having the concentration in those markets allows us to do that. Because we own 30% of the space in Beverly Hills, we are going to have an opportunity to take any requirement in that market and show them several options that should work for the amount of space they need. John Kim: So it is your intention to keep this portfolio as medical office, or are you indifferent? Kevin Crummy: If you are speaking about the Bedford Collection, it will stay medical office. John Kim: Yeah. Kevin Crummy: Bedford will stay medical. We own several medical office properties in Beverly Hills. Like I said, it is a fantastic product. But my comments about the synergies work across medical and regular office. John Kim: Got it. Okay. And then when you mentioned that you are not ready to call the bottom, is that on occupancy or leasing? I am just wondering if the midpoint of your occupancy guidance is achievable or if there is the floor to come down even further. Kevin Crummy: We definitely feel like it is achievable. That is why we left the range where it is. We are comfortable with the range on occupancy. Q1 is typically a tough occupancy quarter for us because more than their fair share of leases expire on December 31 for whatever reason. So then anybody that moves out—that occupancy dip hits Q1. It is not unusual for us to see a small decline in occupancy in Q1 and then ramp up throughout the rest of the year, which is what we expected in our own guide when we gave the range. John Kim: Got it. Okay. Thank you. Operator: Our next question comes from Dylan Burzinski with Green Street. Please go ahead. Dylan Burzinski: Hi, guys. Thanks for taking the question. Maybe touching on the various submarkets. We noticed that net absorption—or at least the percentage—increased on the Westside and in Honolulu and declined in the Valley. Any sort of discernible trends from that? I mean, should we expect the Valley to maybe lag in its recovery versus the Westside? Kevin Crummy: No, I would not expect that. I think we did some good leasing in the Valley. It is just pockets here and there that depend on whatever leases got signed that quarter, but we would expect the Valley to increase along with the Westside. We are getting good activity there. Sherman Oaks Galleria has had a lot of activity. Warner Center, which has typically been our laggard market out there, also has good tours and good activity. So no, I would not expect the Valley to continue to lag. We are working hard to increase the lease rate in all our submarkets, and we definitely think that is achievable. Dylan Burzinski: And then just touching back on the capital markets and transaction environment, given what appears to be recovering leasing backdrops, are you seeing any increased competition from other buyers—are more getting into bidding tents—as you take a look at the transactions that you have referenced? Jordan Kaplan: I think the term people are using is “office curious.” People are kicking the tires. There have not been a lot of the type of assets in our markets that we get super excited about like we did with Bedford. I believe—and you are seeing this up in San Francisco and in New York—as these markets recover, more and more people start to pay attention to it. But right now, we are trying to buy as much as we can because the prices relative to the long-term values are at a significant discount. I remember this kind of thing happening in the 1990s. One of the things with office buildings when people have been exiting it for a while is the operating platforms get denuded. As they want to come back in, they are even more nervous because it is operations and the income that people are focused on more than ever now. I think it is going to give us an edge for a little while because I have seen many operating platforms dissolve and shift to third party, which means you do not really have the people and the information you need to understand deals. The capital is there; it does not mean they are super comfortable in terms of being aggressive on deals. Dylan Burzinski: That is helpful color, guys. Thanks so much. Operator: Our next question comes from Rich Anderson with Cantor Fitzgerald. Please go ahead. Rich Anderson: Thanks. Good morning. Jordan, you said when Warner Brothers left Studio Plaza, you described yourself as frightened. I do not remember you saying that at the time, but nonetheless I get it. I am curious, when you think about the totality of your business today—obviously, things are looking great in terms of a possible bottoming—but where is work still left to be done? Where are the shortcomings of the Douglas Emmett, Inc. portfolio in your mind that still need your attention? Jordan Kaplan: First of all, I actually was frightened, but I was not frightened because I thought the building would not be able to lease up. I was frightened about how long it would take to get tenants because it was right dead center at a time when leasing was at an incredible low, and the press around entertainment was very bad. It turned out that neither of those was true with respect to this building, and the redo that was done by our operations group has been very well received and appealing. If you have a chance to come out here and see it, it is an extremely nice building, and it is attracting tenants who are voting to be there regardless of what is going on around. Today, I would say—I have a partner that runs operations, Kevin Panter—so my area that I am super focused on all the time is capital markets. Today, I am focused on finishing off our debt program. There is not a lot left to do to extend that out and right-size and get all that correct. Then finding acquisitions and getting as much capital placed as we can while—what I consider to be, and you have heard everybody here say it—an opportunity that Kevin and I have not seen for 30 years. We talk about it all the time. I want to finish the last bits of the debt work—done, done, and done—so it is nice and clean. Then I need to get out there and make sure we make some good acquisitions and keep talking to our partners and try to shake some stuff loose. As Kevin said, a lot of the stuff has become relationship-oriented, and some of the last things we have closed on have been people just phoning me that I have known for a long time. That has been an important part. Rich Anderson: Okay. Second question: Stu, you said the larger tenant leasing is a mix of all different types of industries. So then what would you say the common thread is to this happening for you guys? Because this is the second time we are hearing some optimism around larger leases. What is the communication from those entities about why they are willing to do it? Is there any theme around why you are seeing more in the way of larger lease activity? Jordan Kaplan: I think that, as I said on the last call, a lot of what we are seeing is sort of sideline fatigue. They have been holding off, holding off, holding off—trying to wait to see where things are headed. You are able to make a lot of money in this, and they finally have started breaking and saying, we are going to do deals and start expanding because we are going to get left behind. The last time I looked at the stats, our expansions were way above our contractions. And our new tenants coming into the market are rushing to set up shop and have some type of new business that makes them think they need more people. Maybe they are just tired of waiting. There was an article recently that said that people have become indifferent towards the wild fluctuations, and they are going to do business as usual and move forward. I do not know what mix of things that is, because I think a lot of it is driven by the broader economy. There definitely has been a change in attitude. Rich Anderson: Okay. Sounds good. Thanks very much. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Jordan Kaplan for any closing remarks. Jordan Kaplan: I look forward to speaking with you again next quarter. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Mathew R. Ishbia: Thanks for joining today. I appreciate you all. Obviously, a little different format this quarter. Hopefully you like it. We would love to get feedback on it. This probably fits my style more. Hopefully, if possible, I would love to be able to see you too. I do not think we set it up that way this time; maybe next time. I appreciate everyone being here today. I have a bunch of questions, so I am going to go through them. I know last quarter we did not do Q&A and people missed that, so I am happy to do this and make it valuable to you in any way possible about the industry and about UWM Holdings Corporation. I have a whole variety of questions. I will try not to duplicate and will tie some together. I will read a person’s name, read the question, and go through it. If anyone has any follow-up questions, I know I cannot take them live this way, but our investor relations team, Blake and everybody else, will be able to handle your questions and help you with anything you need. Let us get started. We will jump into it right now. First question, I have Doug Harter from BTIG: What is the status of bringing servicing in-house? What is the latest timeline transitioning all servicing to our own platform? Status of bringing servicing in-house: it is going fantastic. We feel really great about where servicing is right now and how it is going. We have fewer than 100 thousand loans on today, but all new are going on, and we have moved a bunch of loans over from Cenlar already. We feel really good about that. The process will be this year. Over the whole year, we will bring all of our loans in-house so there will be no subservicers by the end of this year. UWM Holdings Corporation will handle it all. It is going really great. Our technology process is going great. We partnered with Black Knight, we partnered with BILT, and we have also built a bunch of stuff ourselves. We feel really good about how that is going. Our client service has been excellent. All the metrics that people look at are fantastic, so we feel really good about that across the board. So servicing in-house is great. Transition timeline: that is this year. Hopefully that answers your question, Doug. I know there are a lot of servicing questions. I am sure I will get to them as we go through it. Next one, Ryan Nash, Goldman Sachs: What are your thoughts on future gain-on-sale margins? What does the competitive landscape look like in a heightened rate environment? Rates went up in March from February. I think the 10-year finished at 3.95%. And so seeing rates go up, how does that impact competitive landscape and gain-on-sale margins? We are in a really great position from a margin and competitive position standpoint. The competitive landscape is very competitive right now. A heightened rate environment means purchases more than refi. However, you looked at our first quarter—we did a heck of a job on the refinance side. I see gain-on-sale margins in the range they are in right now being the right range, and I think that will continue: not significantly higher, not significantly lower. I actually think there is upside in the margins. Our margins were pretty strong in the first quarter. I expect them to be in those ranges again in the second quarter. If rates come down, you could see margins increase. The competitive landscape is very competitive out there right now. We had a great first quarter—you saw the numbers and what we did—and first quarter is usually the slowest quarter. Rates going up, the war going on, and uncertainty create issues in the rate environment, but we feel really good about where it is at right now. Ryan Nash also asked thoughts on the Knicks winning it all. They have a very, very good team. We just lost to Oklahoma City, who is an amazing team too. The East is open. The Knicks have a real good chance. Not really cheering for anybody—I am just watching and learning. Good luck to your Knicks. Next question, Mark DeVries from Deutsche Bank: What is the strategic value you see in Two Harbors, and what updates can you share regarding its progress or impact? The Two Harbors thing is out there right now; it is interesting. When we originally went to acquire the company, they had something really great: a pristine servicing book. When we originally agreed on the deal before all the work was done, we thought there would be a lot of synergies also—capital markets expertise, maybe some finance expertise, and their servicing platform we could learn from. As we went through due diligence, we learned there was a really great servicing book, and we still like that servicing book. We originally put an offer out there. Where that stands now: we do not see as much value in their management team. Their team members are very good, but their leadership team—we were not as impressed with. They went out and tried to get another bid, and they did. Whether it was appropriate or not, we can discuss that at a later point. If they would have engaged with us, we always planned on paying $12. Quite honestly, based on when the stock price went down, I would rather pay it in cash than in stock. I feel like I am giving my stock away at a really low price. They never engaged—they just went out to another offer. We made another offer; they basically ignored it. We made another one and said, okay, we will go to $12—what we originally planned on paying. I think it was maybe $11.95, but you can do the math based on when the stock was at $5.11 or $5.15 the day we cut the deal, I think. We still feel really good about that deal. It is very clear that their management team and their board, which has had its own issues in the past with lawsuits and such, may be playing some games because they realize that we do not see any value for them specifically. They have really great shareholders, which we are excited to bring on to UWM Holdings Corporation. But their board and their management team do not have any value to us. Now they are trying to do anything they can to potentially engage with someone else so that they have jobs and sustainability. It will play out. The strategic value is their MSR book. Their shareholders have some value because we got a chance to get to know them during that process and feel like they are really good shareholders; we would love them to be UWM Holdings Corporation shareholders. Whether they take cash or stock does not matter to me. We feel really good about that. For the shareholders of Two Harbors, they obviously would prefer taking $12 in cash or UWM Holdings Corporation shares than taking $11.30 in cash. That is obviously going to play out that way. We feel good about the strategic value. It is very clear to us that it is the MSR book and the shareholders; we do not have any value for their leadership team, which is obviously not what they like to hear. Next, Mikhail Goberman from Citizens Bank: How do you foresee the balance between origination income and servicing income evolving, especially given the post-war reversal of rates seen since February? We are an origination company. We are the biggest and best originator in the country. We feel great about where we are in origination. You saw an amazing first quarter. We have been the number one originator for four straight years and the number one wholesale lender for eleven straight years. Origination is our game. As we bring servicing in-house, we will have more servicing, and we will continue to retain the servicing. Are we still opportunistic if someone gives me a bid that we believe is more than the intrinsic value? I will sell the servicing. I have those options. With the lower cost of servicing by bringing it in-house and the better level of service, which will help retention, we feel like we have the best of all of it. We will see with the income levels—origination versus servicing—but origination is still our game. We will continue to build out the servicing book, but we are always opportunistic. People call us all the time. Even with Two Harbors—some of the “pristine” servicing book they have happens to be our old servicing book that we sold them. We feel good about the paper we originate every day and servicing the loans, but if someone wants to offer us a great opportunistic price, we will always look at that. Jason Stewart from Compass Point: Was there an increased number of high-producing brokers affiliated with UWM Holdings Corporation during the quarter supporting wholesale channel growth? Good question. High-producing broker shops affiliated with UWM Holdings Corporation—I always say the numbers roughly—there are about 12 thousand to 12.5 thousand brokers that work with UWM Holdings Corporation, and maybe there are 400–500 that are not all-in with UWM Holdings Corporation. So there are not that many high-producing shops to bring over. Almost everyone in the market works with UWM Holdings Corporation. That is why we have almost 45% market share—I think it is 44.7% or 44.8% market share for the year last year in the pro channel. Our big focus is to grow the channel, help brokers do more, and help more originators realize that broker is the place to go—whether they join a broker shop or start their own—and that has been a really big focus. As the broker channel grows, UWM Holdings Corporation will grow, even if our market share happened to go down. I feel great about growing the broker channel. Are brokers coming over to join UWM Holdings Corporation? Yes, every single day people see the value of what UWM Holdings Corporation does. A separate note on the “all-in” thing with brokers from years ago: one of the biggest adversaries of UWM Holdings Corporation was a guy named Mike Fawaz at Rocket who was saying negative things about UWM Holdings Corporation and about what we do and how UWM Holdings Corporation was not best for brokers. Recently, he left Rocket, started a broker shop, called me, and now he is working with UWM Holdings Corporation. Someone that knows every detail at Rocket came and learned about UWM Holdings Corporation, started a broker shop, and picked to work with UWM Holdings Corporation. That sends a message. There are not that many big broker shops left out there that do not work with us, but that is an opportunity. The bigger thing is to grow the broker channel and continue to grow. The broker channel is continuing to be very positive, and we are excited about the growth. I have a couple of questions on Mia and the AI initiative, so let me combine them. One person asked about Mia’s text messaging capabilities and customer response to Mia generally. Let me give you a Mia update. Mia has been fantastic. It has been almost a year—I rolled it out at UWM Live last year—and it has been amazing. I would say roughly in the range of 80 thousand to 100 thousand closings over the last year have come from Mia. The last report I saw was very strong with Mia’s initiation of refinance opportunities. If you look at our servicing book, people ask, “You have 2% or 3% of the servicing book, but you did 12% or 13% of all refinances.” Mia is a big part of that. Brokers do a great job with the consumer upfront; consumers want to come back to the broker. The problem was brokers did an average to below-average job of following up with their past clients. They would do the purchase and then would not talk to them again. Now, with Mia, she is keeping the broker in front of the consumer. When the consumer goes to refinance, they work with the broker because the broker offers a better deal anyway; they just know who to call. Mia leaves voicemails and sends a text message out. She calls, and about 40% of her calls get picked up, which is higher than we expected, so 60% go to voicemail and we send a text message also. A lot of those call the broker back: “Was that AI or was that real?” Then they connect and do a loan. On the 40% that pick up—on a 40 thousand-call day, about 16 thousand—borrowers talk to Mia and have two-, three-, four-minute conversations. Some of them know it is AI and some do not—it has gotten that good. We send a follow-up email to the broker: “You have a call scheduled at 3 PM with Jenny, the borrower,” and it has been very successful. We are continuing to enhance it and make it better. The scale we are doing with our IT team has been phenomenal. I do not know anyone in any industry doing it at this scale. It is going to get better next week at UWM Live and beyond. We have big enhancements coming. It helps brokers win. That is a big part of how with 2% or 3% of the servicing book we are doing 12%–13% of refis—Mia and great brokers staying in front of their clients. Kyle Joseph asked to review industry competitive trends, current broker share, and how we anticipate it evolving. Current broker share is about 28%. Five years ago, in early 2020, it was 14%–15%, so it has almost doubled. Will it double again? We are working on it. Our goal is to help brokers be the number one overall channel—50.1%—and we are on a path to doing that. Our share has been very steady—over 40% for years now, roughly between 40% and 45%. That has never been done in the wholesale channel. It is because we provide value: we help brokers grow, look good to real estate agents, do more business, make the process easier, and be successful. We train them, coach them, and give them tools to win more loans. We will continue to be the best and the biggest in wholesale and overall. Being the largest lender in the country for four straight years, we only have a chance at 28 out of 100 loans. Every other lender is competing for 100 out of 100. If that 72 out of 100 that is retail moves to 65, 60, or 50, that is growth for UWM Holdings Corporation. That is why we are bullish on our growth and the broker growth—we are all going to win together. I also got a couple of questions tied to expenses. You saw our expenses went down. We invested a lot for years, and now we are starting to see the harvesting or success of those investments—TrackPlus, free credit reports to help brokers grow, and more. You will see more of a leveling out of expenses. They went down. Our investments are starting to pay off. You saw a little in the first quarter. Compared to the industry, we had a great quarter. Last year’s first quarter was $32 billion; this year we did about $45 billion. That is significant. Our gain on sale was up and volume is up year-over-year. Expenses are flat or down. We feel good about where we are from an expenses perspective. I think of them as investments, and they are paying off. Mikhail Goberman had another question on the new VantageScore rating system for borrower credit. Kudos to the leadership of FHFA on rolling out a new way. FICO scores and credit reports have gotten really expensive. With a competitor in there, you have options. Options create better outcomes—that is why wholesale works. Now FICO and Vantage are both striving to be the best. There were very few companies put on the pilot; we were one of them. I think it rolled out less than two weeks ago from FHFA Director Sandra Thompson with the support of Fannie Mae and Freddie Mac. Four business days later—Wednesday of last week—we rolled it out. VantageScore has been an enormous success. Not just saving $50 a credit report, though that is possible too. We have both FICO and VantageScore and are making sure borrowers get the best opportunity because they have different models. Vantage looks at thinner credit differently, can add rent and other things so more people can qualify or qualify with a little bit higher score. Under current comparability, you take a 20-point haircut from Vantage to FICO. So if a Vantage score is 744, that is equivalent of 724 in FICO. If the FICO score was 719, I just got that borrower a better deal with lower LLPAs. That is a win for consumers. In five business days, the amount of emails I have gotten on loans we have helped brokers win and consumers grateful that they can qualify for a home or got a better interest rate and lower fees has been phenomenal. Kudos to FHFA, to Fannie and Freddie for getting it out. We rolled it out with VA loans today, and FHA will be soon. MI companies like Essent and Enact are on it too. FICO is still great in many ways. It is not one or the other—both are great. We want to help consumers qualify for a mortgage and have better credit profiles. The rollout was done in four business days and worked flawlessly—our IT team did a heck of a job. Others may have it out in May or June. We are rolling with it now—saving loans, helping loans, giving better deals right now because of Vantage. I have a couple of questions on the BILT partnership. Indications of the BILT card relationship, increased leads, status of the partnership, and infrastructure in place. BILT—Ankur Jain, the CEO—is phenomenal. Their vision is great. UWM Holdings Corporation is a servicer; we brought servicing in-house. We are controlling everything. We chose a platform on the front end that provides rewards points to consumers for making their mortgage on time without using a credit card—they can use ACH and still get points. That has never been done in our industry. Rewards points for making your mortgage on time. People love points. You can also link your credit card and get points—your American Express points and BILT points—and use them for flights and other things. It is really cool. Beyond that, the servicing platform is slick. We built this with them, because they had never done this before on the front end for mortgage. It is great for consumers. BILT has over 6 million consumers and, depending on the year, 8%–10% of them buy houses. Those are curated leads. They will want to stay on the BILT platform and work with a mortgage broker. That is a huge opportunity. We already had that in pilot. There is a concierge service that gives our consumers—our brokers’ consumers—an amazing platform to get things done and make their life easier. It is a cool neighborhood experience. Ankur is going to speak at UWM Live next week—if you are there, you will understand it better. The vision is awesome. The key is UWM Holdings Corporation has servicing in-house. We have been the best originator in the country for a long time; we are going to be the best servicer because we are focused on it. It will help retention for our brokers and make the consumer experience better, with ancillary benefits too. The partnership is launched, rolling, fully active, and getting better every day—as we do with everything at UWM Holdings Corporation. We do not have all 700 thousand consumers on it yet; those are moving on to it. I have shadowed the team. The servicing process has been really great. You asked in the past why we did not do it—I always said focus on originations. We still do. The cost/expense will be great on servicing, not outsourcing anymore. Better yet, retention and experience for consumers and our brokers will be even better. We are excited about that. I also got questions on what we see in the business for the next three to five years (and even ten). Here is my high-level view. Over a five-year window—call it 2027 to 2031—we are expecting to do over $1.3 trillion in mortgages. There might be one year in there with $400 billion, and a year with $150–$200 billion, but I believe $1.3 trillion is the north star over five years. While that happens, my expenses basically stay the same. With our AI initiative and our technology, the expenses you see today—call it roughly $600 million in the quarter (I think it was about $590 million)—I expect that to be the level even as volume more than doubles. On top of that, I see another roughly 20%–25% in other revenue coming into UWM Holdings Corporation starting to happen with some ancillary products that are picking up steam. So revenue growth outside of just volume and gain-on-sale. To summarize: $1.3 trillion over five years, gain-on-sale margins in these ranges (maybe slightly higher), expenses flat or down (I will call it flat), and other revenue tied to AI initiatives that are starting to produce margin and other revenues. If I did not answer a shorter-term detail, Blake Kolo and investor relations are happy to talk anytime. Kyle Joseph: How are you thinking about the Homebuyer Privacy Protection Act (trigger lead rule) and potential impacts on competitive environment and overall margin? The trigger lead rule (effective March 4) definitely changed things. When a consumer used to pull credit, 50 people would call them. Now it is the servicer, the original lender, original broker, maybe their bank—three or four. That has changed the competitive landscape and is probably a better experience for consumers (fewer calls). On the flip side, consumers may not get as many options. You might get offered 6.5% with $5 thousand of fees and not know you could have gotten 6.25% with $3 thousand of fees working with a mortgage broker—going to mortgagematchup.com. Trigger leads made people compete more. From a competitive landscape, you could argue it is maybe not as good for consumers on rates and fees, though experience is better. If you are only winning on rates and fees, you will not be around long in this business. I could argue it may increase margins a little because there is less “low-ball to win” with fewer calls. It has been about 60 days—still early—but that is what we are seeing. Brokers who used trigger leads are finding other ways to buy data. It is still competitive, just a lot less noisy. A couple have asked about debt ratios: Why did secured debt go up relative to other aspects of the balance sheet, and how do we look at the debt ratio? We look at the debt ratios every day. The debt ratio was really good a couple of years ago when volume was not as good. Now the business is really good, and the debt ratios are not as good as we would like. Some of those ratios and liquidity numbers are a little bit of an anomaly based on trades we have out there to help balance the MSR book, which can move around. At the end of the quarter, it was up; it has already come down a bit now. Those fluctuations can throw the ratios off a little; they are better than they appear. We feel really good about it. We watch the numbers closely. The key is earnings. You saw we had a good earnings quarter in the first quarter. There will be quarters with bigger earnings. We are monitoring and managing it. We believe in delivering value to shareholders—dividends, which we have been doing, and potentially buybacks or other things. Overall, our leverage ratios and debt ratio—we feel really good. We monitor and manage them, and there are a lot of levers we can pull to make those ratios better while still doing more business and having higher earnings. You will see some of those in the second quarter and beyond. Jason Stewart from Compass Point: During periods of heightened volatility at the start of the year, how do you manage lock duration and pricing cadence? Do you increase frequency of rate sheet updates? How much volatility is absorbed? And impact of things like Purchase Boost 50 and pricing initiatives? The market has been very volatile. We have an extremely experienced capital markets team. Yes, sometimes you have two or three different rate sheets in a day—maybe four or five on rare days. If rates get better, we put an improvement out there to ensure brokers have the most competitive opportunity. If pricing gets worse, we worsen pricing. These numbers move all day. We have thresholds that move pricing up or down; when we hit those, we act. Some days you put a rate sheet out at 10 AM and nothing changes all day, or not enough to change pricing—we want some consistency for our clients as well. That balance is why you saw really strong margins in the fourth quarter and first quarter, and you will see strong margins in the second quarter. Built-in rewards have nothing to do with gain-on-sale or pricing; it is just another benefit for brokers and consumers because they get rewards points through BILT. On Purchase Boost 50 and other pricing initiatives: all are designed to help brokers succeed and win. Our brokers are not “I need the lowest price” to succeed. If lowest price alone won, they would cut comp in half and all use Provident. That is not how it works. A lot of our price incentives are more strategic. They incent brokers with price to use a tool of ours. For example, we had an incentive tied to 40–45 bps if you used hybrid or virtual closing because it makes the consumer experience better. That makes the consumer more likely to like you and refinance with you in the future. We track borrower happiness on every single loan. A lot of those are investments and are reflected in gain-on-sale. We did some of that in Q4 and Q1, and gain-on-sale is still much higher than last year’s Q1—about 123 bps in the first quarter (about 122 in the fourth). We track it daily and understand where we are. We give a very competitive price to our brokers, add significant value to help them win more loans, and provide the best service in the industry. We come out with AI tools and technology; we invest with free credit reports to help brokers compete even more and help more consumers. Many of these decisions are strategic to help brokers win. Sometimes a broker has never done a virtual closing, and the extra 45 bps gets them to do it, and then they continue doing it because they realize it is best for the consumer and helps them build their business. If brokers win, UWM Holdings Corporation wins. When consumers realize the fastest, easiest, cheapest way to get a mortgage is through brokers, UWM Holdings Corporation wins. Real estate agents win. We are one team because it is best for consumers. When a consumer goes to a random commercial or their local bank, they usually pay higher rates. When a consumer goes to mortgagematchup.com, they will find a broker who will get them a better rate, better fees, and a better experience. Anything I can do to drive more business there is what I will do. UWM Live is next week. It is the biggest mortgage event of the year. Please come. I will be there all day. We have great speakers. It is really cool to see the broker community. I will meet with investors and analysts—happy to spend time. We have covered a lot of the questions. Let me know how you like the format. Maybe next month, I can see you too, and we can have more interaction. Hopefully you like the format. I know last quarter you did not like that we did not do Q&A, so I am here for it. I love this. I will do this anytime. I enjoy talking about our business and the industry. Please give us feedback—give our investor relations team feedback on the format. If I did not answer your question, investor relations—Blake and the whole team—will answer all your questions. We appreciate you. Thanks for being partners of UWM Holdings Corporation—shareholders, investors, analysts. Anything we can do to help make your life easier. We are going to keep winning together with our brokers. The broker community and UWM Holdings Corporation will continue to grow with my amazing team members here. Thank you for your time. I am excited about the future here at UWM Holdings Corporation. The second quarter is going to be great as well. We will do the same format again unless we get a lot of feedback that you did not like it. Hopefully you did, and hopefully it was valuable to spend this time with me. Have a great day. Blake Kolo: The video is not, but we can hear you. They can hear you. Okay.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Arcus Biosciences' First Quarter 2026 Business Update and Financial Results. [Operator Instructions] I will now hand the conference over to Holli Kolkey, VP of Corporate Affairs. Holli, please go ahead. Holli Kolkey: Good afternoon, and thank you for joining us on today's conference call to discuss Arcus's first quarter 2026 financial results and pipeline update. I'd like to remind you that on this call, management will make forward-looking statements, including statements about our development strategies and our expectations regarding the advantages and opportunities afforded by our investigational products, our clinical development milestones and time lines, our projected cash runway and our financial outlook. All statements other than historical facts reflect the current beliefs and expectations of management and involve risks and uncertainties that may cause our actual results to differ from those expressed. Those risks and uncertainties are described in our most recent quarterly report on Form 10-Q that has been filed with the SEC. For today's call, please refer to our latest corporate presentation posted in the Investors section of our website. This afternoon, you will hear from our CEO, Terry Rosen; Chief Medical Officer, Richard Markus; President, Juan Jaen; and CFO, Bob Goeltz. With that, I'd like to turn the call over to Terry. Terry Rosen: Thanks very much, Holli. And thanks, everyone, for joining us this afternoon. We're starting a new era for Arcus with full ownership of our lead program, casdatifan, our Phase III kidney cancer study, PEAK-1, enrolling rapidly, a clear path to win in the frontline and the next generation of molecules for inflammation and immunology that can be advanced rapidly into and through development, and with that, the strategic optionality imparted by a rich portfolio of wholly owned molecules and programs. We are at an inflection in value creation for patients and shareholders that will continue to accelerate over the next 12 to 18 months. Arcus has proven to be a highly productive company, creating and advancing a steady stream of potential best-in-class molecules for patients with cancer and inflammatory and autoimmune diseases. We believe that discovery is not a commodity, and we have built exceptional small molecule medicinal chemistry and drug discovery capabilities. Our scientists utilize proven biology to create unmatched medicines designed to raise the standard of care. Since its inception, Arcus has advanced molecules from program initiation to IND filing in a short of 18 months and accelerated platform and signal-seeking studies to move from proof-of-concept Phase I studies to randomized Phase II and registrational Phase III trials in just a few years. Today, the company is laser-focused on casdatifan, which represents a market opportunity of more than $5 billion in kidney cancer alone. I want to stress that casdatifan's efficacy advantages are underpinned by much better molecular properties and a superior pharmacodynamic profile. This profile reflects the key capabilities in Arcus that I described earlier. The simple fact is that casdatifan hits its target much harder and in a more sustained way than belzutifan. As illustrated on Slide 6, this is a point we've emphasized since the data first emerged. These data are clear and they're striking. We believe this fundamental differentiation between casdatifan and belzutifan and the limitations of belzutifan's pharmacodynamic profile and durability of effect are undoubtedly contributors to, if not the principal driver of, the outcome of LITESPARK-012. And the pharmacodynamic advantages of casdatifan will continue to result in improved clinical outcomes across the lines of therapy. I want to emphasize this point. This dramatic difference in profile has been evidenced since late last year. It is not esoteric. Its manifestations on clinical outcomes are dramatic and are at the core of our differentiation. No results to date are surprising. Our top priorities for 2026 are clear. One, complete enrollment for PEAK-1, our second-line Phase III study; and two, initiate a Phase III study in the frontline patient population. With the recent outcome of LITESPARK-012, casdatifan has a clear path to consolidate a fragmented frontline setting as the first HIF-2 alpha inhibitor in this setting. Let me spend a moment on why casdatifan is at the center of everything we do. We believe casdatifan can transform the treatment paradigm in clear cell renal cell carcinoma, and our development strategy is designed to generate evidence to secure cas as a backbone therapy so that every patient has the opportunity to benefit from cas across each line of therapy. PEAK-1 represents our fast-to-market strategy. This is designed to build on the clinician enthusiasm that we've seen for cas as an experimental agent and to generate the data to support the approval of a foundational treatment for clear cell RCC as rapidly as possible. Enrollment in PEAK-1 is accelerating, and we're on track to complete enrollment by year-end 2026. We're confident that PEAK-1 will establish cas plus cabo as the new standard of care in the IO experience setting. The peak sales opportunity for cas in this setting alone is more than $2 billion. At the same time, we are aggressively building a holistic strategy to embed cas across the treatment paradigm. We have been making tremendous progress in the frontline setting with multiple IO combinations now enrolling in ARC-20 and generating data in support of our first-line strategy. These approaches offer the greatest potential for long-term survival for patients. One of our key objectives today is to make very clear our integrated development strategy for casdatifan. It's actually quite straightforward, and here's how we believe things will play out. In the first line, our bedrock therapy will be cas, ipi, anti-PD-1. We believe that we can drive the 35% share of ipi/nivo to a regimen with greater than 50% of the important first-line market. While the IO regimen of ipi/nivo is the dominant therapy today, there's a segment of physicians that's always going to want to reach for TKI, particularly for patients with a fast-growing bulky tumor. Therefore, we will also be developing a cas combination inclusive of the TKI, a TKI with a well-established track record of both efficacy and safety that will allow the patient to have cas/cabo as a subsequent regimen. Our second-line treatment now enrolling its registrational trial PEAK-1 will be cas/cabo, building on the standard of care in this line, cabozantinib monotherapy. Finally, we will have a third-line plus regimen cas with another well-established TKI, and we will be investigating this regimen in both belzutifan naive and belzutifan experienced patients. We think this is a very important, kind of cool study. We also plan to explore novel cas combinations in HCC, liver cancer. I would like to emphasize that all of the clinical development plans discussed today are accounted for within our existing budget and have no impact on the guidance and runway that we have provided. We now control in all respects our early-stage pipeline, including our CCR6, CD89 and CD40 ligand programs, all of which are expected to support IND candidates in the next 6 to 18 months. So as we focus our resources, capital, human and otherwise on the late-stage development of casdatifan. The follow-on programs in our pipeline are early, but also with clear, early and capital-efficient clinical proof-of-concept opportunity and huge commercial potential. Therefore, we anticipate low spend and short time lines to get the proof-of-concept that will drive disproportionate value creation. Juan will discuss these programs in more detail later on in this call. If you want to walk away with just one thing from today, it's that Arcus has complete control of its destiny. The core asset of the company is casdatifan, and we have the strategy, data and resources to transform the treatment of clear cell RCC and create a $5 billion-plus drug. Bob will further elaborate on the enormous commercial opportunity here. We also continue to leverage our demonstrated competitive advantage in small molecule drug discovery, an increasingly scarce capability to generate wholly owned and unique development candidates, the advancement of which further enhances our strategic optionality. With that, I'd like to turn the call over to Richard to discuss our clinical programs. Richard Markus: Thanks, Terry. I'd like to start with casdatifan. As Terry described, our development plan is designed to establish casdatifan as a foundational standard of care in clear cell RCC so that all patients have the opportunity to benefit from treatment with a casdatifan-based regimen across multiple lines of therapy. At ASCO GU this year, we presented updated ORR and PFS from our 4 late-line monotherapy cohorts of ARC-20. As you can see here, the efficacy data continued to improve with longer follow-up at each data presentation. Moving to Slide 12, where we show the ORRs for the 100-milligram QD cohort, which is the dose and formulation being used in our Phase III studies, the confirmed ORR increased from 35% at the August data cut to 45%. A 45% ORR in this late-line patient population is rather remarkable. It's twice that observed with belzutifan in LITESPARK-005 or any study in this patient population. Similarly, the confirmed ORR for the pooled analysis improved from 31% to 35%, well above the range of ORRs that have been observed with belzutifan. On Slide 13, we show the Kaplan-Meier curve for the 100-milligram cohort. As you can see here that the 100-milligram cohort shows an impressive median PFS of 15.1 months after 17.9 months of median follow-up. On the next slide, we show the latest Kaplan-Meier curve for the pooled analysis. The median PFS remained at 12.2 months. So overall, we're seeing PFS that is 2 to 3 times longer with Cas monotherapy than the 5.6 months observed with belzutifan in the same setting. And as is often discussed, while the median is an important benchmark, it's not the only metric that's important. As you can see here and perhaps more impressive is the number of patients still on treatment beyond 18 months and even beyond 24 months. These data clearly support the proposition that casdatifan is the best-in-class HIF-2 alpha inhibitor. And our highest priority now is to maximize the potential of this molecule in ccRCC. Our first registrational trial, which is in the second-line setting, is well underway. Enrollment in the ongoing Phase III study, PEAK-1, is accelerating, and we are on track to complete enrollment by year-end. We are confident that PEAK-1 will establish cas plus cabo as a new standard of care in the IO experience setting. With a sole primary endpoint of PFS and a 2:1 randomization favoring the experimental arm and cabo as the control arm, we believe PEAK-1 is optimized for both probability of success and speed to data. I'd like to spend some time now on the frontline setting. With the outcome of Merck's LITESPARK-012 last month, Cas has the opportunity to be the first HIF-2 alpha inhibitor option in the frontline setting. Treatment in the frontline is generally bifurcated into IO-IO or a TKI, [ anti-PD-x ] combination. This currently leads to the conceptual trade-off between longer time to response or higher primary progression, but with the potential for durable responses and long-term survival with the IO-IO option or a faster time to response and lower primary progression but with much more treatment-associated toxicity for the TKI, [ anti-PD-x ] options. There's currently no treatment option that has the ability to both rapidly control disease and provide the best chance for long-term survival, while also having a favorable tolerability profile for long-term use. We believe a Cas plus IO-IO combination in the frontline setting has the potential to deliver on both of these fronts. We are enrolling several cohorts within the ARC-20 study, evaluating Cas combinations in the frontline setting. While the data are maturing, primary progressive disease rates have already been shown to be low, just 7% or 2 out of 30 patients for the Cas plus zimberelimab, our anti-PD-1 cohort. This rate compares favorably to published rates for anti-PD-1 monotherapy or ipi/nivo in the first-line setting. And in fact, it is close to the rate of a TKI-containing regimen but without the need for the TKI. We're also enrolling a cohort evaluating Cas plus zim plus ipi. Emerging data from these cohorts of ARC-20 will inform the first-line registrational strategy with the goal of finalizing the Phase III study protocol and beginning start-up activities by the end of this year. In parallel, we will shortly begin to evaluate additional Cas plus TKI-containing regimens in the early and late-line settings, including in patients with prior belzutifan experience. This effort contemplates the preference and in fact, the strategic necessity to utilize alternative TKIs as patients advance from one line of therapy to the next. Near term, we expect to have multiple data readouts for casdatifan in 2026. First, mature ORR data and initial PFS data for approximately 45 patients treated in the ARC-20 Cas plus cabo cohort in the IO experience setting will be presented at an investor event or at a medical conference, and all patients will have had at least 12 months of follow-up. Second, we will share initial data from the ARC-20 cohorts evaluating Cas in early line settings, including the cohort evaluating Cas plus zim in the first line. We also expect updated data from late-line monotherapy cohorts, including overall survival. Before I hand it over to Juan, I'd like to quickly touch on quemliclustat, our small molecule CD73 inhibitor. CD73 is highly expressed in pancreatic cancer and high CD73 expression is associated with significantly poor prognosis in several tumor types. In spite of this, as we recently published in Nature Medicine, in our Phase II study, ARC-8, those patients with higher baseline levels of CD73 or adenosine activity were the ones with longer PFS and OS in response to quemli treatment. Pancreatic cancer is one of the most aggressive cancers with an average 5-year survival rate of just 13%. In PRISM-1, our Phase III study evaluating quemli plus gemcitabine and nab-paclitaxel, versus gemcitabine and nab-paclitaxel in the frontline pancreatic study, completed enrollment in September of 2025. Results from this study are expected in the first half of 2027. And if positive, PRISM-1 could represent the first transformative therapy for an all-comer first-line patient population in 30 years. There's no biomarker requirement and no nonresistant mechanism and data to date have indicated that the regimen was well tolerated. Finally, we recently announced that the Phase III STAR-121 study, evaluating our anti-TIGIT domvanalimab plus zim and chemotherapy, versus pembrolizumab plus chemotherapy as a first-line treatment for metastatic non-small cell lung cancer will be discontinued due to futility. While these are certainly not the results we expected, the study had one important positive outcome. In addition to the assessment of Dom in this trial, STAR-121 also evaluated zim plus chemo as an exploratory endpoint. Zim plus chemo performed consistently with respect to overall survival as compared to pembro plus chemo. These data are consistent with what was observed in numerous studies with zim. And this randomized data set provides valuable support for the utility of zim as an anti-PD-1 combination partner for Arcus and its collaborators. I'd now like to turn the call over to Juan to discuss our immunology and inflammation programs. Juan Jaen: Thanks, Richard. Arcus has an exceptional small molecule discovery team that has demonstrated time and time again the ability to create highly effective drug candidates against difficult targets. We have been utilizing this expertise to create and develop drugs that have the potential to address very large markets in inflammation, allergy and autoimmune diseases. In-house expertise in immunology has been a core aspect of our discovery group since Arcus's founding, having been key to many of our oncology programs. Our team is addressing well-understood and validated mechanisms, and has implemented a two-pronged strategy in immunology. First, we leverage our medicinal chemistry capabilities to design and create small molecule drugs that regulate key cytokines therapeutically validated by existing biologics. Secondly, we target immune cell types that play key roles in human disease and have been historically under studied such as mast cells and neutrophils. Our first molecule in the immunology area to enter the clinic will be AB102, a highly selective, orally bioavailable MRGPRX2 antagonist. In the coming weeks, we will be sharing its preclinical profile in an oral presentation at the Society for Investigative Dermatology. The presentation will highlight the ability of AB102 to fully block MRGPRX2-dependent activation and degranulation of mast cells. AB102 inhibits all common human MRGPRX2 variants. We have optimized the potency of AB102 under physiological conditions, such as in human blood and serum. Due to its potency under these conditions, we believe that AB102 is a potential best-in-class once-daily oral treatment for chronic spontaneous urticaria and other atopic conditions such as atopic dermatitis and allergic asthma. It is expected to enter the clinic in the third quarter of 2026 with PK data available shortly thereafter and potential for proof-of-concept data in early 2027. In rapid succession, we have selected an oral, small-molecule TNF inhibitor drug candidate, which is a potential treatment for rheumatoid arthritis, psoriasis and inflammatory bowel disease and an orally active small-molecule CCR6 antagonist candidate as a potential treatment for psoriasis. Both of these molecules are expected to enter the clinic in 2027. We are very excited about the potential for our I&I programs to provide improved options for patients, and we are working to advance these into the clinic as rapidly as possible. I'd now like to turn the call over to Bob to discuss the market opportunity for casdatifan and our financial results. Robert Goeltz: Thanks, Juan. Before I get into the quarterly financials, I'd like to spend some time on the multibillion-dollar market opportunity in RCC for casdatifan. Sales for RCC drugs in just the major markets are anticipated to grow to $13 billion by 2030. Historically, the market has been dominated by 2 classes of therapy, IO and TKIs. There have been a number of offerings in both classes, which is why the market is fragmented. In contrast, there are only 2 HIF-2 alpha inhibitors on the horizon, and we believe our data have demonstrated clear advantages over our only competitor. We have a clear path to consolidate the market and entrench casdatifan as the primary backbone therapy. The development plan that Terry and Richard described is designed to accomplish this objective. If we look at the sales for the sole marketed HIF-2 alpha inhibitor, belzutifan, which is currently approved only in late-line clear cell RCC, is already generating annual run rate sales of nearly $1 billion, only scratching the surface. With casdatifan, we are also targeting earlier line settings, the IO experienced population with PEAK-1 and the IO naive first-line population with our next pivotal study. These earlier line settings have larger patient populations and longer durations of therapy, both of which contribute to a much larger market opportunity. Specifically, our PEAK-1 study targets approximately 20,000 patients in the major markets in the IO experience setting. We believe our commercial opportunity here exceeds $2 billion. In the first line, the opportunity is even greater. With the lack of HIF-2 alpha inhibitor competition in the front line, our goal is to grow the IO-IO share from roughly 1/3 of the market to more than 1/2 by adding Cas. In fact, our market research indicates that oncologists overwhelmingly prefer the promise of a Cas plus IO-IO over a TKI-containing regimen. As Richard mentioned, we also plan to investigate a regimen with IO and TKI in the frontline to address the remainder of the market. We believe the opportunity for casdatifan in the frontline exceeds $4 billion. One point I'd really like to emphasize as we think about the commercial opportunity is duration of treatment. We've seen impressive data in late-line monotherapy with many patients on therapy beyond 18 months. We plan to share updated data later this year. As we think about earlier lines of therapy, we believe there is the potential for meaningful upside resulting from the durability of effect. Conceptually, we think strong HIF-2 alpha inhibition holds the promise of a long-term tail effect. All in, we think Cas has a peak sales opportunity of $5 billion to $10 billion. As a reminder, we own all of the commercial rights to Cas other than in Japan and certain other Southeast Asian countries held by our partner, Taiho. Now let's turn to the financials. Arcus is well positioned to advance its full pipeline with $876 million in cash at the end of the quarter. We have cash runway until at least the second half of 2028. We expect to end 2026 with approximately $600 million in cash, indicative of the declining spend we expect over the year. As Terry outlined, Arcus is entering a new era with more control over our pipeline investments. While we are building a plan to take full advantage of the casdatifan opportunity, we are also sequencing these investments such that any significant growth in overall spend will be largely incurred after the PEAK-1 readout. As a result of the wind down of Dom and reduced spend on quemli, together with broader spend management, we expect to significantly reduce our overall R&D spend in 2026 and 2027 compared to 2025. For example, as our late-stage efforts have become focused on casdatifan, we have decreased our headcount by approximately 10%. Let me transition to the financials for the quarter. For our P&L, we recognized GAAP revenue for the first quarter of $17 million. Our revenue continues to be primarily driven by our collaboration agreements. We continue to expect to recognize GAAP revenue of $50 million to $65 million for the full year 2026. Our R&D expenses for the first quarter are stated net of reimbursements and were $122 million and included non-recurring workforce costs. Our actions to reduce headcount have lowered our ongoing cost structure, which we expect will result in reduced R&D expense in future periods. The discontinuation of STAR-121 and the broader reduction in our Dom-related investment will contribute to a meaningful decrease in R&D expenses as the year goes on. By 2027, we expect more than 80% of our portfolio spend will be directed towards cash development. G&A expenses were $29 million for the first quarter. Total noncash stock-based compensation was $19 million for the first quarter. For more details regarding our financial results, please refer to our earnings press release from earlier today and our 10-Q. I will now turn it back to Terry. Terry Rosen: Thanks, Bob. That was awesome. Let me close by summarizing the key themes for the remainder of 2026. Casdatifan is our #1 priority, and this year will be another transformative year for data and importantly, development as we advance towards commercialization. We expect multiple data sets, Cas plus Cabo data, initial first-line data and overall survival data from late-line monotherapy cohorts, all of which will further reinforce casdatifan's best-in-class profile and support our registrational strategy. PEAK-1 enrollment continues to accelerate, and we're targeting full enrollment by year-end. All of the clinical development plans for casdatifan that were discussed today are accounted for within our existing budgets and have no impact on our guidance or runway. Beyond casdatifan, our PRISM-1 Phase III trial for quemli pancreatic cancer is fully enrolled and on track for a readout in the first half of 2027. Juan shared the exciting progress on our I&I portfolio with AB102 expected to enter the clinic in the third quarter and our TNF inhibitor CCR6 antagonist following shortly thereafter. With $876 million in cash and investments and runway into the second half of 2028, we're well positioned to execute on all of these priorities and create significant value for patients and shareholders. We're moving into a new era for Arcus with full ownership of our lead program casdatifan and a clear strategy to win and transform the frontline setting while rapidly advancing the next generation of wholly owned molecules for inflammation and immunology. We have no doubt that we will be generating disproportionate value for patients and shareholders over the coming 12 to 18 months. Thank you all for joining us. We appreciate your interest and continued support of Arcus, and we will now open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Daina Graybosch with Leerink Partners. Daina Graybosch: Tell us about the Cas-TKI frontline combo. Specifically, we all know Merck failed with that triplet mechanistically with bel, lenva, pembro, and that's the LITESPARK-012. We have the press release. We don't know the detailed data. What could you see in that detailed data that would give you more confidence in Cas-TKI IO? And what could you see in the Merck data that would give you less confidence in the TKI combo strategy? Terry Rosen: I think we'll see what their data say, but I think the data that are out there tell us a lot already. So if you consider what we discussed at the beginning, that pharmacodynamic difference between casdatifan and belzutifan, not only the depth of response, but particularly the durability. And you think of that as a surrogate for its antitumor activity and a direct measure of its ability to inhibit HIF-2. I think what you can reconcile very easily is even in the absence of the data from the study itself, if you think about LITESPARK-011 versus LITESPARK-012, the duration of the treatment that you're talking about when you think about PFS roughly for the 2 different studies, is almost 2x. So if you recognize that belzutifan is whatever that surrogate for HIF-2 inhibition, directly relates to inhibition of the tumor, it's clearly losing that effect with time dramatically. So you see at least on erythropoietin production, on the average, you've lost that effect within 9 to 13 weeks. So when you think about it in the second-line population, the percentage of times what's bringing benefit is x. And then in the front line, it's much less. Then on top of that, if you think about the regimen, it's pretty toxic regimen. So even pembro-lenva had about a 37% rate of discontinuation. We know that the triplet was pretty unfavorable from a patient perspective. So if you think about basically, you're having diminishing effect of the HIF-2 inhibitor on top of a much longer duration of an arm that has more AEs than the control arm. So you're basically getting -- paying a price, but getting less benefit. So it's not surprising that you would end up with a hazard ratio that might not be too favorable. For us, we're going to select a TKI that we think has a very favorable -- relative to the TKIs out there, profile. But the most important feature will be that we have a HIF-2 inhibitor that has its robust effect and the durability of that effect is essentially the same on day 1 as it is on day 730. Operator: Your next question comes from the line of Jonathan Miller with Evercore. Jonathan Miller: Congrats on all the progress. I guess looking at a very broad Cas development plan here with a lot of combinations in -- across first-, second-, third-line settings. One thing that's notably absent is any approach in the adjuvant setting, which obviously we know Merck is going after. So I'd love to hear your updated thoughts on adjuvant and why that's missing from the current development plan? And then related to that, I guess, or the flip side of that is relatively recently, recently as well as relatively, you were talking about a more conservative approach to late-stage development for Cas, at least with respect to the number of Phase III trials you would want to start, you were considering going after partnerships to ameliorate the cost of late-stage development. Obviously, there's been a bit of a shift there. But Terry and Bob, I heard you say we don't expect to see any impact on runway or the ability to prosecute all these different programs. So I'd love to get a little bit more granularity on the sequencing that you're talking about and when you would start these TKI containing and potential novel combo development efforts to enable you to pursue all of these different approaches without running up against the bandwidth limitations? Terry Rosen: Thanks, Jon. And I'll let Bob handle that, and then I may have a few comments to add. Robert Goeltz: Yes, in terms of adjuvant setting, I think for us, it comes down to 2 simple things. One is the size of the opportunity and probably more importantly, is the need. So when you think about that particular setting, we think that it's around 12,000 patients or so that get therapy in the adjuvant setting, it's only the high-risk patients with resection and their treatment is capped in 1 year. And so when you actually do the math on that, we actually think that the opportunity, certainly from a revenue perspective, is probably certainly smaller than the second line and probably even smaller than what could be a third-line regimen with an alternate TKI as we described. I think the other important part is we've had a chance to talk to physicians after seeing the LITESPARK-012 data. The bar to add another therapy on top of pembro is considered quite high. In fact, most physicians told us that they actually wouldn't add belzutifan to the regimen even in light of the LITESPARK-012 data. So we actually think it will be a minority of patients that ultimately will receive belzutifan in that setting. So it's prioritization. And frankly, the other settings in first, second and third line are higher on the list for us. And so that's sort of why we've made the decision that we have from an adjuvant perspective. In terms of the sequencing of the spend, as we highlighted, we have PEAK-1 up and enrolling right now. Our goal is to have the study enrolled by the end of the year. The work towards launching these additional Phase III studies would have us in a position to sort of move those studies forward as early as late this year into next year with obviously probably our highest priority being that frontline combination with ipi and anti-PD-1. But the other studies will be shortly on the heels. But if you think about just sort of the general investment profile for the studies, we'll be through the bolus of study start-up for PEAK-1 and the cost profile for PEAK-1 will be starting to decrease as we get into the second half of next year. So we kind of feel like that it's going to be a nice portfolio effect that when we think about these other studies, kicking in really from a spend perspective in late '27 and into '28, we sort of see a generally steady spend profile through the PEAK-1 readout like we described. Terry Rosen: Jon, and I'll -- Bob kind of gave you the line of the spend along with the studies, and I'll give you a little bit more granularity on how we literally see the trials themselves playing out. So the first study, obviously, PEAK-1 that's enrolling, as Bob said, it will be fully enrolled by the end of this year, and then we'll be waiting for readout. We're going full speed ahead and expect that ipi, anti-PD-1 Cas, as we've been talking about for some time, to be getting up and going by the end of this year. We'll see where the TKI inclusive regimen comes in. There's -- Without getting into all the detail now, we'll be sorting through whether there's -- that's actually 2 studies -- 2 registrational studies or a 3-arm study is also a possibility. And then finally, in the later line study that we talk about, we'll start off in ARC-20. And as you know, those are relatively small cohorts that enroll very efficiently. But the other point that I think will be very important within those studies, and we'll get the answers quickly is that we'll be looking at that combination in the third-line plus in belzutifan-naive patients as well. And I think that will establish. It's a cool study, and I think, it's going to establish something [indiscernible] Juan Jaen: [indiscernible] Terry Rosen: Yes, I'm sorry, bel's experience in addition to bel's naive. Thank you, Juan. And I think that will nail something that we think we know the answer to, but we'll have those data even this year. Operator: Our next question comes from the line of Li Watsek with Cantor. Li Wang Watsek: Hey guys congrats on the progress. I guess just one question on the ARC-20 update, especially from the triplet cohort. It sounds like you guys are enrolling the combination with zim plus ipi. Can you clarify if we're going to see the initial data from this cohort this year? And what data points would you want to see to enable a Phase III frontline trial? Terry Rosen: Thanks, Li. So we do think what you'll get to see, and it will be probably in the fall, are the initial data from ipi anti-PD-1 Cas regimen. And essentially, we'll get a sense of the safety data and the rate of primary progression. While there may be some early ORR data, we don't consider that critical. We're most focused on the safety. We'll have an agreement with the FDA as to what safety data package they would want to see to enable us to get that Phase III up and going by the end of this year. And then obviously, because that's the first point, but it's also an important point for that regimen is we'll see the rate of primary progression. I think one thing to recognize about that regimen when we think about triplets, doublets, et cetera, is also just I'd like to make the point is, as you know, we've already talked about the rate of primary progression with casdatifan plus anti-PD-1 alone and those initial data are quite favorable where we only saw a 7% rate of primary progression. Now if you think about what that Cas, anti-PD-1 ipi regimen is going to look like, you basically get 4 cycles of ipi at the outset, of course, with Cas and anti-PD-1. But then the duration and the bulk of your therapy is going to be anti-PD-1 plus Cas. So both the efficacy that you're seeing with that as well as the safety of that will certainly impact the bulk of the therapy. So we're excited about that regimen. We think we're well on track to be able to start the Phase III by the end of this year and have a good safety data package. And we do plan to share that with the external world as well this year. Operator: Our next question comes from the line of Richard Law with Goldman Sachs. Jin Law: Yes, very helpful to see Cas's development laid out in its life for all the different lines of therapy. A couple of questions from me. So looking at the LITESPARK-012 failures in both triplets and dual Cas discontinuation by [ AZ ] and then all the frontline therapies of doublets or monotherapy so far, what is your confidence that a Cas triplet of any kind either with IO-IO or IO-TKI could be safe enough to succeed in 1L? And I mean, what do you think is the safety bar for 1L? Do you think that those triplets have to show like comparable safety profile to like that IO-IO, IL-TKI doublet for them to work? Terry Rosen: So I think we feel very confident based upon what we already know about our molecules with triplets, whether it's a triplet inclusive of a TKI or a triplet with the ipi anti-PD-1. So keep in mind, while we haven't analyzed in detail, and we will later this year, the zim, so that anti-PD-1 Cas, we know that doublet, and we certainly haven't seen anything untoward with that. We know we can combine with cabo well. So what we believe is that the ipi/nivo regimen has been extraordinarily well worked out in terms of dosing of that particular regimen. And as I was mentioning in my response to Li, you're basically going to treat with 4 cycles of ipi, that's quite worked out. So we believe that we have orthogonal AEs. We haven't seen anything in terms of a clear combination issues. When you think about casdatifan, you're basically bringing those on-target anemia and of course, rarely or certainly more rarely hypoxia. Again, we're going to pick a good TKI. We know that Cas anti-PD-1 is looking good. So we think a reasonable TKI will not bring anything untoward there. Keep in mind, we haven't actually seen the Merck data. And I think the thing that you should take away until otherwise is their hazard ratio must have been not good. So that doesn't get to an intrinsic inability to have a triplet. It just says when you're bringing that TKI, when you're bringing belzutifan on top of a pretty rough doublet, and you're treating for a long period of time and you are undoubtedly introducing some new AEs, but you're not having a robust long-term efficacy effect, you're probably not creating a hazard ratio, but we really don't know exactly how that played out. But all the data with our own molecule suggests that casdatifan is a very well-tolerated and robust HIF-2 inhibitor and with an orthogonal AE profile from anything that we plan to combine with. And we'll have all those data within the next 6 months or so. Jin Law: Got it. And then a follow-up on that. Have you seen the efficacy and the safety results from that dual Cas before Astra discontinued it? And will that data be shared to you guys even if Astra does not plan to share that? Terry Rosen: So we haven't seen anything other than what we said at the outset. Since they did disclose, you can now know that there were 9 patients. We -- What we described was that initial safety signal that was very CTLA-4 and more specifically volru-like when they dosed down volru. But casdatifan at the same 100 milligram dose we didn't see any more of it. And those patients still continue on. And in fact, the interesting thing out of that is, as we've commented before, we didn't see any progression. So that, if anything, we don't even know, quite honestly, that given that it was 9 patients, it's not obvious whether that was even purely volru or not. But what is obvious to us, at least as we were thinking about going forward, is that given that ipi/nivo well worked out regimen, well worked out dose, it's time tested. And of course, probably most importantly that you're only going to be carrying your anti-CTLA-4 dosing for 4 cycles made it a clear regimen for us to want to proceed with all the 4 things considered, not wanting to have both of those activities for the duration of the therapy. Operator: Our next question comes from the line of Salim Syed with Mizuho. Michael Linden: This is Mike Linden on for Salim. Just one from us on casdatifan in frontline again. Maybe just how you guys are thinking about patient selection for an ipi/nivo plus Cas combination for a Phase III? Like would these be all-comers versus poor intermediate favorable risk patients, things like that? And I guess, how is the thinking around patient selection changed post LITESPARK-012 failure? Terry Rosen: Yes. So our patient selection strategy hasn't changed. And in fact, we're thinking of all comers. And we would also be thinking of all comers in so far as a TKI inclusive regimen. So what we're really trying to address there is there's clearly -- we've had at Board meetings, there's clearly a strong preference for a TKI sparing regimen. So that's unequivocal, and that's the way we described it as the bedrock of the front line. With that said, it's a little bit one of those things where there's almost a tribalism is the way the investigators in the field would describe it, where there are certain investigators that are very prone, particularly if there is a bulky fast-growing tumor, but even otherwise do want to reach for TKI. So we feel from that overlap of particular patient with particular investigator, there should be a HIF-2 inhibitor containing regimen. And we think we can offer a very good one. So we look at both of those to be in all-comer patient populations. I think, again, the LITESPARK-012 data for us until we see something otherwise, we simply think it has to do -- and certainly, this has to be a contributing factor to that durability of effect, and let's just call it on HIF-2 inhibition with time that we know that's a dramatic difference between our 2 molecules. And of course, when we look at the choices of what to combine with, keep in mind, we have no commercial predisposition there. I -- Essentially, the world is our oyster. If you look at the front line, there's a number of TKIs used. There's not one that's particularly dominant. Overall, you have probably 60% of the patients are getting a TKI, but they're spread somewhat evenly. So we've gone and looked and been very strategic about it and looked at what's the smartest TKI from a safety standpoint, it's well used, it's well tested, approved, understood that we should combine within the front line. We know that we're going to have cabo in the second line. And then we've done the same in thinking about that late-line patient population with what then becomes another TKI that you would use in the late line. And like I said, the other important thing there is that we are going to look at that combination of Cas with that TKI in belzutifan experienced patients and establish that unequivocally. You get the activity that you want to see in that HIF-2 experienced patient. Operator: Our next question comes from the line of Jason Zemansky with Bank of America. Unknown Analyst: This is Jackie on for Jason Zemansky. Congrats on the progress. Just a quick one for you. So what do you think is necessary to drive broad uptake of a TKI-free regimen in the first-line RCC, given how popular TKIs are overall, especially given their ability to rapidly debulk tumors? Or is the goal to compete directly with dual IO therapies? Terry Rosen: So I think -- so what's interesting is we think there is a strong receptivity towards this. Now one of the most important things that we've seen to date is that casdatifan as a monotherapy, even in the late line, performs -- is good or better than TKI in any line of setting. So if you go -- we have in our deck somewhere, you can actually look that even in the late line casdatifan monotherapy, whether you're looking at ORR or PFS, looks quite good. And the thing that's standing out, and I think this is the issue that was identified with belzutifan at the outset was that rate of primary progression. So I think that's raised the question for HIF-2 inhibition, can you compete with TKI at bringing that tumor under control quick enough that you don't have that high rate of primary progression. So we believe that belzutifan was forced in the front line to combine with the TKI to address a potential high rate of primary progression, but we actually think that despite the fact that HIF-2 inhibition is well tolerated, it can get the tumor under control quite fast. And the place where we've already seen our evidence of that is in combining with anti-PD-1, where in 30 patients, we only saw 2 progressors, 2 primary progressors. So 7%, very much in line with the TKI. So we think there's a receptivity to the TKI-sparing regimen, and we think that the key thing to driving that uptake will be to show that our rate of primary progression and then everything that flows from, that looks like a TKI. The last point I would make is it's almost like there -- the mentality would be like because TKIs are a rougher treatment, it's sort of like when you think about chemotherapy that there's a linkage that sort of in people's minds, they associate rougher, but bringing the tumor more under control. Keep in mind that 85% to 90-plus percent of clear cell RCC has HIF-2 as a key driver. So you're hitting the tumor with something that really matters. And we think that's why with a robust HIF-2 inhibitor like casdatifan, you actually can compete with the efficacy effects of a TKI. Juan Jaen: Add one other point is like, I think Dr. McKay in our event in the fall indicated this that the reasons you really prefer using ipi/nivo for the most part is it gives the patients the best chance for long-term survival. And the problem is the Achilles heel as Terry described, of the primary progression. So if you could blunt that and still give patients the best chance of long-term survival and we just saw 10-year follow-up data with 40% of patients alive 10 years later, that's a very compelling regimen we think. Operator: Our next question comes from the line of Emily Bodnar with H.C. Wright. Emily Bodnar: Based on the LITESPARK-011 data, how are you kind of looking at your upcoming Cas plus cabo updated data? And what are you kind of hoping to see to feel confident that you might have a superior profile versus what we saw in the LITESPARK-011 trial? Terry Rosen: Yes. So we already feel that confidence, and we're obviously running the Phase III trial. I think you kind of have to think of things holistically. In the end, what you're going to have is a hazard ratio. And what's nice is that since we are both running versus cabo, those will be directly comparable. While our data when we share later this year, we will still be early, we're going to give Kaplan-Meier curve. We'll have landmark PFS, we'll have ORR. And people will be able to extrapolate to whatever extent how they want to look at those data, but we'll give a very holistic view. I think the other thing that we don't want lost on people because we think it's an interesting other aspect of the data that really will only be emerging. And we'll see how things play out by the time we have some mature data later this year. So while from a regulatory standpoint, the PFS is what matters, we're going to have data now our -- from our monotherapy cohorts that are getting mature enough that we'll start to get a sense of whether we do bring an OS advantage there, albeit in the late line. And the reason we feel that's important is it just -- depending on how that looks for casdatifan, it will potentially give a good sense that this mechanism can not only drive enhancements in PFS, but bring enhancements to OS. And while that may not be a requirement from a regulatory standpoint, we certainly could see it as an important differentiation that would drive more uptake by clinician, in fact, we start to show that there can be OS enhancement from HIF-2 inhibition, which we believe there's no reason there shouldn't be. Operator: Our last question comes from the line of Yigal Nochomovitz with Citigroup. Joohwan Kim: This is Joohwan Kim on for Yigal. Congrats on the progress. Maybe just to mix in a noncash question. Regarding AB102, while it's still early, is there any color you can provide on the intended proof-of-concept study design, whether you're planning on going into CSD versus AD first? Any color on primary endpoints or level of clinical signal you need to see to give confidence to advance into a future registrational program? Terry Rosen: So Juan, why don't you describe how we see ourselves going from A to B to C in the near term? Juan Jaen: Yes. So at a very high level, we have recognized that while we think we may have a better molecular profile, we have a little bit of ground that we need to make up relative to the couple of existing clinical players. So what we've devised is a fairly accelerated plan for establishing PK tolerability in healthy volunteers, followed by a fairly quick, rapid mechanistic confirmation of biological activity and very quickly progressing into a Phase II study in CSU. So we think we will in reasonable speed, catch up and hopefully begin to illustrate the better profile of our drug. In parallel with that, we're thinking about where it might make sense concurrently with that CSU type of Phase II study to demonstrate the value of an MRGPRX2 inhibitor. Right now, our lead candidate for that additional indication seems to be allergic asthma, but that's still at a very early stage of conceptual framing. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect. Terry Rosen: Thanks, everybody. Operator: Goodbye.
Operator: Good day, and thank you for standing by. Welcome to the Revolution Medicines Q1 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand it over to Ryan Asay, Senior VP of Corporate Affairs. Ryan, you have the floor. Ryan Asay: Thank you, operator, and welcome, everyone, to the First Quarter 2026 Earnings Call. Joining me on today's call are Dr. Mark Goldsmith, Revolution Medicines' Chairman and Chief Executive Officer; Dr. Alan Sandler, our Chief Development Officer; and Jack Anders, our Chief Financial Officer. Dr. Steve Kelsey, our President of R&D; Dr. Wei Lin, our Chief Medical Officer; and Anthony Mancini, our Chief Global Commercialization Officer will join us for the Q&A portion of today's call. We would like to inform you that certain statements we make during this call will be forward looking. Because such statements deal with future events and are subject to many risks and uncertainties. Actual results may differ materially from those in forward-looking statements. For a full discussion of these risks and uncertainties, please review our annual report on Form 10-K and our quarterly reports on Form 10-Q that are filed with the U.S. Securities and Exchange Commission. This afternoon, we released financial results for the quarter ended March 31, 2026, and recent corporate updates. The press release and updated corporate presentation are available on the Investors section of our website at revmed.com. With that, I'll turn the call over to Dr. Mark Goldsmith, Revolution Medicines' Chairman and Chief Executive Officer. Mark? Mark Goldsmith: Thanks, Ryan. It's good to be with you this afternoon to discuss the tremendous progress we've made in 2026. This is a pivotal moment for our organization and for patients worldwide living with pancreatic cancer who are in need of new therapeutic options. It is anchored by the top line readout for RASolute 302 last month, in which daraxonrasib monotherapy demonstrated an unprecedented improvement in overall survival compared with chemotherapy in patients with previously treated metastatic pancreatic cancer. RASolute 302 results represent a transformative advance for patients. They also firmly validate our pioneering RAS(ON) inhibitor strategy and reinforce its potential to improve outcomes in RAS-driven cancers. High investor conviction enabled an historic $2 billion dual tranche capital raise that will allow us to continue our important work broadly, advancing our current portfolio of four groundbreaking clinical stage, oral RAS(ON) inhibitors and bringing forward the next wave of innovation, targeting RAS-addicted cancers, including our new class of catalytic RAS(ON) inhibitors. On today's call, following my remarks, I'll pass the call over to Dr. Alan Sandler, who will provide an overview on the recent clinical progress we've made across our portfolio including the most recent data presented at the American Association for Cancer Research Annual Meeting. Jack Anders will then summarize our first quarter financial results before we open the call to Q&A. Let me first spend a few moments talking about RASolute 302, the global Phase III trial evaluating daraxonrasib monotherapy in patients with previously treated pancreatic cancer. The top line readout for daraxonrasib marked a major milestone in this disease, significantly raising the bar and the development of new treatments for patients living with pancreatic cancer, the most RAS-addicted of all human cancers. In RASolute 302, daraxonrasib demonstrated unprecedented impact, meeting its primary and key secondary endpoints and showing statistically significant and clinically meaningful improvement in progression-free survival and overall survival compared to standard of care chemotherapy. In the overall intent-to-treat study population, which includes patients carrying tumors with or without an identified RAS mutation, daraxonrasib drove a 60% reduction in the risk of death compared with chemotherapy and with a median overall survival exceeding 1 year. Daraxonrasib was generally well tolerated and no new safety signals were observed. These are dramatic practice-changing results and our focus now is on moving with urgency to bring this potential new option to patients. We intend to submit a new drug application to the U.S. Food and Drug Administration under the FDA Commissioner's National Priority Voucher Program, and we'll also execute our plan to file with other global regulatory authorities. And last week, we reported that the FDA issued a safe-to-proceed letter allowing us to initiate an expanded access treatment protocol or daraxonrasib in patients with previously treated metastatic pancreatic cancer. This will allow us to move as quickly as possible to ensure safe and equitable access to daraxonrasib for eligible patients in the U.S. We were also pleased to announce recently that RASolute 302 will be featured in the plenary session of this year's American Society of Clinical Oncology, or ASCO, Annual Meeting in Chicago. We and the investigators look forward to sharing detailed results with the scientific community at that time. I'll now pass the call over to Alan to walk through some recent clinical program updates. Alan? Alan Bart Sandler: Thanks, Mark. The extraordinary results from RASolute 302 validate our tri-complex inhibitor platform and give us increased confidence in daraxonrasib's potential in earlier treatment lines in pancreatic cancer. This confidence was reinforced at AACR, where we shared updated clinical data from the Phase I/II studies for daraxonrasib monotherapy and in combination with chemotherapy in first-line metastatic pancreatic cancer. Both the monotherapy and combination cohorts demonstrated encouraging preliminary durability data. In the monotherapy study, while median progression-free survival and median overall survival were not mature as of the data cutoff, the Kaplan-Meier estimate at 6 months were 71% and 83%, respectively. In the combination of daraxonrasib with gemcitabine and nab-paclitaxel the Kaplan-Meier estimates at 6 months for progression-free survival and overall survival were 84% and 90%, respectively. Across both studies, daraxonrasib safety and tolerability profile remained consistent with earlier findings in this patient population with no new safety signals observed. These compelling results strongly support our decision to rapidly advance RASolute 303, our Phase III study evaluating both daraxonrasib monotherapy and daraxonrasib in combination with chemotherapy in first-line metastatic disease. The trial is enrolling globally. In addition to our first and second line daraxonrasib registrational studies in pancreatic cancer, patient enrollment is ongoing in RASolute 304, our registrational trial of daraxonrasib monotherapy in the adjuvant setting in patients with resectable disease following conventional surgery and perioperative chemotherapy. We are also making progress in 2 registrational studies for zoldonrasib, our covalent RAS(ON) G12D selective inhibitor in first-line pancreatic cancer. We have initiated RASolute 305, a randomized, double-blind, placebo-controlled registrational trial, evaluating zoldonrasib in combination with investigators' choice of chemotherapy, either gemcitabine and nab-paclitaxel or modified FOLFIRINOX compared with placebo plus chemotherapy. And we remain on track to initiate RASolute 309, our first registrational study to evaluate the RAS(ON) inhibitor doublet combination of zoldonrasib with daraxonrasib in the second half of the year. Moving to non-small cell lung cancer, another focus with development for RAS(ON) with approximately 30% of non-small cell lung cancers harboring a RAS mutation, including 18% with non-G12C mutations, unmet needs in non-small cell lung cancer remain priority that we aim to address through several ongoing and planned registrational studies. Beginning with daraxonrasib, we continue to enroll patients globally in RASolve 301, our global randomized trial evaluating daraxonrasib monotherapy in previously treated patients. Based on the strength of the Phase I results for daraxonrasib monotherapy in non-small cell lung cancer as well as additional confidence from the recent positive RASolute 302 results, we are expanding the RASolve 301 study to increase the statistical power of the overall survival component of the dual primary end point. Enrollment is going well, and we anticipate substantially completing enrollment in the expanded study this year. We also expect to disclose our plans regarding daraxonrasib combination therapy in first-line non-small cell lung cancer this year. Turning to G12D non-small cell lung cancer. At AACR, we presented updated clinical data for zoldonrasib monotherapy in a subset of patients who had previously been treated with immune checkpoint inhibitors and platinum chemotherapy. Zoldonrasib was generally well tolerated and demonstrated a safety profile consistent with previously reported findings. Zoldonrasib demonstrated encouraging clinical activity with a confirmed objective response rate of 52%, disease control rate of 93%, and a median progressive-free survival of 11.1 months. Overall survival data were immature at the time of analysis. The estimated survival rate at 12 months was 73% while the median had not yet been reached, which is encouraging data at this early look. We continue to believe deeply in the potential of zoldonrasib given its compelling safety and tolerability profile and encouraging clinical activity, which strongly support our plans to advance zoldonrasib across monotherapy and combination setting in lung cancer and other RAS-G12D-driven cancers. Building on the strength of our monotherapy data, we are preparing to initiate in the first half of this year, RASolve 308, a global double-blind, placebo-controlled registrational trial evaluating zoldonrasib in combination with the KEYNOTE-189 regimen, which is the standard of care in first-line treatment for metastatic non-small cell lung cancer compared to the KEYNOTE-189 regimen with placebo. For patients with G12C non-small cell lung cancer, elironrasib, a RAS(ON) mutant selective inhibitor has demonstrated a differentiated and compelling clinical profile in both G12C inhibitor naive and G12C inhibitor experienced lung cancer patients. We remain on track to share an update on our elironrasib registrational strategy this year. Our third RAS-addicted cancer focus is colorectal cancer, which remains an area of high unmet need and interest for the company. We have a range of combination studies underway designed to better understand this genetically complex and heterogeneous disease, including studies to evaluate RAS(ON) inhibitor doublet combination and RAS(ON) inhibitors in combination with current standards of care and with other targeted drugs. We remain on track to share combination data this year as we work to prioritize registrational opportunities. I'll conclude with brief highlights on two of our early stage programs. We continue enrolling patients in the first-in-human trial of RMC-5127, our fourth RAS(ON) inhibitor. RMC-5127 is selective for RAS-G12V, the second most common RAS variant in solid tumors. We expect to identify a recommended monotherapy Phase II dose for this compound in the second half of 2026. Finally, AACR brought with it the opportunity to showcase our new class of innovative mutant targeted catalytic RAS(ON) inhibitors. These inhibitors are designed to promote the conversion of mutant RAS in its active GTP bound RAS(ON) state to the inactive GDP-bound RAS off state. Thereby mimicking the normal physiologic regulation of wild-type RAS. These preclinical data demonstrated that at well-tolerated doses RM-055 achieved robust and durable antitumor activity across KRASG12 mutant xenograft models of pancreatic cancer, non-small cell lung cancer and colorectal cancer. Notably, tumors that had escaped prior RAS inhibitor treatment were sensitive to RM-055, which drove deep and durable regressions. Its compelling, differentiated profile warrants clinical investigation of its potential to counter emergent drug-resistant and to extend clinical benefit and we remain on track to initiate a first in-human clinical trial in the fourth quarter. With that, I'd like to pass the call back over to Mark. Mark? Mark Goldsmith: Thanks, Alan. In addition to the substantial R&D progress we've made across our pipeline, we continue to be very gratified by the build-out of our commercialization infrastructure and operational capabilities to support the company's global commercialization ambitions. We've established the operational wherewithal required to move with speed and agility focused initially in the U.S. and extending into priority international regions. We are resourcing our efforts to ensure that we have the best strategies, tactics, operational capabilities and people to bring daraxonrasib with urgency to patients pending regulatory approvals. We expect to be launched ready under best case approval timing scenarios. We have experienced and talented executives leading our commercialization team across medical affairs, market access, marketing and sales. These groups are deeply engaged in market preparedness and assessment, planning, position and advocacy engagement, sharpening operational capabilities and conducting other launch readiness activities. We recently appointed several experienced leaders across the Asia Pacific and European regions, including Neil McGregor; as our General Manager for APAC; Tetsuo Endo as General Manager for Japan; and Martin Voelkl as General Manager for Germany. I'd now like to turn the call over to Jack Anders, our Chief Financial Officer, to summarize our first quarter financial results. Jack? Jack Anders: Thanks, Mark. We ended the first quarter of 2026 with $1.9 billion in cash and investments and further strengthened our financial position after the quarter with $2.1 billion in net proceeds from our concurrent upsized offerings of common stock and convertible debt in April. Before we dive into the income statement for the quarter, I'd like to highlight that our stock-based compensation expense for the quarter was higher than usual and explain the reason behind it. Stock-based compensation expense was $87.3 million for the quarter ended March 31, 2026, compared to $25.1 million for the quarter ended March 31, 2025. In the first quarter of 2026, the company updated its equity compensation program to introduce competitive retirement benefits for employees who meet specific minimum age and service requirements. The modification of this program resulted in an incremental $44.6 million in stock-based compensation for the first quarter of 2026. This incremental expense was primarily due to the accelerated timing of recognition of stock-based compensation expense originally scheduled in future periods for outstanding eligible awards. As a result of this timing pull in, we expect higher nonrecurring lumpiness in stock-based compensation expense for the first half of 2026 with stock-based compensation expense decreasing and returning to a more normalized trajectory in the second half of the year. As a result of this change, the company is increasing its estimate of full year 2026 stock-based compensation expense by approximately $80 million, and now expects full year 2026 stock-based compensation expense to be between $260 million and $280 million. Additionally, the company is also updating its projected GAAP operating expense guidance to reflect the expected increase in stock-based compensation expense and now expects full year GAAP operating expenses to be between $1.7 billion and $1.8 billion. Moving to expenses for the quarter. R&D expenses for the first quarter of 2026 were $344.0 million compared to $205.7 million for the first quarter of 2025. This increase was primarily due to higher clinical trial and manufacturing expenses for daraxonrasib and zoldonrasib due to acceleration of the pace and expansion of these programs. R&D expenses were also higher as a result of increased headcount costs and higher stock-based compensation expense as described earlier. G&A expenses for the first quarter of 2026 were $101.3 million compared to $35.0 million for the first quarter of 2025. The increase in G&A expenses was primarily due to higher stock-based compensation expense as described earlier: increased headcount costs, increased commercial preparation activities and higher administrative costs. Net loss for the first quarter of 2026 was $453.8 million compared to $213.4 million for the first quarter of 2025. The increase in net loss was due to higher operating expenses. That concludes the financial update. I'll now turn the call back over to Mark. Mark Goldsmith: Thank you, Jack. The remarkable start to 2026 is the result of years of unwavering dedication, relentless perseverance and hard work by our team and collaborators standing on the shoulders of others. With the unprecedented performance of daraxonrasib monotherapy in the RASolute 302 study, we believe we are in a position to change the standard of care for patients living with pancreatic cancer, subject to regulatory review and approval. The global response to the RASolute 302 data has been overwhelming. The news brings with it hope and possibility for patients, physicians, and the advocacy community that have all been waiting too long for new, more effective treatment options. We are now an important step closer to fulfilling our mission of discovering, developing and delivering innovative targeted medicines to patients living with cancer. We have an extraordinary opportunity, and we take very seriously the responsibility that goes with it. Before I close, I'd like to recognize our continuing partnerships with patients and caregivers, health care providers and investors as well as the remarkable dedication and efforts of Rev Med employees. It requires the ongoing support of all of our partners and constituencies to do revolutionary work on behalf of patients. With that, I'll turn the call over to the operator for the question-and-answer portion of the call. Operator: [Operator Instructions] Our first question comes from the line of Cory Kasimov with Evercore ISI. Cory Kasimov: Congrats on all the recent very exciting progress. So I wanted to ask, you recently noted you could share data at a medical meeting that supports the rationale for RASolute 309, the Phase III front-line PDAC trial, looking at zoldonrasib plus daraxonrasib versus chemo. Would this include durability data or just response rate as we've seen with some of your initial disclosures? And maybe more importantly, how much additive efficacy would you be looking for here to say it's clinically meaningful to justify the combination over the exciting monotherapy results we've seen with both of these agents. Mark Goldsmith: Thanks, Cory. I appreciate your comments and question. It's probably too early for us to lay out what that presentation would look like. We typically don't forecast it. We'll show what we have. We think it will justify our plans, and we'll provide that in due course. The second question, also probably and unfortunately, it can't be too helpful about what's the threshold for added value that justifies doing that I mean, of course, we look at the totality of the evidence. We look at the historical benchmarks. And ultimately, as you sort of implied in your question, durability is the most important parameter. Operator: Our next question comes from Charles Zhu with LifeSci Capital. Yue-Wen Zhu: [Technical Difficulty] Mark Goldsmith: Charles, we're not able to pick up what you're saying. Stacy, I don't know if there's anything you can do on your side to improve the audio quality. Operator: Charles, are you in a good position to speak with us? We'll get Charles back queued up. Our next call comes from Michael Schmidt with Guggenheim Securities. Michael Schmidt: Again, congrats on RASolute 302 data, looking forward to the full data presentation at ASCO. Yes, a question on the EAP program. I know this was just announced a few days ago. But Mark, I don't know if you could comment what you're seeing so far in terms of demand for the EAP program? And what do you think -- how many patients could particularly benefit from this prior to officially receiving FDA approval? And then maybe just if you could share your view of the size of the second-line pancreatic cancer opportunity based on your market research, how many patients in the U.S. do you think would be treatment eligible for the daraxonrasib based on the 302 study? Mark Goldsmith: Thanks, Michael. Nice to hear from you. On the first question, of course, we're working hard to get in a position to be providing drugs to those who need it. The demand has been very clear from the moment that it was announced. And we don't expect that to slow down anytime soon. And we're putting all the resources that we can on it to help meet that need. I can't really give you a projection as to the number. I don't know how we can make that projection. We'll just have to play it out. I think there is clearly a widespread knowledge of awareness of daraxonrasib and those calls started coming in within minutes after the announcement. The size of the second-line opportunity. Wei, you might want to talk about this. We can't characterize it for you in a great depth, but we typically think about roughly 60,000 new cases in each year, and then maybe Wei can comment on both what's historical attrition and then also whether or not daraxonrasib might affect that. Wei Lin: Yes. Happy to do that. These are obviously just estimates based on clinical practice. As Mark commented, about 60,000 Americans are newly diagnosed each year with pancreatic cancer. About 50% to 60% of those patients are diagnosed with metastatic disease. And so those patients are eligible to receive first-line therapy for metastatic disease. And typically, because of both the aggressive nature of the disease as well as the toxicity of chemotherapy, about half of the patients received first-line metastatic treatment and received subsequent second-line treatment. So that gives you a sense of the overall attrition as well as the size. Mark Goldsmith: And just to add to that, that could certainly change in the context of first-line treatment, but we don't have anything to address on that point today. Operator: Our next question comes from Faisal Khurshid with Jefferies. Faisal Khurshid: Just wanted to ask on the RASolve 301 upsizing. Could you clarify what exactly led to the upsizing? What were you powered for before? And what are you powered for now? And does this change the time line from enrollment completion to read out? Mark Goldsmith: Thanks a lot for your question. I'm going to answer the second question, and then Alan Sandler is going to talk about the first. We don't think it will change the timing of the readout given the high pace of enrollment and where we stand today. So we don't expect to impact our projection that we'll complete or substantially complete enrollment this year. But the more subtle question about the sizing of the trial, Alan can comment on. Alan Bart Sandler: Sure. Thanks. So an important point is we've realized the importance of overall survival and given the results that we've seen in 302 and also the Phase I monotherapy data, we have a very high conviction that on our ability to obtain overall survival benefit. So as a result of that, we're going to further prioritize overall survival in 301 by expanding the enrollment, as you've noted, going from 420 to 590 patients. That will increase the statistical power of that component of what is a dual primary end point and then again, as Mark has mentioned, we -- there's a great pace in terms of the patient enrollment, and we think that we will substantially complete the enrollment, even with the expanded study this year. Operator: Our next question comes from the line of Brian Cheng with JPMorgan. Lut Ming Cheng: Mark, during the call, you said the best case timing scenario for darax at launch across the globe. How should we think about the timing and the cadence then for the filing and launches specifically across APAC and European regions? And just on the NDA application towards the FDA. Can you give us a little bit more color, a little bit more granularity in terms of the things that are left to complete? Mark Goldsmith: Yes. Thanks, Brian. I can't really give you any specific timing with regard to the filings outside the United States. But just generally speaking, we are starting with the U.S. filing as the initial priority. There will be some sequential framework for filing in other countries, and we're already engaged with regulatory authorities outside of the United States in order to make sure that we can deliver what they need and in as timely a matter as possible. For the NDA, your question was what's left to deliver? Is that how you put it? Lut Ming Cheng: Yes. What are the things that are left to complete before you complete the NDA application? Mark Goldsmith: Yes. Well, we've been fully engaged with the FDA for a long time, as you know. And of course, with the CNPB and the breakthrough designation, we've had a high level of engagement than you might otherwise have and so we are providing them information as it becomes available, mature enough to provide to them. And ultimately, the clinical package is the thing that will be provided. I can't give you a specific timing on that. There's a full throttle effort to do it. We feel the urgency around it. Certainly, the question earlier about the EAP provides a pretty strong signal about how urgent that is, and we'll continue to move this forward as fully as we possibly can. Operator: Our next question comes from Marc Frahm with TD Cowen. Marc Frahm: Maybe following up a little bit on Cory's question earlier, just on the zoldonrasib plus daraxonrasib combo. Can you maybe speak to the 309 design, particularly in light of the 302 finding and the survival data, I mean looking better than anything we've ever seen even in first line. Just why is 309 comparing to chemo the right design and -- or would it -- should it really be switched over to consider daraxonrasib monotherapy as the comparator arm there at a minimum, one, to get the contribution of parts, but also just from a clinical execution perspective, where the ball is headed -- seems to be headed in pancreatic cancer? Mark Goldsmith: Yes. Thanks, Marc. That's a good question. It's a subtle one. Of course, today, standard of care is chemotherapy. And until there's a data set that moves the FDA to approve a different treatment and a different treatment at the level that people consider the new standard of care then chemotherapy is the standard of care. I think you're sort of inviting me to comment that, of course, we think daraxonrasib has a real potential in monotherapy, but also in combinations in first line. And among those combinations, chemotherapy is one that we've already provided some early-stage data on and we're quite excited about. And that combination is in the 303 trial, so we're already going into combinations. And it's really just a question of when that bar moves. But we have high confidence that the combination can deliver something that is differentiated from chemotherapy, but also even for monotherapy. I think the other thing to keep in mind is we do a lot of things where there's overlap in the patient populations that we might be able to serve in different ways. We don't shy away from that. As you know, we've discussed that before, because every patient has his or her own specific needs and giving doctors options even if the outcomes on paper may look fairly similar across broad populations, there still may be reasons why one particular patient would benefit or be perceived to benefit from one particular combination or monotherapy approach versus another. So providing the most fulsome set that we can based on the science and then ultimately on the clinical data, it increases the chance that we're the ones that are delivering the best possible options for patients. So that's the high level of comment. Operator: Our next question comes from Jonathan Chang with Leerink Partners. Jonathan Chang: Congrats on the progress. Can you talk about your latest thinking on getting to a chemo-free option in frontline pancreatic cancer? What gives you confidence in being able to achieve this? And what do you think is the best strategy for getting us? Mark Goldsmith: Yes. Thanks, Jonathan. Nice to talk with you. Well, we just talked about one of those strategies for a chemo-free frontline, which is monotherapy daraxonrasib. And I think the data -- single-arm data that we've shown so far are compelling enough that it just -- very much justified incorporating that into the Phase III first-line trial, and we'll see how that performs. But we have every expectation that it could deliver chemo-free regimen. And then the second option is also one we just talked about, which is combining a mutant selective inhibitor with daraxonrasib, that would be a chemo-free strategy. And that specific combination of zoldon plus daraxon of course, is for the 40% of pancreatic cancer cases that are carrying a RAS G12D mutation. We have other mutant selective inhibitors directed against additional mutations that are common in -- or can be found in RAS cancer, so we could and would likely fill out that collection of regimen. It just happens that zoldonrasib plus daraxon is on the vanguard of the work because of maturity of the compound and the data that we have so far. So I think those are two very compelling chemo-free regimen. There are others that one can consider. There are immunologic agents that could be combined. There are other targeted agents that could be combined. We're already exploring, as you know, PRMT5 combination, PRMT5 inhibitor combination, et cetera. I'm sure there will be other things to come over time. Operator: Our next question comes from Charles Zhou with LifeSci Capital. Yue-Wen Zhu: All right. Perfect. I believe a bunch of clinical type questions were taken. So I'll ask one a little bit earlier, but RM-055, Nice to see your presentation at AACR as well as some of the work you helped support over at [indiscernible] lab that was just published yesterday. But can you comment a little bit perhaps on RM-055's ability to potentially address daraxonrasib's resistance mechanisms that go beyond that of a KRAS amplification. And can you also talk a little bit about perhaps how you might be achieving what appears to be at least preclinically a wider therapeutic window for RAS mutants over RAS wild types over that, which directs daraxonrasib can achieve. Any color as to how you're accomplishing that mechanistically? And if you can also kind of see that in your preclinical models as you advance that into the clinic? Mark Goldsmith: Thanks, Charles. Sort of loud and clear. Yes, Steve Kelsey, I think, will comment on both of those important topics. Stephen Kelsey: Sure. Yes, I think the RAS amplification can be received as a stand-alone mechanistic basis for escaping daraxonrasib, but it also acts as a surrogate for increasing flux through the RAS pathway generally. And in most of the experiments that we've done, RM-055 is a better inhibitor flux through -- increased flux through the RAS pathway. Generally, particularly when it's going to go through G12 mutation. So I think there is a general principle of escape from daraxonrasib occurring through reactivation of RAS pathway signaling. It's not just amplification of the mutant allele that can do that. And I think there's every reason to believe that RM-055 may be effective beyond just pure RAS mutant amplification. Your point about therapeutic index, it's all to do with the relative importance of hydrolysis of RAS(ON) back to RAS(OFF) between cancer and normal tissue. Normal tissue, most of the RAS in normal tissue was already in the off-state anyway. But it's being catalyzed -- the active RAS is being catalyzed back to RAS(OFF) very effectively by the naturally occurring gaps. And the whole point of RAS mutation cancer is that, that just doesn't happen. The ability of the mutant RAS to withstand that catalytic hydrolysis back to RAS(ON) state is very different. And it varies from mutation to mutation. But what we've done is very selectively targeted the inability of particularly as a G12 mutant RAS to be hydrolyzed back to RAS(OFF) by forcing it to be hydrolyzed back for RAS(OFF). And it really has very -- this drug has almost negligible effect on normal tissue in that respect and a very significant increased deactivation of mutant RAS in cancer cells. Operator: Next question comes from the line of Michael Yee with UBS. Michael Yee: Congrats on the progress. Two quick ones. On the colorectal cancer data coming up, can you help guide expectations on how to think about combination with EGFR given overlapping rash and how to think about mitigation or how to interpret results given higher efficacy, but also trying to mitigate rash in that strategy. And then also in the first-line PANC study, which is enrolling, we definitely get huge feedback that it's going to enroll superfast in a number of different sites. Is it safe to assume that there's probably an interim in that study as well eventually once you complete enrollment? Mark Goldsmith: Thanks, Michael. Nice to hear from you. Who wants to address the CRC? Maybe I'll just make the comment that it is true that daraxonrasib itself has essentially overlapped with the eGFR antagonist from a perspective of suppression RAS signaling that drives the skin side effects. So that is a harder combination to contemplate. That really doesn't apply at all with mutant selective inhibitors and that's why the G12C selective inhibitors that launched the field essentially sotorasib and adagrasib and now others can be combined pretty readily. And it really fundamentally addresses the whole gap in the eGFR coverage that occurs in the RAS-mutant tumors and the whole reason why EGF receptor antagonism is contraindicated typically in RAS mutant tumors, you really need the RAS inhibitors. So that combination is in principle something that can be pursued. Stay tuned. We'll talk about it when we're able to do so. The question about the first line, I forgot the tail end of the actual question part of it. Jonathan Chang: Do you have an interim analysis? Mark Goldsmith: Do you have an interim analysis. Wei, do you want to comment on that? Wei Lin: Yes. At this current state, we don't mind to disclose the analysis plan. Mark Goldsmith: Okay. So you've heard it from our Chief Medical Officer. Operator: Our next question comes from Laura Prendergast with Stifel. Laura Prendergast: I was curious, what are some of the top variables still under consideration for daraxonrasib in first-line lung cancer as far as strategy goes, and then on the back of RASolute 302, showing such a unprecedented OS, what kind of pricing power are you guys thinking this could unlock? And are there any benchmarks for pricing that you guys are most focused on? Mark Goldsmith: Yes. Laura, nice to hear from you. I don't think we can really comment on the pricing. Of course, the OS impact is something everybody is interested in starting with patients and their families and all the way up to insurers and payers in other geographies. So it will be relevant to their considerations, but that's about all we could say about pricing today. And then your question on first-line non-small cell lung cancer. Which was what? Oh I see. With regard to daraxonrasib in first line. Well, we've alluded to it. We commented that there are a couple of things going on. Probably one of the most important is that we're now dosing patients with ivonescimab, which may become -- we're all waiting to see how that progresses. But it points towards potentially becoming the new standard of care for frontline non-small cell lung cancer, in which case, that's something we need to take into account, which we hadn't really taken into account before we had the real relationship with [indiscernible] that's now very much active and we're dosing patients. That's probably the main variable. I think the other thing just conceptually to comment on is the mutant selective inhibitors are already pretty well established simply because of the G12C inhibitors that launched the field. And that's sort of a paradigm that lung cancer doctors are now used to thinking that G12C as its own disease, which means G12D will be its own disease and G12B will be its own disease and pretty quickly you've covered most of the locations in RAS lung cancer. We happen to have a G12D selective inhibitor, which is performing particularly well. We happen to have a G12C selective inhibitor, which is quite differentiated and compelling. We have a G12V selective inhibitor that's in the clinic now, and we expect good things from that. So there are multiple ways to cover that. And it is in a field in which it's already broken down by genotype. That's one possible strategy. So those are kind of several of the major considerations. Operator: Our next question comes from Jay Olson with Oppenheimer. Jay Olson: Congrats on all the progress and thanks for providing this update. How would you like to set expectations for the upcoming ASCO plenary presentation in terms of where you'd like investors to focus their attention? Mark Goldsmith: I think my main expectation is it's just going to be crowded. I'm not sure really how to help you on that. I mean we'll be providing, I think, through the investigators of a full update on it. And the update will be consistent with what we've said so far, but provide significantly more information that the experts in the field needs to see and evaluate in that setting. Operator: Our next question comes from Kelsey Goodwin with Piper Sandler. Kelsey Goodwin: Congrats on all the progress recently. I think two quick ones for me. First, I guess, any additional color that you're providing on the sales force. And then secondly, I think, building on one of your prior answers in this question-and-answer session. I guess as we start to think about that front line to second line attrition rate once daraxonrasib comes on to the market. I guess, do you have a sense what percent of that 50% of patients that don't proceed to second line are unfit for therapy altogether versus ineligible or unwilling to take another chemotherapy just as we start to model that out a bit more refined? Mark Goldsmith: Yes. Thanks, Kelsey. Anthony, do you want to just comment on the sort of sales organization more broadly? Anthony Mancini: Yes. So thanks for the question, Kelsey. I think for the U.S. region, we're in the final stages of building out our field-based teams all across different functions in the field, med affairs, market access and sales. We've had an MSL team and a thought leader liaison team in place for quite some time. We also have a market access account team that's been in place, that's been engaging with payers and organized customers, really around the unmet need in pancreatic cancer, around the pipeline and the early clinical data for daraxonrasib through pre-approval information exchanges, and we're really pleased to say that we're in the final stages of onboarding our U.S. sales force. We're pleased with the team. They have deep expertise in solid tumors across GI malignancies and in oral oncology, and they'll be fully trained and ready to go with HCP engagements if we were to receive an FDA approval. Mark Goldsmith: Thanks, Anthony. And on the first line, the second line, it's a good question. It's an important question. It's a little bit hard to get a detailed and clear understanding of because in reviewing records and so on, it's not always clear. In fact, it's surprisingly how common it is that it's not clear why somebody hasn't gone on to second line. You don't always identify an obvious performance status issue or concurrent illness or disease status that would prevent somebody from moving on. And therefore, they might have decided not to proceed because of intolerability or they might have decided not to proceed because of perceived intolerability before they tried it or because they want to focus their life at this stage on family and not on chemo infusions. There's a wide variety of reasons. And then sadly, it's also true that patients who start chemotherapy in first line sometimes don't survive to second line. So it's a great devastating illness as everybody knows. So there are a lot of different reasons. Some of those could be addressed by a regimen that is more convenient, that is better tolerated. A once-a-day pill that really is generally well tolerated and safety issues are manageable, could sure impact somebody's decision. We don't know whether or not it will. We'll only know that if we get to the finish line with an approval and see how patients do in that context. Operator: Our next question comes from Kalpit Patel of Wolfe Research. Kalpit Patel: Congrats on the trial again. So for RASolute 303, how should we think about that study's enrollment ramp versus the second-line study that you just completed in terms of timing of enrollment completion. And then can you remind us if crossover is allowed in that RASolute 303 study? And separately, any comments on potentially starting a registrational trial with daraxonrasib and a PRMT5 inhibitor? Mark Goldsmith: Thanks very much for your questions. The timing of completion. We can't comment on that now. We're just not at a stage where we can project the time line with any confidence, but maybe the even more important point would be we know there's very, very high interest in this. And sites that have activated or enrolling, but there are plenty of sites that still are yet to be online, and there are patients lined up at many of these facilities. We're aware of that. So we expect there to be very high demand for this for a variety of reasons, not the least of which is the disclosure of the 302 key findings, which people do it. Crossover is not allowed in the trial design. As you know, of course, it's up to any individual patient, they can cross over on their own if there is an approved therapy to crossover too. But in terms of actual crossover design, we can't really provide it when OS is the standard, and that's the sort of conundrum of a Phase III trial for which overall survival is the endpoint. And where we're currently kind of in the process of transitioning from Equipoise to out of Equipoise and where we stand in that is sort of -- it's a matter of judgment and it's really a question for the regulatory agency. They have to make that determination. And as long as OS is required, it's very difficult to achieve that with the crossover design. Maybe you want to talk to those points, Alan? Alan Bart Sandler: The only additional comment I would make, again, because of the concern for overall survival being a primary endpoint is we've established a broad geographic footprint in order to mitigate the potential for impact of second-line therapy with daraxon moving forward. So smaller U.S. footprint, larger ex U.S. moving forward. Mark Goldsmith: Good comment. And then the last thing was with regard to PRMT5. We don't have any update to provide on that today. We're enthusiastically engaged in collaboration with several companies now who are evaluating PRMT5 inhibitors in combination with RAS inhibitors, and we're keenly interested in how that will go. Operator: Our final question comes from the line of Alec Stranahan with Bank of America. Alec Stranahan: I guess, two from me. First, I would be interested to hear from your experience whether the initial ORR with daraxonrasib was a good metric for predicting PFS and OS benefit in larger studies? Like does the higher numerical ORR translates to better survival or is duration of response or time on therapy, maybe more telling for this? Just trying to think through some headline numbers we're seeing from others in the space. And quickly, will you be allowing third line plus patients into the EAP as well? Mark Goldsmith: Thanks, Alec. On the last question, yes, the eligible population includes previously treated and it goes beyond the pure second line that are in the -- that were in the 302 trial. Is ORR predictive of PFS or OS, who wants to comment on that? Stephen Kelsey: We don't show analysis of that. The -- it's broadly correlative with PFS, ORR, it broadly correlates with PFS. It's not such a tight stoichiometric relationship that you can actually say that the ORR is 5 percentage points higher than the PFS is going to be 5 percentage points higher. But it is broadly correlated. There are better ways of predicting PFS, which involve multiparametric analysis that include ORR but are not restricted to ORR. We have not made those broadly available to other people because obviously, it's a competitive advantage for us to know that and not share it with our competitors. But definitely, ORR is a component of that framework for sure. So I think it's -- we're learning more. And you're right, I mean, we're learning a lot more now, now that we have decent drugs for pancreatic cancer. We're learning a lot more about the relationship between all of these outcomes. But I mean, in other diseases, like lung cancer, breast cancer, colorectal cancer, it took years and years and years to figure out these relationships, and they're still not totally clear. So yes, I think that you will see relationships emerging, whether they're causal or otherwise. But I wouldn't draw too many straight lines. Mark Goldsmith: Yes. That's -- I'll pile on that. There's obviously some relationship, but what you can do with that and how you should interpret ORR data and have vision for what that's going to translate into premature. Stephen Kelsey: And the other thing is, of course, with RAS inhibitors, the numerical value are at any point in time isn't very accurate anyway. Patients can take up to and sometimes beyond 6 months to fulfill the RECIST definition of response. So at any given point in time, there still be people who might become responders who have not yet become responders. And the RECIST definition of responses in a particularly robust endpoint in [indiscernible]. So there's a lot of wiggle room and uncertainty around all of these analysis. It's very tempting to believe that the overall response rate determined by RECIST is a pure and absolute accurate measurement, but it absolute -- I can tell you absolutely is not. If you look at those CT scans and trying to compute the unidimensional measurements of the target lesions then you'll realize just how broad uncertainty surrounds the whole thing. Mark Goldsmith: Also, I'm glad you answered. Operator: This does conclude the question-and-answer session. I'd now like to turn it back to Mark Goldsmith for closing remarks. Mark Goldsmith: Thank you, operator, and thank you, everyone, for participating today and for your continued support of Revolution Medicines. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the LivaNova PLC First Quarter 2026 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Briana Gotlin, LivaNova's Vice President of Investor Relations. Please go ahead. Briana Gotlin: Thank you, and welcome to our conference call and webcast discussing LivaNova's financial results for the first quarter of 2026. Joining me on today's call are Vladimir Makatsaria, our Chief Executive Officer and member of the Board of Directors; Alex Shvartsburg, our Chief Financial Officer; and Ahmet Tezel, our Chief Innovation Officer. Before we begin, I would like to remind you that the discussions during this call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings and documents furnished to the SEC including today's press release that is available on our website. We do not undertake to update any forward-looking statement. Also, the discussions will include certain non-GAAP financial measures with respect to our performance, including, but not limited to, revenue results, which will be stated on a constant currency basis. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release which is available on our website. We have also posted a presentation to our website that summarizes the points of today's call. This presentation is complementary to the other call materials and should be used as an enhanced communication tool. You can find the presentation and press release in the Investors section of our website under News Events and Presentations at investor.livanova.com. With that, I'll turn the call over to Vlad. Vladimir Makatsaria: Thank you, Briana, and thank you, everyone, for joining us today. Welcome to LivaNova's conference call for the first quarter of 2026. In the quarter, LivaNova delivered 11% revenue growth with strength across all regions, driven by durable performance in our cardiopulmonary and epilepsy businesses. Our core businesses continue to serve as both the drivers of current performance and enablers of disciplined investments in innovation. We expect these investments to fuel the long-term durability of our core performance as well as expansion into high-growth, high-margin markets to build a more sustainable financial profile for value creation over time. One such market is obstructive sleep apnea. We continue to view the OSA market as attractive, up to 1 million patients drop out of CPAP treatment annually and the AG&S penetration into that population is less than 5%, which creates a significant opportunity. We recognize that there are current challenges in the HGNS market, but view the current dynamic and ambiguity and reimbursement as temporary and the long-term effect of GLP-1s on the market as net positive. With [ PHS ], we have a clear right to win supported by rigorous clinical evidence and differentiated technology designed for broader and more complex patient population and leading neuromodulation capabilities across LivaNova. We recently achieved key regulatory and clinical milestones establishing a strong foundation for our planned entry into the OSA market next year. The first of these milestones occurred in March when LivaNova received U.S. FDA premarket approval for the aura6000 system for the treatment of adult patients with moderate to severe OSA. Notably, this is the first and only hypoglossal nerve stimulation device approved by the FDA without a complete consent to collapse, counterindication or warning. The second important OSA milestone is on the clinical evidence front, where the full 12 months results from our OSPREY randomized controlled trial were recently published in the Annals of Internal Medicine, demonstrating clinically meaningful responses and sustained improvements over time. Ahmet will share additional details later in the call on how we're leveraging these milestones to advance our OSA program. For the remainder of the call, I will discuss our first quarter segment results and provide updated top line guidance for 2026. After my comments, Ahmet will discuss key innovation updates including recent regulatory and clinical progress. Alex will then provide additional details on our results and updated 2026 guidance. I will wrap up with closing remarks before moving on to Q&A. Now turning to segment results. For the cardiopulmonary segment, revenue was $209 million in the quarter. an increase of 14% versus the first quarter of 2025. Heart-lung machine revenue grew in the high teens in the quarter, driven by an increase in essence placements on both a sequential and year-over-year basis and sustained favorable price premiums. The results for the quarter also included a modest benefit from the recapture of Essenz placements and tenders that were previously deferred from the fourth quarter of 2025. The performance was otherwise driven by underlying demand and the associated favorable price/mix effect. Cardiopulmonary consumables revenue grew in the mid-teens in the quarter, driven by the market share gains, procedure growth and price. While demand for oxygenators continues to outpace the market's ability to supply, improvements in the third-party component availability has enabled us to increase our manufacturing output. For the full year 2026, we now expect cardiopulmonary revenue to grow 8.5% to 9.5%, up from 7% to 8% previously. Our forecast reflects continued HLM growth as we drive Essenz penetration globally. We still expect Essenz to represent approximately 80% of annual HLM unit placement in 2026, up from 55% in 2025. This forecast assumes continued market share gains in consumables as we execute on our manufacturing expansion plans. Within this guidance, we expect our full year manufacturing output to increase by low double digits, driven by new manufacturing line scheduled to go live in the second half of the year. This represents a significant acceleration versus 2025 levels. Additionally, we continue to work with third-party suppliers to increase component availability, which could enable additional oxygenator output growth beyond current assumptions. Turning to epilepsy. Revenue increased 8% versus the first quarter of 2025 with growth across all regions. Epilepsy revenue in the Europe and Rest of World regions increased the combined 12% versus the prior year period. While U.S. epilepsy revenue increased 7% year-over-year. Performance was driven by total implant growth and favorable realized price, supported by impactful clinical evidence, improved reimbursement and sustained commercial excellence. Consistent with what we have shared previously, the results from our core VNS study have been well received by key opinion leaders and have become an important component of our commercial engagement and education efforts. In recent conversations in our inaugural VNS Forum, which brought together approximately 150 clinicians. Participants shared that the data is reshaping their perception of the effectiveness of VNS Therapy for epilepsy. They also indicated that the findings support broader adoption as they reevaluate their therapy's role within their treatment algorithms. Notably, over 50 leading experts have requested permission to independently present the data. Effective January 1, 2026, U.S. Medicare reimbursement for VNS therapy procedures in drug-resistant epilepsy increased meaningfully with hospital outpatient payments rising approximately 48% for new patient implants and 47% for end-of-service procedures compared to 2025 levels. These U.S. reimbursement changes improve hospital economics for VNS therapy, creating a more sustainable model for providers and supporting expanded patient access. In the U.S., there are approximately 1 million DRE patients, yet fewer than 10% receive advanced treatment. The updated reimbursement rate reduced a known barrier to procedure penetration as historic Medicare rates did not fully cover VNS therapy procedure costs. As a result, we saw improved realized pricing in the first quarter, driven by less volume discounting as well as our normal annual list price increase. For the full year 2026, we now expect epilepsy revenue growth of 6% to 7% up from 5.5% to 6.5% previously. This forecast is driven by improved growth rates in the U.S., Europe and the rest of world. The improved outlook is supported by strong global acceptance of core VNS as well as both reduced volume discounting and the strengthening of the patient funnel in the U.S. driven by improved reimbursement. In summary, LivaNova's first quarter growth was driven by healthy markets, continued success of the Essenz upgrade cycle, share gains in cardiopulmonary consumables and strong epilepsy commercial execution. We expect this driver to sustain through 2026, supported by continued execution in cardiopulmonary and the combination of compelling clinical evidence and improved reimbursement dynamics in epilepsy, which should expand patient access over time. As a result, we are now guiding full year 2026 revenue growth between 7% and 8%, up from 6% to 7% previously. This top line guidance implies performance at the high end of the 2025 to 2028 growth framework we outlined at Investor Day. Alex will provide additional details on our 2026 guidance later in the call. With that, I'll hand the call over to Ahmet to cover the strong momentum across our innovation agenda, including recent clinical, regulatory and digital advances across our portfolio. Ahmet Tezel: Thank you, Vlad. Innovation is central to LivaNova's next chapter of growth both fueling the pipeline while strengthening our core businesses. Starting with OSA. As Vlad mentioned, LivaNova recently received FDA premarket approval for the aura6000 000 system for the treatment of adult patients with moderate to severe sleep apnea. This is a transformative milestone both for the company and for patients who continue to face significant unmet needs. Importantly, FDA approval enables broader compliant engagement with clinicians through promotion, training and education and essential step to building awareness and supporting appropriate utilization over time. In parallel, we're advancing the development of a next-generation system designed to further benefit patients and support commercialization. We continue to expect to submit a PMA supplement for the commercial MRI compatible device in the second half of 2026. This would support a limited market release in the first half of '27, followed by a broader commercial launch in the second half of 2027, consistent with the time line outlined at Investor Day. Our pHGNS Therapy was rigorously evaluated for safety and effectiveness in the OSPREY randomized controlled trial with 12-month results recently published in the Annals of Internal Medicine. The study demonstrated clinically significant responses and sustained improvements over time. Notably, OSPREY is the first and only randomized controlled trial in the HGNS space, bringing gold standard scientific rigor to the field. Moreover, it is the only HGNS study to evaluate several patient-reported outcomes or PROs making the findings more comprehensive than prior pivotal FDA trials. OSPREY patients in the treatment cohort showed significant improvements in PROs, including the Epworth Sleepiness Scale, which measures daytime sleepiness and functional outcomes of sleep questionnaire, which assess the impact of fatigue on daily activities. Collectively, OSPREY's data show that for patients with moderate to severe OSA, treatment led to meaningful improvements, not only in objective of disease severity, but also in daytime sleepiness and other PROs that matter most to patients and clinicians. As previously disclosed, OSPREY did not exclude patients with complete concentric collapse with approximately 45% of the participants considered high risk. The study enrolled a challenging patient population with higher baseline AHI and BMI compared to other pivotal U.S. trials yet achieved comparable responder rates. We are proud to bring the option of pHGNS to more patients as the first and only FDA-approved HGNS therapy without CCC-related contraindication or warning and without a pre-implantation drug-induced sleep endoscopy requirements. In addition, our PolySync evaluation is progressing. PolySync is our advanced titration algorithm that fully utilizes the 6 electrode architecture of the PHS costs, enabling greater selectivity and patient-specific optimization of therapy. PolySync demonstrated ability to convert nonresponders into responders, both strengthens our competitive positioning versus existing HGNS therapy and has the potential to expand penetration in a broader range of patients. We're excited to share the complete PolySync results at the upcoming [ SLEEP ] conference in June. To date, our findings indicate that PolySync will convert over 50% of OSPREY nonresponders into responders. For context, our study originally included roughly 100 patients who are randomized into treatment and control groups and monitored until the 7-month primary end point. At that point, patients in the control group also began receiving therapy. Following the 13-month endpoint, we extended the opportunity to all nonresponders regardless of their original assignment to participate with PolySync. This approach led to a cumulative responder rate suppressing 80% across the entire OSPREY trial population. These results underscore the significant impact politic may have in improving outcomes within this patient group. As a reminder, PolySync will be available at launch enabling patients to benefit from the advanced algorithm starting with their initial titration. We continue to view OSA as a compelling derisked opportunity grounded in differentiated technology and clinical evidence as well as our established neuromodulation capabilities. Now turning to difficult-to-treat depression. We continue to believe VNS therapy is a differentiated option for this markedly ill patient population. While we remain in active engagement with CMS, we won't speculate on exact submission timing. We remain excited by the DTTD opportunity, and we'll continue to keep investors updated on material development as appropriate. In epilepsy, during the first quarter, we initiated a limited market release of our cloud-based clinician portal and application. As a reminder, this rollout is intended to validate workflows and deepen clinician engagement. The financial impact is expected to be limited this year. A full market release is planned for 2027 alongside the launch of our next-generation Bluetooth-enabled generator. This multiyear innovation road map is expected to streamline care delivery through remote titration, real-time access to patient insights and more digitally connected care pathways that remove barriers to access. At LivaNova, we have developed a unified digital health platform for our entire portfolio, allowing for a consistent technology user experience and data strategy across our different business units. For example, in epilepsy, the cloud-based clinician portal and app will enable capabilities such as remote titration. Lastly, innovation within our CP consumables portfolio continues to advance. For our next-generation oxygenator with the design finalized, we are now in the manufacturing scale-up phase of product development. In summary, we are encouraged by our recent progress across the portfolio, including regulatory and clinical evidence momentum in OSA and DTV. The rollout of our connected care platform in epilepsy and the advancement of the [indiscernible] program. Collectively, these milestones underscore the depth of our innovation pipeline and the opportunity to continue raising the standard of care. With that, I will turn the call over to Alex. Alex Shvartsburg: Thanks, Ahmet. During my portion of the call, I'll share a brief recap of the first quarter results and provide commentary on our updated full year 2026 guidance, which reflects strong performance year-to-date and improved business outlook. Turning to results. Revenue in the quarter was $362 million, an increase of 11% on a constant currency basis versus the prior year. Foreign exchange in the quarter had a favorable year-over-year impact on revenue of approximately $10 million or 3%. Adjusted gross margin as a percent of net revenue was 68% and compared to 69% in the first quarter of 2025. Higher volumes and improved pricing were offset by unfavorable currency and product mix. Adjusted SG&A expense for the first quarter was $129 million compared to $116 million in the first quarter of 2025. SG&A as a percent of net revenue was 36% as compared to 37% in the first quarter of 2025. On a year-over-year basis, the reduction as a percent of net revenue was driven by fixed cost leverage. Adjusted R&D expense in the first quarter was $47 million compared to $38 million in the first quarter of 2025. R&D as a percentage of net revenue was 13% compared to 12% in the first quarter of 2025 with the year-over-year increase primarily reflecting planned investments in OSA. Adjusted operating income was $71 million compared to $65 million in the first quarter of 2025. Adjusted operating income margin of 20% was generally in line with the prior year period, reflecting higher revenue and operating leverage, partially offset by increased OSA R&D investments and unfavorable foreign currency impacts. Adjusted effective tax rate for the quarter was 23% compared to 24% in the prior year period, reflecting a modestly more favorable geographic mix of income. Adjusted diluted earnings per share was $0.98 compared to $0.88 in the first quarter of 2025. The increase was primarily driven by higher revenue, reflecting strong growth across both the cardiopulmonary and epilepsy businesses. Moving to our cash balance at March 31. Cash was $540 million compared to $636 million at year-end 2025. Total debt at March 31 was $288 million compared to $377 million at year-end 2025. The reduction in both cash and total debt was a result of the early repayment of the outstanding term facilities of $98 million, inclusive of accrued interest. Adjusted free cash flow for the quarter was $4 million, compared to $20 million in the prior year period. The year-over-year decrease was primarily driven by increased capital spend and higher working capital requirements aligned with revenue growth. As a reminder, the first quarter results are disproportionately low, relative to our guidance due to the payout of the 2025 accrued short-term incentive bonuses. Capital spend was $14 million in the first quarter compared to $11 million in the prior year period. The year-over-year increase was driven by cardiopulmonary capacity expansion initiatives, the next-generation oxygenator manufacturing scale-up as well as investments in IT infrastructure. Now turning to our updated 2026 guidance. As Vlad mentioned, based on performance to date, we're increasing full year 2026 revenue and adjusted earnings per share while maintaining adjusted free cash flow guidance. We now forecast 2026 revenue growth between 7% and 8% on a constant currency basis, up from 6% to 7% previously. We continue to expect the impact of foreign currency to be a tailwind of approximately 1% based on current exchange rates. Consistent with our prior guidance, we estimate a tariff net impact of less than $5 million on adjusted operating income for the full year. At this point, we are not assuming a tariff refund benefit. However, we are working through the government's refund process. We believe LivaNova remains well positioned to manage the impact of tariffs. With respect to the conflict in the Middle East, we have incorporated an estimated full year impact of approximately $5 million on adjusted operating income, primarily related to higher shipping, logistics and fuel costs. As with tariffs, the situation remains dynamic, and we continue to monitor developments closely. Despite this impact, we continue to expect full year adjusted operating income margin to be in the range of 20% to 21%. Adjusted effective tax rate is still forecasted at approximately 23%. To reflect stronger operational performance, we now project adjusted diluted earnings per share in the range of $4.20 to $4.30, with adjusted diluted weighted average shares outstanding to be approximately 56 million for the full year. This EPS range represents approximately 9% growth at midpoint. Adjusted free cash flow is still expected to be in the range of $160 million to $180 million. This range includes $120 million in capital spending, a $40 million increase versus the prior year. This level of investment is consistent with our Q1 initiatives supporting cardiopulmonary capacity expansion and the next-generation oxygenator manufacturing scale-up as well as investments in IT infrastructure. In summary, we delivered strong first quarter with double-digit revenue growth, positioning us well for the balance of 2026. Our updated 2026 guidance aligns with the 2025 to 2028 framework presented at our Investor Day and reflects top line performance at the high end of our targeted mid- to high single digit revenue CAGR. We continue to target annual adjusted operating margins above 20% with EPS growth roughly in line with revenue. Our adjusted free cash flow trajectory supports achieving 80% conversion by 2028. This outlook reflects healthy core business execution and continued disciplined investment, consistent with our capital allocation framework. With that, I'll turn the call back over to Vlad. Vladimir Makatsaria: Thank you, Alex. In closing, LivaNova's strong operating model continues to generate durable growth, fueling both our performance today and our ability to invest for tomorrow. We also made important progress in OSA this quarter, achieving key regulatory and clinical milestones that position us well for entry into this high-growth, high-margin market. I want to thank our colleagues around the world for their focus and dedication to improving outcomes for patients and serving our customers. With a strong team and clear strategic priorities, LivaNova is well positioned for continued momentum in 2026 and beyond. With that, we are ready to open this call for questions. Operator: [Operator Instructions]. First question comes from Rick Wise with Stifel. Frederick Wise: It really is great to see such an excellent quarter across the board, very impressive, well done. And just to start off, maybe you could apply or wherever you want to expand on your very encouraging comments on what seems like a change a new world for -- or the beginning of a new world for the epilepsy business post the reimbursement change? I mean you know it was going to be important. It seems like it really is important, but talk to us about your commercial competitive life post this and this evident pickup in terms of selling operating, contracting and how we think about the business going forward? I mean it's hard not to believe you're being -- I mean, I know it's early, but that you're not being very conservative and talk about the guidance and the outlook there. Unknown Executive: Yes. Rick, great to hear your voice, and thank you for the question. So I'll maybe start a little bit broader to say what I'm really pleased about in terms of our performance is with the quality of our growth. If I look at it geographically, we have healthy growth across all regions across the world. If I look at it from the business growth drivers, kind of all the cylinders were firing. We continue to see really strong momentum in the upgrade of Essenz. We are accelerating in terms of share gain on oxygenators, and we see strong growth in our epilepsy business driven by 2 factors. One is improved reimbursement as of January 1 and 2, the dissemination of the clinical data that was an outcome of the Core VNS study. And now if I focus on the epilepsy front, what we expect from those 2 factors is #1 is improvement in price, and that is a short-term improvement. It's driven by the fact that we are reducing some of the volume discounts that we've given in the past. And so you kind of see that uplift in price right away. Secondly, we see an opportunity for improved penetration of VNS procedures in epilepsy, basically, the volume increase of procedures, and that is going to be driven by this changing algorithm within practice of current epileptologists that are doing already VNS procedures and potentially opening new centers that will do BNS procedures because now the economic barrier has been removed. So it's too early to kind of tell you what the long-term trends are. And as we continue to build our experience in this new world, we will update the investors on the progress. Alex Shvartsburg: Rick, I'll just add more -- a little bit more color. With the majority of the pricing changes took effect in -- on January 1. So due to the timing of the reimbursement update in '25, pricing for many of the accounts was already established for 2026. So our team will identify kind of a new tranche of customers for '27. So that will -- that element will continue. We've seen traction in new and expanded and reopened accounts to date. So in the first half, the teams are focused on reengaging with our [ HCP ] customers and really demand generation. So the volume-driven assumptions, including new expanded and reopen accounts are expected to materialize in the second half. Frederick Wise: Got you. And just as a second question, trying to cardiopulmonary. I mean strong consumable quarter up mid-teens. You've bumped up the '26 guidance continued [ HLM ] growth and as always, over the last several years, you're indicating you're continuing to work with third-party suppliers to expand oxygenator capacity. I don't know. It just sounds to me like again here just the short-term and longer-term implications of improving third-party component supply and manufacturing ramp. I don't know it just sounds better than you -- it seems better than I expected and your tone sounds more confident. Just where are we? And I mean, is there a sudden inflection or more dramatic expansion in supply ahead in the not-too-distant future? Just where are we in this whole process now? Thanks so much. Unknown Executive: Thank you, Rick. Yes, this is a critical priority for us to continue to drive our growth. We're very pleased with our recent progress in manufacturing output. And it comes from both improvements within LivaNova and improvements with third-party suppliers. One, as we said in the opening remarks, we're guiding to a low double-digit increase in output of oxygenated production this year. We have very important milestones coming in the second half of the year where we are opening additional manufacturing line within LivaNova to expand our manufacturing capacity and output even further. So it's been a positive experience for us. This is probably a source of -- like we said during the Investor Day of additional growth for LivaNova. But I think also, if I step back and talk about the market share dynamics. Over the last couple of years, we were able to improve market share from approximately 30% to approximately 40%. You don't see that very often in such a mature market. But we continue to build our strategy to use market share is a key growth lever. And so what we've guided during the Investor Day is that we will increase oxygenator capacity by 60% by 2030 and improve market share further by 800 basis points. So our work on manufacturing of for this kind of focus to execute versus the share gain. Operator: We now turn to David Rescott with Baird. David Rescott: Congrats on the strong start to the year here. Maybe from us starting on the VNS bucket, I appreciate the comments you provided on that already, and it certainly sounds like the commentary specifically around, I guess, the core data and market interest or health was more constructive maybe than we've heard in prior quarters. I know you've talked in the past about some of this limited impact maybe from [ Wiser ]. I know there's others that have seen that impact out there. So just curious, if at all, in the quarter, you saw anything there? And if so, would it be fair to assume that maybe the delta versus the reported results at all could be entirely driven by price? Or you're starting to maybe see some of these benefit from utilization as early as Q1 so far? Alex Shvartsburg: David, so let me address the [ Wiser ] question. So in the subset that we track, [ were ] any patients that have been denied access to VNS therapy. Early indications suggest that the program has had no material impact on us so far. And as we continue -- we'll continue to monitor the pilots that are ongoing across the 6 states. I'll just say one other thing kind of an anecdote. We successfully managed several wiser submissions to date and all of which have secured approval within a 48-hour window. So just kind of at the highest level, we're not seeing much impact. And then finally, as a reminder, the majority of our Medicare patients who undergo VNS therapy are enrolled in Medicare Advantage Plan. So as such, we're very familiar and already subject to the prior process. So again, we don't see much of an made. David Rescott: Okay. Perfect. Maybe on hypoglossal nerve OSA that the longer-term strategy there? I mean it sounds like maybe at this point, 2028 is period of time at which reimbursement maybe is fully ironed out. I know the prior goals have been for a launch at some point maybe back half of 2027. So curious around how you're thinking about not only the evidence generation and development of that strategy in 2026. But as you get into 2027, if at all, some of those reimbursement headwinds or overhangs will say that maybe don't get fixed until 2028, influence at all how you're thinking about more of this intermediate-term rollout. Unknown Executive: David, thank you for the question. I think maybe I'll start by saying that, I mean, we will follow and recognize that there are currently some challenges in the HGNS market. However, we view that current dynamic is temporary. And we still believe that the market is very attractive, and this is driven by large patient population, high unmet clinical need. And at the same time, we believe that we have the right to win with both our clinical and technological differentiation that we've discussed during the Investor Day and other engagement. So our view on the market has not changed, and we're learning as we are preparing for launch on how to deal with some of the challenges that we believe are mainly driven by the coding and reimbursement. And then maybe I'll turn it over to Ahmet to talk a little bit broader on our market access. Ahmet Tezel: Yes. I mean, we continue our efforts that we will use the prevailing codes at the time of the launch. And with the incumbent removal of the sensor, the 2 technologies in terms of reimbursement are very similar. So we are confident that by the time we're in the market the reimbursement issue will be settled a little bit more, and we will continue to work with AMA and other societies to ensure that we are doing this in a collaborative way. And one last thing I would say is that I do believe it is a strength of LivaNova, the reimbursement piece. I think we've demonstrated that with VNS. We have a very strong team that really understands this. So we will continue to work with that team and ensure that we pursue the appropriate codes at the time of launch. Operator: We now turn to Adam Maeder with Piper Sandler. Adam Maeder: Congrats on a nice start to the year. Two for me. I wanted to start on [ HLM ] and a really good quarter for that product line, broad-based performance by geography. Maybe you can just expand on what went well in the quarter, and then also double-click on China specifically. Curious to kind of understand how the Essenz launch is going in that geography. And as we think about China and FY '26, maybe contextualize that against the revised CP guidance? And then I had a follow-up on the Middle East. Unknown Executive: Okay. Adam, great to hear your voice. Actually, I was in China with a team earlier this year. We have a very good organization there, a great leader, and the business is doing very well. So the launch of HLM is progressing well in the first quarter. It's progressing as planned. we're the market leader there, and we continue to be very optimistic about that market for us. And in terms of [ HMM ] performance, while we don't disclose exact units sold in various countries, I'd tell you that we plan to grow Essenz penetration to 80% in 2025 as a percent of all units placed -- in 2026, sorry, up from 55% last year and China is going to play a significant role in that increase. So that's on China. And then broader on [ HLM ], we're pleased with the high teens growth in the quarter. We continue to see the success in the upgrade cycle. And what's great to see is it's -- this growth is actually driven by healthy volumes, both sequential and year-on-year basis. And secondly, I would say that -- it's good to see that customers are recognizing the clinical benefit of operating a machine that is fully loaded with optionality -- and as a consequence of that, we are able to maintain significant price upside versus the previous version. So this kind of -- this clinical value proposition gives me good confidence into the future that we will be able to maintain that price upside. Adam Maeder: Yes. Okay. That's very helpful, Vlad. I appreciate the color. And for the follow-up, Alex, I heard the commentary in the prepared remarks on Middle East. I think you said $5 million adverse impact on adjusted operating income from shipping and fuel costs. Hopefully, I heard that correct. Any color from a revenue standpoint in terms of how you're thinking about the conflict? Which of the businesses are impacted? And maybe just help us better understand kind of how you arrived at those assumptions? Alex Shvartsburg: Yes. So from a revenue perspective, Adam, Middle East is -- represents approximately 4% of our total revenue base. So not a significant impact. Look, we operate in segments that are essential for patients around the globe. And so we're going to continue to supply the market as best we can. In terms of the impact on EPS, we dialed in approximately $5 million or $0.07 EPS impact. It's really related to the increases we anticipate in terms of freight, logistics and energy costs. So to no one's surprise, and that's -- those are the challenges that all companies are seeing at this point in time. So we thought it was prudent to include that in our guidance. And I think, overall, I think we're really in a good position relatively speaking, in terms of managing through this Middle East conflict. Operator: Our next question comes from Michael Polark with Wolfe Research. Michael Polark: A follow-up question on oxygenators, I'm curious what you're seeing on the competitive landscape regarding capacity. I hear your comments loud and clear. It sounds like pedal to metal on increasing production volume. Do you think you're alone in making those investments? Or do you see evidence that competitors are trying to catch up to? Unknown Executive: We see a couple of things from the competitive landscape, and this is obviously, this is our view on it. Number one, we observed [indiscernible] that's continuing to exit from this space. They recently commented that they expect sales to decline from $27 million in 2025 to approximately $5 million in 2026. And majority of that will come from consumables, but as well as heater coolers and HLM. So that's one side. The second one is we don't see any kind of capacity expansion or investment in innovation in the space from other competitors in the space. And at this point, we are focused on not just on expanding output of current oxygenators, we're also focused on innovation, and we believe that the next-generation oxygenator will be clinically differentiated from anything on the market today. Michael Polark: Helpful. For a follow-up, I'm interested in the comment on the [ New Tech APC ] assignment for VNS for [ epilepsy 1580], as we head into the summer rulemaking season, what's your base case that the code stays in that 50 assignment? Or do you think the chances of Level 6 creation are elevated this year? Alex Shvartsburg: Mike, yes. So look, our market access team continues to work on getting to a Level 6 reimbursement code, we're going to continue into next year. We do -- as far as our assumptions go at this point, we anticipate that the 1580 will roll over into 2027. Operator: We now turn to Anthony Petrone with Mizuho. Anthony Petrone: Congrats on the quarter here. Maybe 2 parts on epilepsy. Last quarter, you kind of called out new accounts that were not performing VNS as a potential upside driver existing accounts that can -- where you can go deeper and then prior accounts that were using VNS that stepped away from it, potentially they can come back in. So -- maybe just an update on those 3 buckets, how you see that trending throughout the remainder of the year. And I'll throw the follow-up in here. Just on the generalized seizure front potentially you have some competition coming in later this year. Just how do you think about the general seizure landscape potentially with 2 neuromodulation players in it? Unknown Executive: Yes. Anthony. And I'll start with your first part of the question and then turn to Ahmet to comment on the clinical side. On the first one, is you bucketed this kind of 3 type of customers. So the current users, and I think that's where we'll start seeing an impact right away. Both in terms of -- in some accounts, potentially on reduction of discounts and in some accounts, we're already starting to see an improved pipeline for [indiscernible]. And that is due to the fact that obviously, one is the discount side, but the other side is that clinicians are starting to see VNS as a more effective therapy and changing the kind of the place of the therapy in the algorithm of their treatment. So that is already -- we start seeing good leading indicators of this happening. For the accounts that were that stopped doing VNS historically and potential new accounts. This is going to take some time, obviously, because it will take the accounts to set up some time to reopen and restart the procedure. So we are still confident that this is going to be a trend -- but that will be something that we will see in the future Unknown Executive: Yes. In terms of the generalized indication, we are anticipating in the second half that FDA will make a decision. Just to remind the scale of it, only about 1/3 of epilepsy patients are generalized, 2/3 are focal and in there, less than 50% are GTC patients. So we anticipate that the impact would be very limited. And we do not anticipate any direct effect to reimbursement when we utilize patients with generalized indication as we can do today. Operator: We now turn to Matt Taylor with Jefferies. Michael Sarcone: This is Mike Sarcone on for Matt. Just wanted to start with a clarification on what's baked in to guide on the CP side. I think you talked about increasing your manufacturing capacity low double digits going live in second half '26. But then you also mentioned you're continuing to work with third-party suppliers to improve component availability. Do you think you could frame how those conversations are going? And to the extent they're successful, what does that mean in terms of upside to guide this year? Alex Shvartsburg: So our updated guidance incorporates incremental improvements in the consumable component supply. So we've seen some of that read through in Q1, and we continue to work with our suppliers. In fact, we see that potentially could be -- could drive some incremental output as upside relative to our current assumptions. The market demand continues to outpace supply. And we're still operating in the back order situation. So as we improve component supply from third-party partners, we would like to see kind of a rebuild of some inventory levels because we're still kind of operating hand to mouth, and that's something that we're looking to improve. So we're going to continue to improve our own capacity throughout the year. We have a second line coming online in the second half of this year. And we're going to continue to partner with third-party suppliers to improve component supply. So that's what's dialed into our guide. Michael Sarcone: Got it. And then just on DTD, you mentioned you're in active engagement with CMS. Would love any more color there on how you feel about those conversations and just an update on your level of confidence that we could get this over the finish line? Unknown Executive: Yes. I mean, as you recall, we chose a very collaborative approach in the submission with CMS rather than directly submitting, we wanted to engage with them through a dress application. We continue to collaborate very well with the agency. We're looking forward to our next meeting. In terms of our confidence, I think our confidence lays behind the quality of the data, particularly the durability of treatment. As you recall, at 2 years, it's over 80% of the patients maintain their treatment versus today, if there's any standard of care, it is [indiscernible] therapy where patients lose their efficacy about 50% at 1 year. So our confidence has not changed. We are continuing to collaborate well with the agency, and we will definitely update once we have a formal application. Operator: Our next question comes from Mike Matson with Needham & Company. Michael Matson: Yes. So just with regard to the OSA launch and the investments in terms of sales force hiring and things like that, can you maybe give us an update on where things stand with that? It seems like you called out, if I remember correctly, called out an impact to R&D, but in the quarter, R&D expense, but I didn't hear anything in terms of like sales and marketing. When do you expect to hire -- start hiring salespeople and any other kind of investments you need to make there? Alex Shvartsburg: Mike. So our focus this year is squarely on product development and getting the next-gen device ready for launch in 2027. We expect a limited commercial release in the first half of '27 and a full launch in the second half of '27. So as far as our investments this year still continue to focus largely on R&D with maybe some small portion on market developments as we move -- as we progress towards launch. We'll start hiring reps probably late this year, early next year as we get ready for a full market release in the second half? Unknown Executive: Yes. Maybe just one comment. We're very pleased with the fact that [indiscernible] with our leader in OSA chose LivaNova, she joined the company and as a leader, she is now forming the leadership team, the go-to-market strategy and in the question that you asked on the commercial team that obviously will be started to get executed in 2027, but all the preparation work has been done now. Michael Matson: Okay. Got it. And then I heard you also call out some impact from spending on the ramp-up on the next-generation oxygenators. So can you just remind us on the timing on that and kind of how it will compare to the current offering and how it will be sort of phased in? Will it be more of an immediate switch over or more of a gradual change like we've seen with Essenz? Unknown Executive: Yes. In terms of the development, we're in the late-stage development. I think what we -- and what I mean by that is that we have a completed design we are now doing the manufacturing scale up. And we do anticipate that the product will launch in 2028 to oxygenator. That was the question, right? Michael Matson: Yes. Unknown Executive: So in terms of its capabilities, there's about 8 to 10 different parameters that perfusion is care about in the performance of an oxygenator, and we believe our next gen is superior equal to -- on all those parameters superior or equal to than the market leader product that we have with our Inspire oxygenators in the market. So we're very excited about it, and we continue to do the late-stage manufacturing scale-up. Operator: That's all the time we have for questions. I'll hand back to Vladimir Makatsaria for any final remarks. Vladimir Makatsaria: Well, thank you, everybody, for your engagement with LivaNova for joining us today and on behalf of the entire team, we really appreciate your support and interest in the company. Have a great day. Operator: Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
Operator: Good morning, and welcome to the Bio-Techne Earnings Conference Call for the Third Quarter and Fiscal Year 2026. [Operator Instructions] I would now like to turn the call over to David Clair, Bio-Techne's Vice President, Investor Relations. Please go ahead. David Clair: Good morning, and thank you for joining us. On the call with me this morning are Kim Kelderman, President and Chief Executive Officer; and Jim Hippel, Chief Financial Officer of Bio-Techne. Before we begin, let me briefly cover our safe harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future results. The company's 10-K for fiscal 2025 identifies certain factors that could cause the company's actual results to differ materially from those projected in the forward-looking statements made during this call. The company does not undertake to update any forward-looking statements because of any new information or future events or developments. The 10-K as well as the company's other SEC filings are available on the company's website within its Investor Relations section. During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to most comparable GAAP measures are available in the company's press release issued earlier this morning on the Investor Relations section of our Bio-Techne Corporation website at www.bio-techne.com. Separately, in the coming weeks, we will be participating in the Bank of America and Jefferies Healthcare Conferences. We look forward to connecting with many of you at these upcoming events. I will now turn the call over to Kim. Kim Kelderman: Thank you, Dave, and good morning, everyone. Welcome to Bio-Techne's Third Quarter Earnings Call for Fiscal 2026. The Bio-Techne team continued to execute with discipline in a dynamic and uneven end market environment. Our quarterly performance was supported by sustained strength from our large pharmaceutical customers and stable to improving trends in our U.S. academic end market. These positives were partially offset by continued softness in emerging biotech spending, resulting in a 2% organic revenue decline for the quarter. Importantly, we are seeing encouraging indicators that point to an ongoing improvement in the U.S. academia and an eventual recovery in emerging biotech, which positions us well for a stronger fiscal 2027. As discussed in our prior earnings call, order timing related to 2 cell therapy customers that received FDA Fast Track Designation along with the timing of a large OEM commercial supply order created a 400 basis point headwind in the quarter. Excluding these factors, underlying organic revenue growth was 2%. There were several notable highlights during our third quarter, including the following: our Spatial Biology portfolio delivered mid-teens growth and exited the quarter with another record backlog for our COMET platform. Our GMP protein portfolio grew nearly 50% year-over-year when excluding the 2 fast track cell therapy customers. Within our Proteomic Analysis franchise, favorable instrument placements and utilization trends drove mid-single-digit growth. Our China end market achieved positive organic growth for the fourth consecutive quarter. And our largest end market, large pharma, delivered its sixth consecutive quarter of double-digit growth. We also remained highly focused on profitability. Adjusted operating margin in the third quarter was 34.2%, representing a 310 basis point sequential improvement over fiscal Q2. Jim will provide additional detail on our financial performance later in the call. Now I turn to our end markets, beginning with biopharma, excluding cell therapy. Here, we continue to see a divergence between the performance of large pharma and the performance of emerging biotech. Revenue from our large pharma customers grew low double digits, driven by sustained investment in discovery, translational research and manufacturing. In emerging biotech, however, revenues declined high single digits reflecting the typical lag in spending following the funding constraints experienced in the first half of calendar 2025. Biotech funding activity has since rebounded meaningfully with estimate increases of more than 90% and 50% in our fiscal Q2 and Q3, respectively. Given the typical 2 to 3 quarter lag between funding and customer spending, we view this as a constructive setup for fiscal 2027. In academia, the team delivered low single-digit growth as the U.S. academic market returned to growth in the third quarter. The improvement in NIH outlays new grant activity and the 1% increase to the NIH budget have reduced funding uncertainty and position this end market for continued stabilization. From a geographic perspective, the Americas declined low single digits, while Europe achieved mid-single-digit growth. Our 2 largest fast track cell therapy customers are reported within the North America results. Asia delivered low single-digit growth with momentum in China continuing for the fourth consecutive quarter. China is seeing increasing demand from biopharma and CRO customers focused on antibody drug conjugates, cell therapy and autoimmune disorders. These are areas where our reagents, instruments and analytical platforms are particularly well suited. In April, Bio-Techne announced a strategic brand alignment designed to streamline our portfolio from 10 brands down to 3. This alignment simplifies how our customers engage with Bio-Techne across the research to clinical continuum. Our 3 brands now include R&D Systems, which integrates our full portfolio of research use only and GMP reagents alongside a proteomic analysis instruments previously branded as ProteinSimple. Bio-Techne Spatial Biology, which includes our RNAscope in situ hybridization kits and reagents as well as our COMET Multiomic Spatial platform and Bio-Techne Diagnostics, which encompasses our clinical controls and precision diagnostic solutions. This structure better aligns our products and technologies with our customers' progress from discovery through translational research into clinical and diagnostic applications. It also enhances the visibility of our solutions across digital and AI-driven platforms, making it easier for customers to identify and deploy the right tools within their workflows. Speaking of artificial intelligence, we continue to see AI increasingly influence both how we operate internally and how our customers approach drug discovery. Internally, we are leveraging AI to design novel and patentable proteins with enhanced properties, including improved heat stability, bioactivity and solubility relative to the naturally occurring proteins. As you are aware, AI tools are only as effective as the data that informs the model. Our models are trained on 5 decades of proprietary data, creating a meaningful competitive moat. And in parallel, we are deploying AI throughout the organization to improve productivity and customer engagement. From a customer perspective, AI adoption is accelerating the earliest stages of drug discovery, particularly target discovery, which is expected to expand the number of viable programs and improve probabilities of success. The effectiveness of these models depends heavily on the generation of high-quality biological data, which is an area where Bio-Techne is extremely well positioned. As an example, a recently published collaboration between Providence Health and Microsoft on the GigaTIME AI framework used data sets generated on the Bio-Techne Spatial Biology platform, COMET, to convert traditional H&E pathology images into virtual 3-dimensional tissue representations. We view the growing demand for content-rich biological data sets as a durable tailwind for both our spatial biology and our proteomic analysis platforms. AI also acts as a downstream demand driver for RUO reagent and assay portfolios. Every AI-enabled insight ultimately requires biological validation, which will fuel demand for highly specific antibodies functional assays and complex recombinant proteins in mechanism of action studies, biomarker validation and preclinical workflows. These applications align directly with the most differentiated and highest value sections of our portfolio. Now let's turn to our segments, beginning with Protein Sciences, where organic revenue declined 4% in the quarter. After adjusting for order timing from the previously mentioned cell therapy and OEM commercial supply customers, underlying growth was 2%. Our differentiated portfolio of reagents, instruments and analytical technologies remains foundational to the development and manufacturing of advanced therapeutics, including cell therapies. As a reminder, 2 of our largest cell therapy customers received FDA Fast Track Designation, which accelerated clinical time lines and reduce near-term GMP reagent demand as these customers had already secured the materials required to complete their clinical programs. Excluding the impact of these 2 customers, GMP protein revenue grew nearly 50% year-over-year. This strong performance from emerging cell therapy customers underscores the increasing reliance on GMP-grade cytokines and growth factors, as programs advance for early development through clinical trials and into manufacturing scale-up and commercialization. Staying with cell therapy, I'd like to provide a brief update on Wilson Wolf. We currently own 20% of Wilson Wolf and remain on track to acquire the remainder of this manufacturer of the market-leading product line of single-use bioreactors called the G-Rex by the end of calendar 2027 or potentially earlier upon achievement of specific milestones. Despite the challenging biotech funding environment, Wilson Wolf delivered low double-digit growth on a trailing 12-month basis while maintaining EBITDA margins north of 70%. Turning to our proteomic analysis instruments. Growth was led by an operating increase in our Ella benchtop immunoassay platform. Ella automates traditional immunoassays into cartridge-based workflow, delivering rapid, highly reproducible protein quantification with minimal hands-on time. These attributes are driving strong adoption in neurodegeneration research, which is reflected in a 3-year CAGR of 50% across our neurology assay portfolio. While this remains an emerging portion of the business, the recent launch of ultrasensitive capabilities strengthens Ella's position as a leading platform for blood-based neurological biomarker analysis. During the quarter, we also achieved CE-IVD marking for Ella enabling hospitals, clinical laboratories or other European organizations to use Ella as a validated platform for clinical applications, in-house test development, clinical trials or other translational activities. We also saw continued traction across our biologic characterization portfolio led by our Maurice platform. Maurice is increasingly embedded into biopharma manufacturing workflows as a quality control and the characterization tool. It is enabling faster and more consistent assessment of critical protein attributes, including size, charge and purity. This drove double-digit growth in both Maurice instruments and consumables. Wrapping up Protein Sciences, our core reagent and assay portfolio, which includes more than 6,000 proteins and 400,000 antibody types declined mid-single digits in the quarter. Excluding the impact of order timing related to the previously referenced OEM commercial supply customer, organic growth declined low single digits. Strength from large pharma customers was offset by continued softness in U.S. academic demand and the lingering effects of last year's challenging biotech funding environment. As funding conditions continue to normalize in academia and recent improvements in biotech funding translate into customer spending, we believe that this core portfolio is well positioned to return to growth, supported by its differentiated performance in bioactivity, lot-to-lot consistency and reproducibility. All of these are attributes that become increasingly critical as customer programs advance towards translational and regulated applications. Shifting to Diagnostics and Spatial Biology, the segment delivered 3% organic revenue growth in the quarter. Before discussing the performance in more detail, I'd like to congratulate Steve Crouse on his promotion to President of the segment. We look forward to Steve building on his prior success leading our Analytical Solutions business over the past 5 years. Let's begin with our recently rebranded Bio-Techne Spatial Biology portfolio, where we continue to strengthen our leadership in situ hybridization and mid-plex multiomic applications across translational and clinical research. Strong order momentum over recent quarters translated into more than 65% growth for our COMET Multiomic Spatial Platform. During the quarter, we installed the first COMET system in China, an important milestone as demand continues to build in the region. We exited the quarter with another record backlog for the COMET, positioning the platform for continued growth. Performance within our RNAscope portfolio of in situ hybridization kits and reagents improved to high single-digit growth. Growth was driven by further customer adoption in EMEA and Asia as well as increasing use in clinical diagnostic applications in the U.S. Finally, our Diagnostics portfolio recently rebranded as Bio-Techne Diagnostics declined low single digits as order timing from certain large customers temporarily impacted our results. Given the concentration of large customers, this business can be lumpy from quarter-to-quarter. And therefore, I want to mention that on a trailing 12-month basis, growth for Bio-Techne Diagnostics remained in the low single digits. In summary, the Bio-Techne team continued to execute effectively in a mix end market environment. Demand from large pharmaceutical customers remains strong. Our U.S. academic business has stabilized, and we continue to build momentum in China and the broader APAC region. While emerging biotech spending has yet to fully reflect improving funding conditions, engagement and activity levels with this customer base continue to trend positively. We remain highly disciplined in how we operate the business, delivering sector-leading profitability while continuing to invest in the growth factors that will shape Bio-Techne's future. With improving funding visibility for our customers and strong positions across our core reagents, cell therapy, proteomic analysis and spatial biology solutions, we believe that Bio-Techne is well positioned for outperformance in the years ahead. With that, I will turn the call over to Jim. Jim? James Hippel: Thanks, Kim. I'll begin with additional details on our Q3 financial performance, followed by thoughts on our forward outlook. Adjusted EPS for the quarter was $0.53, down $0.03 from the prior year with foreign exchange having a favorable $0.02 impact. GAAP EPS came in at $0.32, up from $0.14 in the prior year period. Total revenue for Q3 was $311.4 million, decreasing 2% on both an organic and reported basis. Foreign currency exchange was a 2% tailwind, while the prior divestiture of Exosome Diagnostics created a 2% headwind. The timing impact from our 2 largest cell therapy customers who received FDA Fast Track Designation was a 3% headwind, while a large OEM commercial supply order that we typically receive in Q3 but received in Q2 of this year was an additional 1% headwind to revenue. Adjusting for these previously disclosed items, organic growth was plus 2% for the quarter. From a geographic lens, North America declined low single digits as strength from large pharma and growth in academia was offset by order timing in cell therapy and a biotech end market that is yet to inflect from favorable funding trends. In Europe, revenue increased mid-single digits, including low single-digit growth in biopharma and mid-single-digit growth from our academic customers in the region. We are encouraged by the fourth consecutive quarter of growth in China, where revenue increased low single digits. APAC, excluding China, also increased low single digits on a very strong comp as the Asian geography continues to show signs of sustained improvement. By end market, biopharma declined low single digits overall. However, excluding our largest cell therapy customers, Biopharma grew low single digits, driven by strong pharma demand, but partially offset by emerging biotech softness. Academia increased low single digits with the stabilization trends giving way to low single-digit growth in the U.S. and Europe growing mid-single digits. Below the revenue line, adjusted gross margin was 70.4%, down from 71.6% last year, but up 190 basis points sequentially. The year-over-year decline was driven by unfavorable product mix. Adjusted SG&A was 28.7% of revenue, down 30 basis points compared to 29% last year. R&D expense was 7.5% compared to 7.8% in the prior year. The operating leverage reflects the benefits of structural streamlining and disciplined expense management, partially offset by targeted investments in strategic growth initiatives. Adjusted operating margin was 34.2%, down 70 basis points year-over-year. The decline was driven by unfavorable mix and volume deleverage, partially offset by the Exosome Diagnostics divestiture. Below operating income, net interest expense was $1.3 million, up $0.4 million year-over-year due to the expiration of interest rate hedges. Bank debt at quarter end stood at $200 million, down $60 million sequentially. Other adjusted net operating income was $1.3 million, down $1.8 million from the prior year, primarily due to nonrecurring foreign exchange gains in the prior year related to overseas cash pooling arrangements. Our adjusted effective tax rate was 22.3%, up 80 basis points year-over-year, driven by geography mix. Turning to cash flow and capital deployment. We generated $86.7 million in operating cash flow with $9.1 million in net capital expenditures. Also during Q3, we returned $12.5 million to shareholders via dividends and ended the quarter with 157.4 million average diluted share outstanding down 1% year-over-year. Our balance sheet remains strong with $209.8 million in cash and a total leverage ratio well below 1x EBITDA. M&A remains a top priority for capital allocation. Now let's review our segment performance, beginning with Protein Sciences. Q3 reported sales were $226.2 million, a decrease of 1% year-over-year. Organic revenue declined 4%, with a 3% benefit from foreign exchange. Excluding cell therapy and OEM commercial supply timing impacts from our largest customers, organic growth was plus 2%. Growth was led by our Proteomic Analysis instrument franchise, which benefited from continued strength in large pharma paired with double-digit growth from our academic end market. As Kim mentioned, our core portfolio of research reagents and assays declined mid-single digits, reflecting a challenging biotech environment and the lingering impact of the U.S. government shutdown on grant activity and fund outlays in the quarter. Excluding the timing impact of a large commercial supply customer, the decline in the core portfolio was limited to low single digits. Protein Sciences operating margin was 44.2%, down 140 basis points year-over-year, primarily due to unfavorable product mix and volume deleverage, partially offset by ongoing profitability initiatives. In our Diagnostics and Spatial Biology segment, Q3 sales were $85.6 million, down 4% year-over-year. The divestiture of Exosome Diagnostics negatively impacted reported growth by 8%, while foreign exchange had a favorable impact of 1%, resulting in 3% organic growth for the segment. Bio-Techne Diagnostics declined low single digits as order timing from certain large customers impacted growth. Spatial Biology grew mid-teens, including over 65% growth in our COMET platform, while our RNAscope portfolio increased high single digits. Segment operating margin improved to 12.1%, up from 9.4% last year driven by the Exosome Diagnostics divestiture and productivity initiatives, partially offset by unfavorable mix among our OEM customers. We expect continued margin expansion commensurate with the scaling of our COMET Spatial Biology platform. As we look ahead to closing out the remainder of our fiscal year 2026, we remain focused on what we can control. This includes our operational and commercial execution, productivity and capital discipline and delivering sector-leading profitability while investing across our growth platforms. The state of our pharma end market remains strong. The stabilization and signs of gradual improvement in the U.S. academic market are encouraging. Funding levels for biotech have been very strong in the past 2 quarters, and our commercial teams are reporting increased engagement in a higher opportunity funnel from these customers. However, given the timing lag between funding and spending by biotech customers, which typically is 2 to 3 quarters, we believe this end market is the biggest swing factor for growth to accelerate from here. While we can start to see improvement in the biotech end market as early as our June quarter, our base case is that we won't see a meaningful uptick in growth until the first half of our fiscal year 2027. As Kim mentioned earlier, we also remain encouraged by the progress of our largest cell therapy customers following FDA Fast Track designation. While these designations temporarily reduce near-term GMP reagent demand as these customers advance through their Phase III trials, they meaningfully accelerate potential commercial time lines. This customer-specific headwind moderates in the fourth quarter, impacting growth by approximately 150 basis points year-over-year and will be fully out of our comparisons as we enter fiscal 2027. Taking these market and customer-specific dynamics into account, we expect organic growth in the fourth quarter to be approximately flat. Excluding the impact of the cell therapy headwinds, we anticipate low single-digit underlying growth across the remainder of the portfolio. This outlook assumes end market conditions are broadly consistent with what we experienced in Q3. And any incremental stabilization or improvement in emerging biotech spending could prove additive. Importantly, this near-term outlook positions us well for an acceleration in fiscal 2027 as biotech funding should more fully translate into customer spending, academic conditions continue to normalize, company-specific timing headwinds roll off, and we lap easier year-over-year comparisons. From a margin perspective, we remain focused on balancing growth investments with operational efficiency and intend to close the last quarter of the year with approximately 100 basis points of margin expansion over the prior year. That concludes my prepared remarks. I'll turn the call back to the operator to open the line for questions. Operator: [Operator Instructions] We'll take our first question from Matt Larew with William Blair. Matthew Larew: I wanted to follow-up on emerging biotech that was down mid-single digits in the fiscal second quarter, and you mentioned down high single digits this quarter, acknowledging the improvement in funding may materialize later in the year. Just given that step down, I would be curious what you saw from sort of an intra-quarter trend perspective and if you've seen any improvement sort of from January through to March and then now into April. Kim Kelderman: Matt, thank you for the question. Yes, the biotech end market was indeed our surprise. So I appreciate you honing in on it. We had, of course, very clear visibility to how the funding had been. And as you remember, funding was relatively dismal in the first half of 2025, calendar 2025. It recuperated a little bit to low single digits in the third quarter and then actually had a real step-up, 90% growth in Q4. And then we rolled into the new calendar year with yet another good quarter in funding. Underneath that, we saw our 2 last quarters at negative mid-single digit 2 times in a row, indicating some sort of stabilization. You take on top of that, that we saw that the funding was up. We know interest rates were stabilizing. M&A deals were up in biotech and licensing deals just as well. We also had a little bit of visibility to the COMET bookings being positive there. So we assumed a slight improvement in the biotech end market to maybe negative low single digits. But you're right, it did step down to negative high single digits instead. And that really is the whole for our quarter, and it fits very nicely to exactly the gap in our biotech end market. And there, of course, we double-clicked, and you can see that funding was substantially up in late-stage biotech, but early-stage biotech, where a larger portion of our core reagents have a direct read on, that early-stage funding was actually down if you tease that apart. And that is where our surprise came in. The trend during the quarter, we hear from our sales force that there are more interaction and dialogue about possible orders and investments. But for now, we are assuming that with 2 negative mid-single-digit quarters going to high negative singles, we can't assume that there is a clear stabilization or improvement. So for now, we're keeping our forecast at flattish because we don't have clear indicators that there is an improvement. Matthew Larew: Okay. Okay. Fair enough. And then you talked about the outlook here for the calendar second quarter, as I think through the way some of your larger peers have characterized both that quarter and then the rest of the year unfolding, given the OEM timing and cell therapy headwinds being removed on your comps, some improvement in A&G -- would just be curious if you're thinking that sort of the mid-single-digit range by the end of the year, again, kind of consistent with improvement in others are citing, if that's reasonable or if there's another range we should be thinking about? And that's all for me. James Hippel: This is Jim. Thanks for the question. I make sure I understand your question correctly. You're asking about the end of calendar '26. Matthew Larew: Yes. That's right. Yes. Just given how sort of peers have framed the calendar second quarter relative to the balance of the year. James Hippel: Yes, sure. Yes, I mean, again, we won't be giving any kind of even soft guidance around '27 until next quarter. But as I've mentioned in my prepared comments, we're very encouraged about the upcoming fiscal year. Some of these headwinds that are company-specific will now finally be behind us. And we're seeing -- we have seen a definite stabilization in the North American academic market. And of course, pharma remains strong. So it really comes down for us to biotech. And admittedly, I think we were probably a little bit -- we saw 2 quarters of stabilization in biotech and felt perhaps the worst was behind us. But in retrospect, we may have been a little bit -- got the cart a little too far ahead of the horse on that one in the sense that the reality is, let's call it, the 2- to 3-quarter lag really hasn't happened yet given that it's only been 2 quarters -- 2 recent quarters where we've had strong funding. But it does -- if history is any guide, it does bode very well for the second half of calendar '26 as with respect to the biotech market. And of course, that's our first fiscal quarter of '27. And it's also encouraging to hear from our peers who've already announced that they're also expecting an uptick in momentum in the back half of the year, and we tend to agree with that thesis. Operator: We'll take our next question from Puneet Souda with Leerink Partners. Puneet Souda: So, Jim, first for you, you're 1 quarter away from fiscal '27. Just given we've been in these markets for some time, the challenges you're well aware of those. Can we still do mid-single-digit growth? Can Bio-Techne do mid-single-digit growth still in fiscal '27? I think it's an important question just given how we have ended so far. And on the biotech side, I understand, but just trying to understand, given the end market challenges, was there something that surprised you later in the quarter? Or is this more about the way you're building the overall forecasting because I don't think investors were expecting a surprise at this point given that GMP Fast Track designations already surprised 2 quarters ago. James Hippel: Yes. Puneet, thanks for the question. This is Jim. So yes, with regards to fiscal year '27, I mean, based off the lens we have right now, yes, we'd be disappointed if we didn't do at least mid-single-digit growth because all the indicators are pointing towards a gradual normalization of the market. And I'll remind everyone that put these company-specific items aside, which amounts to 3 customers, we would have been low single-digit growth even in this environment we're in today with a tough biotech end market. So yes, I think we'd be disappointed. And I think in terms of what we're looking for in terms of indicators, we talked about the fact that in academic, we really saw an uptick in growth in our proteomic analysis instrument portfolio as well as in our spatial portfolio. And you've heard us say this before, Puneet, that those 2 -- in particular, those 2 growth vectors for us are where we are kind of indicators for us when we start to see the markets come back, that's where the money often flows first. And it's exactly where we saw some very nice growth in U.S. academic this quarter, which gives us added confidence that our customer base is getting more confidence in their funding there. And so that's also what we're looking for with regards to our biotech customers in terms of an indicator for that inflection point. And again, it's too early to call it at this point, which is why we're being, I think, rather prudent about our Q4 forecast in terms of kind of holding it steady in terms of overall base improvement. But it was encouraging to hear from our businesses and our commercial leads that the interest in -- particularly in our proteomic analysis as well as our spatial biology offerings has picked up recently among our biotech customers, and the funnels there are starting to grow again. So we'll see if that translates into more orders in Q4 for higher revenue in early fiscal year '27. Those are the things we'll be looking for out of our biotech end market. Puneet Souda: Got it. And then -- that's helpful. And then, look, on the RUO reagent side, I think you commented that, that business is soft, partly biotech being the -- emerging biotech being the reason. But we have seen 2 readouts from 2 competitors so far. One of them under -- as an OpCo under a larger entity and their business is recovering there. Another one that is strong in flow cytometry is also showing signs of growth. So how should we -- what gives you confidence that this is not any share loss in R&D Systems and Novus Biologicals? Kim Kelderman: Yes, Puneet, thanks. Yes, very good question. The -- in fact, a couple of dynamics here. The one order that we had talked about that got booked in Q2 versus Q3, the 100 basis point swap we've talked about previous and this earnings call is actually in that number. It sits in that core reagents area. And if you look at our comparables with double-digit growth last year, it's almost 20% last year. And compared to some of the other companies that you're talking about having negative numbers to compare against, we've done our math and our homework and also, of course, our market work. And we're relatively confident that we're actually still pretty well off, and that is the situation for that core business. James Hippel: Yes. And I'll add there, Puneet, just a little bit so that when people think about our core reagents, they typically think about our proteins and antibodies portfolio, rightfully so. But we also include that there's some other small molecules, there's assays, core ELISA assays, et cetera. But as it pertains specifically to that proteins and antibodies portfolio, after you take out this very large one customer OEM order that happened to impact that portion of our portfolio, both our proteins and antibodies combined grew low single digits this quarter. Operator: We'll take our next question from Patrick Donnelly with Citi. Patrick Donnelly: Kim, maybe one on the China piece, continues to show a little bit of growth there. Can you just talk about what you're seeing and then the expectations visibility going forward? Are you feeling you're in a pretty good spot there as we head into '27? We would like some more detail just on the overall backdrop and expectations there. Kim Kelderman: Patrick, thank you for the question. Yes, we are quite excited that we have, for the fourth time, positive growth in China. And obviously, Jim and I were earlier this quarter in China, meeting with government officials, exploring how we can further support science and medicine in the country. We connected with customers in academic as well as in the new companies that are working on new therapeutics, including CROs and CDMOs. And there's a lot of activity. You can clearly see a momentum in the market, especially around the advanced therapeutics. And so for us, we're not surprised that we are in growth mode again. We called that one right a year ago. And there's no reason to believe that, that is going to weaken. I would expect a continued momentum and strengthening of that particular end market, specifically after our visit. We are direct in the market, and our team is really well connected with customers on both sides, on the biotech as well as pharma as well as the academic side. And yes, it's positive all around. Patrick Donnelly: Okay. That's helpful. And then maybe just one more on the biotech piece. Again, a surprising step down there. I guess in terms of your customer conversations, what are you hearing? I mean, the funding has looked quite good for over 6 months here. Typically, that does cause an inflection higher for you guys. Just curious, I guess, on the visibility, the customer conversations, how you're feeling about that market as you head into '27. It feels like it should have been a nice tailwind certainly going into the next quarter and '27. Obviously, it's lagged a little bit. Just trying to figure out what that could look like as we work our way forward here over the next 6, 9 months. Kim Kelderman: Patrick, I think Jim already touched on it, right? So we were quite surprised at the step down -- after further analysis and if you look at the funding levels for early-stage biotech and later-stage biotech, we understand it. But you're right, the funding levels were very encouraging. And as I mentioned, interest rates, M&A deals, all those were pointing in the right direction. I already mentioned that the conversations are getting better. Interest levels from the biotech market are improving. And last quarter, with 2x negative mid-single digits, we thought stabilization and improvement was there. But with the step down, we're going back to, okay, stabilization is our next point typically because we need to see the ship turn the corner. And therefore, we are somewhat careful. And I think that's the right thing to do. But you're right, all the indicators, including the dialogue with customers are positive. James Hippel: And if I could, I'll just add a little bit. I mean, kind of going back to my cart before the horse comment, it's like kind of trying to thread a needle here with regards to exactly what quarter you see the inflection point. And we've said that we've looked at our history over the last several decades and look at different ebbs and flows of biotech funding and the range is anywhere between 1 quarter and as many as 4 quarters. But the average or the mean is somewhere between 2 and 3. And the reality is it's only been 2 quarters of solid funding. So we're kind of right at that median point now. And we'll see whether we see any of that pickup in Q4 or not. Right now, our base case is that it does not, but it doesn't necessarily get any worse from here either. But it does, again, bode well for the back half of this calendar year, which is the first half of our fiscal year because at that point in time, you start to get to the, call it, the tail end of the bell curve of when we usually start to see that flow through. Operator: We'll take our next question from Justin Bowers with Deutsche Bank. Justin Bowers: Just going to stick with the current line of questions. But Jim, can you update us on your view for fourth quarter for the different end markets? So what's the view for academic, U.S. academic, biotech, et cetera? And then also, when you double-click on the funding analysis, what sort of competitive dynamics, if any, did you uncover? And then part 3 of that would just be what parts of the portfolio would you start to see the recovery the soonest -- from the EVP customers? James Hippel: Well, I'll take the first one. Thanks for the question. I'll take the first one and the third one, and I'll let Kim jump in on the second point. Real quite simple without going through end market by end market, the very simple answer is our base case is we're assuming basically the same level of performance across all our end markets in Q4 that we saw in Q2. Pharma already is very strong. Academic is going in the right direction, albeit slowly. So therefore, we don't see a meaningful move, but nonetheless, continued progress. And then with biotech, we're assuming the same kind of performance we saw in Q3 for Q4. As we talked about in my opening comments, that would be the -- that will be -- if there's any potential upside, that's where we think we might see it is in biotech. But right now, that's not our base case. So that's really how we're viewing the end markets. With regards to -- I was going to take the third bullet, I'm trying to remember what it was now. It was around -- remind me... Justin Bowers: Just around what parts of the portfolio would you start to see the recovery for biotech. James Hippel: Yes. Thank you. So again, as I mentioned in answering an earlier question, we look at our -- we look at the performance, particularly our proteomic analysis business, our spatial business, those 2 growth vectors, cell therapy kind of beats to its own drum, but that's doing -- that's already doing very well. Those 2 growth vectors for us, we believe, is usually an early indicator for us with regards to a turn in the markets when we see those start to inflect. And just as we saw those 2 parts of our business do very well with double-digit growth in our U.S. academic markets this most recent quarter, that's what we're looking for the inflection point in biotech as well. And like I said, I don't want to get ahead of us, but it was encouraging to hear that the interest level and funnels among our biotech customers for those 2 portions of our portfolio have picked up here in the last several months. Kim Kelderman: And Justin, to your second question -- oh, go ahead. James Hippel: No. Go ahead, Kim. Kim Kelderman: Yes. Your second question was around the trends in biotech, right? So yes, over the last year, funding mix has shifted. And the year before, you could clearly see 75% of all the funding going into late-stage work, clinical development, Phase I, II, III, and that has become 82% of the funding. And the same happened in reverse for the early-stage discovery, which used to be 25% of budgets and now being 18% of all the funding. So that took a step down in the early discovery part. And that's really what we bumped into with our core portfolio, specifically the assays that Jim mentioned. And I don't think that is, by definition, a change in competitive trends. It's just a change in where the money gets spent. Operator: We'll take our next question from Kyle Boucher with TD Cowen. Kyle Boucher: I know you touched on this a little bit, but I wanted to ask another -- just a clarification question on the guide. You said flat organic in fiscal Q4, sort of implying low single-digit underlying growth, excluding the GMP headwinds. But it sounds like there's fewer sort of discrete items in the fiscal fourth quarter. The GMP reagent headwind is pretty small at 150 basis points. The OEM reagent timing headwinds out of the way. You faced the easiest comparison year-over-year on organic. I guess beyond biotech performance, I mean, is there anything else that's sort of getting worse? Kim Kelderman: I can give a flyby and then Jim can double-click. No, I'll look at our end markets first. The pharma has been double digits and funding have been stable there and maybe slightly improving. So we think our entitlement continues to be double digits. Biotech, we discussed in detail here. Academic, we see a slight improvement, and we are excited that we're back in positive territory for the first time. It's still a frail market. It's certainly not going to be a V-shaped recovery, I think. But stabilizing and improving is a fair assumption there. And China, we've already discussed with 4x in positive territory and continued momentum. So from that point of view, I'm relatively comfortable and the one that we are -- have been talking about and we feel could be a detractor is still in the biotech area. From a portfolio point of view, our core has been doing good, except for these areas that we discussed. And if you look at our verticals, I couldn't be more positive. Cell therapy, we know about the 2 customers, but you take those out, the underlying growth was 50%. We're looking at 17%, 12 trailing months. And that looks stable. We would like that to be 20% minimum. So it's heading there. Spatial, as you know, was back to mid-double digits with the reagents improving and COMET instrument at 65% growth/ Proteomic analysis, right now, it's at mid-single digits, and we do know that it belongs in double digits, deep in double digits. So there, we feel that the biotech uptick would be the trigger to get it back into the zone where it belongs in mid-double digits. And then the diagnostics area, it was negative for the quarter, especially the diagnostics -- molecular diagnostics products. And that was clearly a timing issue. So there, I do have some positive backdrop as well that it can come back to normal growth rate. So that's the flyby on the product lines. So overall, comfortable with, of course, be careful for your next quarter, but with a strong trajectory to normalization. Kyle Boucher: Got it. And maybe just on the GMP reagent business and even spatial on the Lunaphore side, pretty impressive growth rates almost 50% on the GMP reagent side, over 60% for Lunaphore. I mean how sustainable do you think these levels of growth are going forward? I mean, do they face easy comps year-over-year? Kim Kelderman: Yes. So the -- taking the 2 customers out, we clearly look at the funnel underneath. We have 700-plus customers. The number of customers has increased mid-single digits. So that's not carrying it. But customers going deeper into their projects and spending more is clearly the driver. We have 85 programs, the same like last quarter in clinical. However, 18 are in Phase II, and they used to be 15 and still the same 6 customers in Phase III. So there is a progress that the customers are making that drives the growth. If you look at the cell therapy trials globally are also increasing significantly. There has been a mix shift from gene therapy to cell therapy, and that's where we're benefiting as well. So we do believe that the 20% growth as a minimum for a 12-month trailing would be the right bar to set. And of course, we can always look at our Wilson Wolf numbers. We talked about mid-single-digit growth this last quarter and that was over a comparable of 25% growth last year. But the number of grants that we're writing there is impressive. We are happy that there's more or less 50% attachment rates with Bio-Techne's cytokines and proteins. So overall, we are comfortable with the market underlying activity levels, progress of the pipeline and the number of customers that we are putting into the funnel. Operator: We'll take our next question from Mac Etoch with Stephens Inc. Steven Etoch: Maybe just one for me and following up on the last question asked on GMP proteins and cell therapies. Could you just maybe break down how much of those -- how much of the growth that you're seeing is coming from maybe new program wins versus expansion of existing customers? I would really appreciate that. Kim Kelderman: Yes, I just touched base on it. Thanks for the question. Our overall number of customers increased 3%. Over the last couple of quarters, we saw a rotation. Some customers rotated out and they started 2, 3 years ago with a setup that turned out to maybe not be a winning strategy within the cell therapy. But others have come in, and it's all about are you able to scale? Are you able to make it cost effective, and we are certainly helping our customers doing so with the Wilson Wolf G-Rex and our cytokines proteins as well as the form factor of the ProPak that we've launched a quarter or 2 ago. So overall, we feel that 3% increase in customers, including the churn is encouraging. The number of clinical studies is increasing, and there is progress in the pipeline from -- by the customers from clinicals 1 into 2 and 3. So we see positive trends in all 3 of those dimensions. Operator: At this time, we've reached our allotted time for questions. I will now turn the program back over to our presenters for final remarks. Kim Kelderman: Thank you, everyone, for joining today's call. I want to recognize the Bio-Techne team for their continued focus and execution through what has been an extended period of market and customer-specific challenges. We are encouraged by the improving biotech funding visibility, stabilization in the U.S. academia, sustained engagement from our large pharmaceutical customers and continued momentum across China and the broader APAC region. As we move through Bio-Techne's 50th year, we do so with a portfolio that has never been better aligned with the direction of science and medicine. Our combination of high-quality reagents, analytical platforms and enabling technologies supports critical workflows from early discovery through translational research and manufacturing. Continued investments across cell therapy, proteomic analysis, spatial biology and precision diagnostics position us well to support our customers and capture attractive long-term growth opportunities. Thank you again for your interest in Bio-Techne, and we look forward to updating you on our progress next quarter. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Hello, everyone, and welcome to Wallbox's First Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] I would now like to turn the call over to Michael Wilhelm from Wallbox. Michael, please go ahead. Michael Wilhelm: Thank you, and good morning, and good afternoon to everyone listening in. Thank you for joining today's webcast to discuss Wallbox's first quarter 2026 results. This event is being broadcast over the web and can be accessed from the Investors section of our website at investors.wallbox.com. I am joined today by Enric Asuncion, Wallbox CEO; and Isabel Lopez Trujillo, Wallbox's CFO. Earlier today, we issued our press release announcing results from the first quarter ended March 31, 2026, which can also be found on our website. Before we begin, I would like to remind everyone that certain statements made on today's call are forward-looking that may be subject to risks and uncertainties relating to the future events and/or the future financial performance of the company. Actual results could differ materially from those anticipated. The risk factors that may affect results are detailed in the company's most recent public filings with the SEC, including the annual report on Form 20-F for the fiscal year ended December 31, 2025, filed on April 9, 2026. We will be presenting unaudited financial statements in IFRS format that reflect management's best assessment of actual results. Also, please note that we use certain non-IFRS financial measures on this call and reconciliations of these measures are included in the presentation posted on the Investors section of our website. Also, a copy of these prepared remarks can be obtained from the Investor Relations website under the Quarterly Results section, so you can more easily follow along with us today. So with that out of the way, I'll turn it over to Enric. Enric Asuncion: Thank you, Michael, and thanks, everyone, for joining us today. We will start today's call with an overview of our first quarter 2026 results, provide our perspective on the EV market and spend time discussing our operational improvement. Isabel will offer a closer look at our financial results, key financial metrics and our current financial position, including updates on the recently signed refinancing. After, I will close the conversation to highlight what we are focused on for the upcoming quarters. Q1 revenue was softer than expected. But overall, we had a solid first quarter as adjusted EBITDA improved sequentially due to continuous operational efficiency improvements. Total revenue landed at EUR 29.7 million, below guidance and down 12% compared to the previous quarter. The primary driver of the decline is DC sales, which are down 28% quarter-over-quarter. Although this is a disappointing result, customer feedback shows this is not product related, but rather the requirement to have clarity on Wallbox refinancing process. With the signing of the refinancing plan, we immediately secured EUR 11 million in interim financing and are now able to provide better long-term financial visibility to our customers, vendors and shareholders. The other business activities, AC sales and software, service and others also experienced a slowdown compared to last quarter related to the refinancing, but with a less significant impact. From a geographical perspective, the North American market due to a significant decline in EV sales, APAC and South America due to the shifting resources and priorities, all have been down sequentially. In total, during the first quarter, we delivered over 30,000 AC units and 79 DC units. It is important to note that although revenue declined quarter-over-quarter, the ratio of revenue to labor cost and operating expenses improved significantly compared to the same period last year. Gross margin was 37.3% in the first quarter, in line with the previous quarter, but landing below the 38% to 40% guided range. The main reason for the guidance miss relates to the lower-than-expected DC sales, resulting in a negative impact from the product mix. However, we have achieved another quarter with inventory improvement, which provides bill of materials cost improvement opportunities for the long term. Labor cost and operating expenses landed at EUR 17.1 million, improving 22% quarter-over-quarter and 31% compared to the same period last year. This is the result of the continuous efficiency efforts of the last quarters. It only reflects cost improvements, but also shift in resources and investment in sales and services. With optimized cost base, we believe there is opportunity to grow the top line while continuing to work on operational improvements in processes and systems. By centralizing certain activities and reducing the operational complexity, we are leaner and more flexible in responding to the volatile EV market, both to scale up in EV markets where there are opportunities and scale down in EV markets which experienced headwinds. Adjusted EBITDA loss for the first quarter of 2026 was EUR 6 million, missing our guided range, but improving 18% quarter-over-quarter. Compared to the same period last year, adjusted EBITDA loss improved by 23%. Softer-than-expected sales due to the refinancing process were the main reason for missing guidance this quarter. But considering this revenue level, the bottom line improvement is impressive. We continue to execute our plan towards profitability based on, one, continuous operational efficiency improvements; two, implementations of the restructured balance sheet for long-term financial visibility; and three, reestablishing our growth by leveraging our product portfolio with more sales and service capacity. The implementation of the refinancing is almost completed. We have made solid progress on the operational efficiency improvements and expect to see the results of our investment in sales and service soon. We have a more optimized organization with a stronger financial position and believe that operational profitability is within reach, assuming revenue improvement. For the first quarter of 2026, Europe or EMEA contributed EUR 22.6 million of consolidated revenue or 76% of total top line. This reflects an 8% decrease compared to the last quarter, which is in line with the market in the first quarter, which was down 9% in Europe after several strong quarters. In parallel, we continue to focus on recapturing market share by improving our capacity in the sales and service teams to better support our distribution partners and our end customers. We have started to see the initial effects but require more ramp-up time before we see the full impact of revenue. North America contributed EUR 6.7 million or 23% of the total revenue, reflecting a decrease of 41% compared to the same period last year. The drop can be attributed to a softer North American EV market, which was down 27% year-over-year and limited DC sales. However, we recorded a strong result in Canada, reflecting solid growth compared to last quarter. Looking ahead, we see opportunities to grow sales with Quasar 2, which is already commercially available and the CTEP certified Pulsar, which will be available soon for commercial applications. APAC and LatAm currently remain small region for Wallbox, consistent with the last quarter as attention and resources have been shifted to key markets. APAC sales were almost negligible this quarter and LatAm sales landed EUR 387,000 or approximately 1%. The shifting of resources is a conscious decision and part of our [indiscernible] improvement efforts towards profitability. We continue to sell through distribution partners, allowing us to potentially accelerate growth in this market in the future. AC sales of EUR 21.1 million, including ABL and Quasar, represented approximately 71% of our global consolidated revenue and down 8% compared to last quarter. Pulsar Max continues to be the best sold product with the Pulsar Max ABL, growing the fastest as we continue to support cross-selling. Other products, including Quasar 2 show a smaller contribution to our results than last quarter. In general, AC sales also experienced impact from the noise around the refinancing process as distributors and commercial partners stock up or less inventory that is typical. We aim to reverse this trend now we have the refinancing in place, assuming we receive required court approval and as we ramp up our efforts to complement then the strong value proposition of our products with improved sell-out support and service coverage. DC sales landed at EUR 2.5 million or 8% of sales and was down 28% compared to last quarter. In the case of DC, the refinancing process has had the largest impact as customers require long-term financial visibility and support from their suppliers. With the signing of the refinancing agreement at the beginning of April, Wallbox can now provide the required clarity and this resulted immediately in new orders. We have a strong [ DC ] charging product portfolio, which provides customers with a wide range of different and scalable charging configurations, including battery storage options. With the introduction of the Supernova PowerRing, we expand the product portfolio with a charger that can go up to 400 kilowatts per outlet. Our reliable and user-centric chargers proved to be a competitive option for charge point operators, and we believe we can establish growth in this category. Software, services and others generated EUR 6.1 million for the fourth quarter or 21% of the total revenue declined 16% quarter-over-quarter. The largest driver of the decrease was installation and service activities, which were down 19% compared to last quarter. This was compensated by a 6% quarter-over-quarter increase in software compared to the same period last year. Software, which includes the Electromaps Solutions, grew 91%. Looking forward, we expect this category to continue contributing in Italy, especially with a strong growth in software. In our addressable market, which we refinance all regions except China, 2.1 million EVs were sold during the first quarter. While this represents a 23% increase year-over-year, the market slowed down on a sequential basis, declining 2% compared to last quarter. Turning in our key markets, which are North America and Europe, we see conservative trends. In North America, the EV market remained soft due to the removal of incentive and tax credits discussed during the last quarter. Compared to the same period last year, the sales in the region decreased with 27%, but only 3% quarter-over-quarter, potentially indicating we reached a plateau. While we anticipate the North American EV market will remain challenging through the year, we are optimistic about the opportunities presented by our Quasar 2 and, particularly in states like California where vehicle electrification is continuing to grow. Growth persists within the European EV market, this quarter up by 27% compared to the same period last year. However, growth has slowed down sequentially and declined with 9%. The same trend where there is a year-over-year growth, but quarter-over-quarter slowdown was visible in almost every European country, except Ireland, Italy and the U.K., where growth remains strong across the board. The momentum in the region is expected to pick up for the remainder of the year as across the region, many countries continue to incentivize electrification and new affordable EV models are becoming available. The growth in the rest of the world, which includes APAC and LatAm was the strongest of the regions considered in our addressable market. EV sales in the region increased 79% compared to the same period last year. Considering our shifting resources to focus on our path to profitability instead of servicing all our addressable regions in the same way, we did not capture the market growth. However, we keep working with a wide range of distribution partners and key accounts. This will allow us to keep our footprint in the region and ramp up sales efforts in the future. Overall, EV transition continues to progress, but at the same time, volatility remains. The recent geopolitical tension and subsequent price spikes in oil shows again the importance, especially in Europe for energy independence and decreased reliance on fossil fuels. This provides an opportunity for Wallbox as a provider of smart charging products and energy management solutions. The future is electric. But in the meantime, it is important as an organization to remain flexible. We have made progress in creating a more lean organizational structure, which is better suited to respond to market volatility as we move towards profitability. Isabel, over to you. Isabel Trujillo: Thank you, Enric. Good morning and good afternoon to everyone. The first quarter revenue was softer than expected and landed at EUR 29.7 million, outside our guided range and down 12% sequentially. However, relative to our cost base, revenue grew both compared to last quarter and the same period last year. The main reason we missed our guidance was an unexpected slowdown in orders for both DC and AC related to the pending refinancing. We anticipated an impact on sales as we were in the process to finalizing the refinancing agreement and customers require long-term financial clarity. Although we can't provide this clarity now as the agreement recently has been signed, the impact in Q1 was larger than initially expected as DC customers postponed their orders and AC distribution partners decreased the size of their orders. We are confident that we can reverse this trend now and have already received additional DC and AC orders directly after the announcement of the signing. Gross margin for the first quarter was 37.3%. This was lower than anticipated and has a strong correlation with the slower DC sales. As our DC fast charger products have a higher gross margin, lower sales in this category results in a negative impact from the product mix. Shortly, I will comment in more detail on our continuous inventory reduction, but we have a positive impact on bill of materials costs in the long run as we rotate our existing components. Q1 labor costs and operating expenses totaled EUR 17.1 million, reflecting a 31% improvement compared to the same period last year and a 22% sequential improvement. This is a positive result and is a strong proof point that we can continue to improve our operating leverage. Also, in the upcoming quarters, we plan to continue streamlining the organization with additional efficiency measures, strategic capital allocation and introduction of the right processes. If you compare the historical development of our cost base compared to our revenue development, we believe we are on the right path to find the correct equilibrium between sales and cost. On top of that, with the shift of resources and investment in sales and service, we believe the cost base we are working towards allows for additional revenue growth, further enhancing the efficiency of the company. Consolidated adjusted EBITDA loss for the quarter was EUR 6 million, outside the guided range, but still a solid improvement considering the lower-than-expected top line result. Compared to the same period last year, the adjusted EBITDA loss improved 23% and sequentially improved with 18%. Also top line revenue growth is important to reach profitability, the Q1 result reflects the outcome of our plan to shift the focus from only growth to focusing on profitability as our core objective. We have worked hard on the disciplined transformation of the organization to improve operating efficiency. And now our focus can return to reacceleration of growth, but with the same discipline on cost. With the investment in sales and services, I believe we can improve our sales in the upcoming quarters, following our path to profitability. Now moving to key financial items. We have completed one of the most important milestones with the signing of the refinancing plan. The plan is submitted with the court for final approval. Additional large institutions such as HSBC and Citibank have now joined the plan, and we received EUR 11 million in interim financing. It has been great to be able to bring together all the stakeholders and align on a strong capital structure solution to provide financial stability for Wallbox and clarity for the upcoming years. We would like to thank our banking partners and shareholders for their continued support and recognition of the strategies ahead. Turning now to the results of the first quarter. We ended the quarter with approximately EUR 7.6 million in cash, cash equivalents and financial instruments. This is excluding the EUR 11 million of interim financing just mentioned as it was received at the beginning of Q2. Based on the operational improvements discussed, the execution of the refinancing plan and our ongoing actions to manage capital expenditures and working capital, we believe our current cash position is sufficient for our near-term needs. This assessment assumes the timely receipt of additional liquidity in upcoming quarters, including proceeds from the refinancing plan and anticipated carbon credit payments. Loans and borrowings totaled EUR 168 million, reflecting a slight increase of 2% sequentially, consisting of EUR 44 million in long-term debt and EUR 124 million in short-term debt. The increase in the debt position is related to use of working capital lines and accrued interest liabilities related to the refinancing process. Following the implementation of the renewed capital structure, long-term and short-term debt will be reclassified as a majority of the debt maturities will be pushed to 2030. CapEx was light again this quarter and landed at EUR 0.3 million, of which EUR 0.1 million was related to investments in property, plant and equipment. Consistent with the last quarters, we are limiting spending on CapEx and are focused on leveraging our existing assets. A clear example is the effort to simplify our existing product portfolio and further innovate this portfolio to continue to provide the latest technology and comply with the customer requirements in an evolving industry. Compared to the same period last year, CapEx investment decreased 55% Inventory landed at EUR 40.3 million, a reduction of 15% to last quarter and down 37% compared to the same period last year. This is consistently one of the most successful financial metrics and allows us to continue to release cash from inventories supporting the overall operations. In addition, we remain focused on our overall cash management related to working capital to better align ourselves with our suppliers and ensure our supply chain is organized efficiently. Wallbox's financial position has improved following the execution of the refinancing plan. In addition, we have made progress on operational initiatives that have contributed to a reduction in cash burn, including actions to optimize working capital and capital expenditures. Enric, I turn it back to you to provide some closing commentary. Enric Asuncion: Thank you, Isabel. Although the refinancing process impacted top line results in the first quarter of the year, we continue to execute our plan and take steps towards our objective to achieve profitability. Adjusted EBITDA result continues to improve. We have reduced our cash burn significantly, have clarity on our new capital structure and unlock significant operational efficiencies. If we look at the objective we need to complete as part of the plan for our new Wallbox, we achieved, one, the continuous operational efficiency improvements; and two, completed the refinancing plan. Now we need to move from disciplined transformation to reaccelerating growth again. We expect to see the results of our investment in sales and service in the coming quarters. It is crucial to improve Wallbox as a customer-centric organization and better support our commercial partners. If we can execute the third pillar of our plan well, there is significant growth opportunity as the new market continues to develop. With that, I would like to discuss next quarter guidance. For the second quarter of 2026, we have the following expectations: revenue in the EUR 33 million to EUR 36 million range, gross margin between 38% and 40% and negative adjusted EBITDA between EUR 5 million and EUR 3 million. Thank you for your time. Operator: Thank you, everyone. There are no questions in queue. We will be closing the call. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.