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Operator: Good afternoon. My name is Jade, and I will be your conference operator today. At this time, I would like to welcome everyone to Paycom's First Quarter 2026 Financial Results Conference Call. [Operator Instructions] I will now turn the call over to James Samford, Head of Investor Relations. You may begin. James Samford: Thank you, and welcome to Paycom's Earnings Conference Call for the first quarter of 2026. Certain statements made on this call that are not historical facts, including those related to our future plans, objectives, and expected performance, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this conference call. While we believe any forward-looking statements made on this call are reasonable, actual results may differ materially because the statements are based on our current expectations and subject to risks and uncertainties. These risks and uncertainties are discussed in our filings with the SEC, including our most recent annual report on Form 10-K. You should refer to and consider these factors when relying on such forward-looking information. Any forward-looking statement made speaks only as of the date on which it is made, and we do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. Also during today's call, we refer to certain non-GAAP financial measures, including adjusted EBITDA, non-GAAP net income, and certain adjusted expenses. We use these non-GAAP financial measures to review and assess our performance and for planning purposes. A reconciliation schedule showing GAAP versus non-GAAP results is included in the press release that we issued after the close of the market today and is available on our website at investors.paycom.com. I will now turn the call over to Chad Richison, Paycom's founder and CEO. Chad? Chad Richison: Thanks, James. Thank you to everyone joining our call today. I'll briefly comment on some of our first quarter 2026 accomplishments and the progress we are making on our 2026 plan. Bob will review our first quarter results and full year guidance before taking a few questions. Let's get started. First quarter results were solid as we continue to advance our full solution automation strategy, create greater client ROI achievement, and deliver the world-class service that makes us the best in our industry. The 2026 plan that we laid out for you during our last call remains well on track, and I'm pleased with our progress. Our focus on client ROI achievement and world-class service continues to strengthen our client relationships, which helped increase revenue retention in 2025, while also improving our Net Promoter Score. Our clients are more engaged than ever and big promoters of our software. Discussions with them continue to be overwhelmingly positive as they use our software to drive automation, which is creating meaningful value for them. We also continue to see many clients return to Paycom after realizing their new provider systems don't produce automation and ease of use like Paycom. Our clients and their employees appreciate our single database architecture and employee-first technology, which enable the automation and decisioning across the platform, reducing complexity, improving accuracy, and driving efficiency. Our clients find that these strategic pillars help them achieve more ROI than anyone else in our space. We are also advancing our automation capabilities within our single database software. AI and automation are the future of our industry, and I am thankful we were early to offer our clients this level of functionality well before it becomes mainstream. Paycom is uniquely positioned within our industry as we are the most automated solution in the market. In fact, we have routinely been named the best HR and payroll software provider in our industry by third parties, most recently by G2, where we earned top rankings in their spring 2026 report across multiple categories. Our full solution automation strategy is working, and solutions like Beti, GONE, and other automated decisioning capabilities are eliminating manual processes, reducing redundancies, and helping our clients operate more efficiently. Forrester found that Beti reduced payroll processing labor by 90%, while also showcasing that GONE delivers an ROI of over 800%. Our AI solution, IWant, is accelerating speed to value for our clients by helping users get answers and complete work quickly without any necessary training in our software. As we continue rolling out more AI and automation across the platform, we are making our product easier to use and driving measurable value for our clients and their employees. While we are pleased with our momentum in a rapidly evolving market, the opportunity ahead of us is large as we continue to serve approximately 5% of the addressable market. This available market share represents a significant opportunity for Paycom over the long term. I want to thank our employees for their focus, execution, and the excellent start to 2026. Our people are what make Paycom a great place to work, and I am thankful Paycom was recently recognized as a 2026 Platinum Employer on the Where You Work Matters list. Paycom was the only company in our industry to receive the program's highest overall distinction of platinum, proving we are one of the best places to work in the U.S. Paycom was also the only company in our industry to earn a 5-star rating on USA Today's Most Trusted Brands in 2026. These distinctions are why brands all over the globe trust us to do their HR and payroll. As the most trusted HR and payroll provider, we have a lot of very exciting initiatives coming in 2026 to help our clients continue to create ROI, while also delivering world-class service. With that, let me turn the call over to Bob. Robert Foster: Thank you, Chad. We delivered strong first quarter results with total revenues of $572 million, up 8% over the comparable prior year period, and recurring and other revenue of $544 million, up 9% year-over-year. GAAP net income in the first quarter was $156 million or $3.04 per diluted share based on 51 million shares. non-GAAP net income for the first quarter was $161 million or $3.15 per diluted share. Revenue strength in the quarter, combined with operational efficiencies from automation, resulted in strong profitability metrics in the first quarter. adjusted EBITDA came in at $275 million, representing a 50 basis point year-over-year expansion to 48.2%. We are achieving operational efficiencies without compromising on sales and marketing effectiveness, world-class service, or product innovation. During the first quarter, we repurchased approximately 8.4 million shares of common stock, or approximately 15% of our shares outstanding as of the end of 2025, for a total of $1.06 billion, and we paid approximately $18 million in cash dividends. On May 4, the board approved a new $2 billion buyback authorization to replace our prior authorization. The board also approved our next quarterly dividend of $0.375 per share, payable in early June. Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $154 million. In April, we replaced our previous revolving credit facility with a new 5-year, $2.125 billion credit facility, of which $675 million is currently drawn down. The average daily balance on funds held for clients was approximately $3.1 billion in the first quarter of 2026, up 8% over the prior year period. Now let me turn to guidance for 2026. Following our first quarter results, we are reaffirming our full year revenue and adjusted EBITDA guidance ranges. We expect total revenues to be between $2.175 billion and $2.195 billion, or approximately 6.5% year-over-year growth at the midpoint. We expect full year recurring and other revenue to be up 7% to 8% year-over-year. Finally, full year adjusted EBITDA is expected to be between $950 million to $970 million, representing an adjusted EBITDA margin of 44% at the midpoint of the range. Included in total revenue outlook is interest on funds held for clients of approximately $103 million, which is unchanged from our outlook provided on the last call. Our first quarter represented a strong first step towards achieving our strategic and financial goals for the year, and we're excited about what's ahead. With that, let's open the line for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Samad Samana from Jefferies. Jordan Ross Boretz: This is Jordan on for Samad. Thank you for taking my question. It's nice to see the recurring growth coming strong at 9%, which was ahead of our own expectations by a few points. I wanted to pick apart drivers of outperformance during the quarter there. Across key growth drivers, whether that be new booking, seller headcount versus productivity, employment growth, which factors performed better than your initial expectations and what contributed to that strength? Chad Richison: I would say it came in about what we expected for our expectations. You know, when deal starts matter within a quarter, and you know, we had a successful quarter in the first quarter. Also first quarter, to keep in mind, it is the quarter where we have our forms filing business. That also can contribute to a higher margin profile in the first quarter. Jordan Ross Boretz: Great. Maybe a quick follow-up. On the expense side, you're delivering some really strong leverage. I think the 50 basis points of gross margin expansion is particularly impressive, especially given the pressure coming from slow revenue. I'm curious, in the cognitive specifically, what's driving that healthy expansion this quarter? Do you have any puts and takes in the direction of gross margin as we think about the rest of the year? Chad Richison: You know, we had automated a lot, throughout last year, and we're starting to see some of the benefit of that. I don't know if Bob. Robert Foster: Yes. I would add the automation and the process efficiencies, and we started last year on expenses as well on all across the board, and we're seeing some of that benefit. Jordan Ross Boretz: Great. Congrats again on the strong results. Operator: Your next question comes from the line of Mark Marcon from Baird. Mark Marcon: Similar to the prior question, you ended up outperforming relative to our expectations for this quarter. Fully recognize the form filings. Been doing this for a while. I'm just wondering you maintain the guidance, and it looks like you had a pretty nice beat here in the first quarter. The guidance basically assumes in order to get to the 7% to 8% on recurring, we need to see a bit of a slowdown as the year unfolds. I'm wondering, are you just being conservative, or is there anything that you're looking at that would suggest that that's going to slow down a little bit? Chad Richison: Yes. Raimo, it's early in the year and sorry, I did it again, Mark..... Mark Marcon: You did. Chad Richison: I know. I did it again. It's early in the year and so, we did have a strong first quarter. We've got the full year left. We're happy with what was there, but we like our guidance throughout the remainder of this year. Mark Marcon: Okay. Can you talk a little bit about how the board's approaching, you obviously put your money where your mouth is with regards to the huge buyback, which we've written about before, and you're actually taking it up even further. Can you talk a little bit about the rationale for doing that now if in fact things are going to slow down? Again perhaps there's a little bit of conservatism in the numbers. Chad Richison: I mean, I feel like our guide does reflect stability throughout the year. I mean, as far as the stock and the repurchases, I mean, right now our stock doesn't really trade, I don't believe, off what we do. It kind of trades based on the AI prophecy of the day. I think there's a little bit of a sky's falling narrative out there and if you believe that narrative, I mean, our stock should almost be at zero. Our value proposition's getting stronger and stronger with our clients. Our Net Promoter Scores are going up. They're continuing to increase. You know, we're kind of valued, I believe, at kind of a fool's gold price and we believe we're precious metal. When you have a $2 billion buyback authorization with growing cash positive business, it benefits us to have these disconnects in our value. I believe over time, long-term investors win when we're able to repurchase these shares. Operator: Your next question comes from the line of Steven Enders from Citi. Steven Enders: Maybe just, dovetailing off of the, the last question, just, I guess, how are you kind of viewing I guess the framework for how you're thinking about the buyback and capital allocation from here and, and how do you kind of view the, I guess, mix between, I guess, leveraging more debt, to support the buyback and kind of just what that means moving forward, on those plans? Chad Richison: Well, I think it's all dependent on where the share price is. I mean, we definitely remain opportunistic when it comes to buybacks. As you mentioned, we are taking on debt for that. You know, we'll remain opportunistic as we go throughout the year and have opportunities. Steven Enders: Okay. Thanks for that. Maybe just in terms of the bigger kind of product strategy I guess with IWant kind of out in the market and the other automation solutions, just what have maybe you seen from how that's supporting top of funnel, new opportunities first time bookings and maybe just kind of broader pipeline conversion and how you're seeing those metrics maybe shift with the broader capabilities out there? Chad Richison: Yes. I mean IWant creates real value and was the first AI tool in our industry that accessed an entire system. You know, and we'll discuss future AI products as we're ready to launch them. I mean IWant's up another 33% just since the end of the fourth quarter from a usage perspective. Usage continues to do well with IWant as it becomes more of the predominant interface for many of our clients as well as their employees in how they both navigate, make functional changes, as well as gather information from our system. Operator: Your next question comes from the line of Jason Celino from KeyBanc Capital Markets. Devin Au: Hi, this is Devin on for Jason today. Thanks for taking our questions. I also wanted to follow up on the 1Q recurring performance too. I know you mentioned forms filing revenue, which sounds like it came in better. Could you perhaps speak to some of the sales retraining or changes that you have done late last year? Did you perhaps maybe see less disruption or some early signs of benefits during quarter that might have drove the strong start in the recurring growth of the year? Chad Richison: I mean, I would say that our, the changes in the sales department did not have any impact on the Q1 starts and revenue. Maybe toward the end, the March kind of level. Primarily those forms, that forms filing revenue would've been baked the end of last year and become somewhat routine as we process those throughout the quarter. Devin Au: Got it. Okay. Thanks for that. Maybe just sticking on the topic of sales, I know you mentioned, I think last quarter you're looking to expand kind of sales rep per office. Yes, that will be helpful. Thank you. Chad Richison: Yes, we continue to hire in sales. We continue to produce many of our largest classes we've ever had go through our training. You know, we have an award-winning sales team, and we're focused on remaining on top. You know, top salespeople, they want to sell the top products, and our salespeople have worked very hard to get where we are today, and I'm real proud of them. Paycom's a great place for salespeople, especially those who may be changing their careers. We found that even HR directors can make pretty good salespeople for us these days. Operator: Your next question comes from the line of Raimo Lenschow from Barclays. Raimo Lenschow: I finally made it. Quick question on IWant. The obviously usability is increasing a lot. What do you see in terms of pipeline bills when you kind of talk to your sales guys about, like, how that's impacting what's going on from pipeline bills how that's kind of helps you all, and then also, like, how that helps you with kind of trajectory or then speed as you go through the pipeline because it does seem like a very compelling offering? Chad Richison: Yes, I mean, IWant has definitely helped us. You know, it's automation throughout our system. You know, IWant makes it easier for you to access GONE, you know? Automation throughout our system as we've moved toward full solution automation IWant makes it easier for people to access that. It reduces the learning barrier to be able to utilize our software. And again, we're having strong use cases. As employees use it at one company and they go to the other company and they kind of go back into 1994 they like that technology. As we simplify our solution and deliver more automation, that does contribute to greater opportunity for leads and sales for us throughout this year. Raimo Lenschow: And then the -- if you think about this year, like, has macro impacted any of your thinking in terms of office openings or what you're seeing out in the field? Or because that's the one concern everyone has. I don't think there's that much data, but, like, any impact that you would see? Chad Richison: I will tell you that internally, everything's going really well for us. We had a great start to the year. We had a good finish last year. You know, we're working with our clients. Conversions are going well. Sales are going well. Our software development group continues to increase our innovation. I mean, it's not until we come on these calls that we find out that we're not doing that great, honestly. because, outside of these, we're doing very well. Raimo Lenschow: Okay, perfect. That's good to hear. Eventually, we will find out as well. Thank you. Operator: Your next question comes from the line of Jared Levine from TD Cowen. Jared Levine: Thanks. Can you talk about bookings performance in 1Q and thus far into 2Q? I guess, have you witnessed the inflection you were hoping for here? Chad Richison: Yes, I mean I'm pretty impatient, and I want it all just because of we shouldn't lose any deals. Matching my expectations, I think, is very, it can be a little bit challenging. I will say that book sales came in, according to budget and what our expectation was for first quarter. I also had kind of mentioned that we had pulled our sales group out of the field for a 3-month period of time. Not full 3 months, but you'd have to come for a week and then go back and then come back for a week. You know, that put a little air in the line, and we would expect as we move throughout the year to have greater opportunities for book sales to have some inflection there. Jared Levine: Great. In terms of CapEx, you did have some pretty good leverage here, I think right around 6% of revenue here in 1Q. Is that a kind of a reasonable expectation for the year here? Chad Richison: Maybe not. I mean there's moratoriums out there on different data centers. As a reminder, I don't know of anyone else in our industry other than us that operates their own data centers. We will have opportunities to expand in both power and purchase of certain items that we have, and we'll have to see how CapEx is impacted throughout this year. We're not ready to really give guidance on that right now. Operator: Your next question comes from the line of Bhavin Shah from Deutsche Bank -- sorry, apologies. Kevin McVeigh from UBS. Kevin McVeigh: Great. Thank you so much, and congratulations on the results. I mean, the buyback speaks for itself. I guess, obviously there's so much concern in the market from an AI perspective. Is there anything you're seeing from a client consumption pattern, whether it's formation down-market, mid-market, adoption of, kind of IWant relative to maybe Beti, that you'd call out just to help us dimensionalize or just really try to de-risk some of the concern that's out there? Cause you know, clearly you're not seeing it in your numbers, and to your point, Chad, right? It, we tell you how bad you're doing, it doesn't really seem like the business is operating that way. Just anything that you would point to try to just help us shift the narrative? Chad Richison: I mean, we've been selling AI here for a little bit now and getting clients to engage with it. I mean, AI changes things. I think it changes things for everybody, but it doesn't just change everything overnight. There are limitations to what should be deployed by a business that's full AI, and trust is very important. You know, we don't sell AI, we sell automated solutions to problems, and sometimes AI's the best way to solve for that, and sometimes it's not. Operator: Your next question comes from the line of Bhavin Shah from Deutsche Bank. Bhavin Shah: Chad, as you continue to lean on automation within the service organization, how are you seeing that impact your customer satisfaction levels and the time to implementation for new clients? Chad Richison: You know, automation is an important component of providing strong ROI, cases for both our clients and ourselves. You know, we continue to do that. It's very important to be able to automate, especially decisions where you expect consistent behavior. We've become very good at that. That's been a focus of ours for some time as we continue to build out our system to be fully automated. Bhavin Shah: Are you seeing any kind of improvement to retention, high level? I know you don't have to speak on a quarterly basis, but anything that you're seeing as you kind of automate this stuff and are able to serve your customers better? Chad Richison: You know, we do report retention once a year. We did report it last quarter for the previous year. It did increase. I do think that any time you're able to make it easier for a client to access value, which increases their ROI on their end, it does make it more difficult for them to leave. Or maybe they're just not motivated to go look because they are receiving the value. I think you couple that with the world-class service focus that we've had with our clients and we would remain hopeful for the remainder of this year to continue to do well with our clients. Operator: Your next question comes from the line of Daniel Jester from BMO Capital Markets. Daniel Jester: Maybe we can just talk about the go-to-market and I think you talked about in the past adding sales capacity, enlarging your sales offices. Maybe just expand on kind of what you're seeing in the sales force, anything you're doing differently as you're approaching the year ahead. Thank you. Chad Richison: Yes. We're doing a lot differently in our sales organization. That really started November 1, late October of last year. I'm not going to say it's necessarily different than things we had done in the past, but it was important for us to with the new strategy, right? As we continue to go out there and sell automation, it's important that we're converting clients the correct way, that they're receiving the ROI that we've promised them out of the gate, and that they don't have to wait. It's important that we're selling those things the right way. We're going to continue to do that. You know, at the end of the day, it doesn't matter how great a product is, someone's got to go sell it. You know, products don't sell themselves, and I think it's important that we remember that. We've always focused on having a world-class, best-in-class sales organization, and we've continued to maintain that as well as build onto it. Daniel Jester: Okay. Appreciate it. Maybe just in terms of your own organization and adoption of AI to boost automation internally, maybe share any examples that have gained particular traction, and maybe what the roadmap looks like for improving efficiencies inside Paycom. Thank you so much. Chad Richison: Yes. I don't want to really we're not going to really discuss, all the things that we're doing, with it internally, just for competitive reasons. I will say this, there's not an area of our business that isn't impacted through our automation strategy. You know, sometimes that's coding it the right way to get full automation and then sometimes it is, utilizing AI. Many times it's utilizing AI to build, what you need to be able to do that. We remain focused, throughout all of the departments that we have here at Paycom as well as all the functions. That's not a discipline that will go away. that will be something that we'll continue to do, into the future. Operator: Your next question comes from the line of Jacob Smith from Guggenheim Securities. Jacob Cody Smith: I understand we have these quarterly dynamics around extra Wednesdays again this year, it seems like you're starting to shift a bit towards a per employee per month model where clients are billed monthly regardless of payroll cycle. Is this only for new customers or are existing customers moving to this pricing model as well? What's the impetus behind rolling this out? Is there opportunity for more module uptake or price realization when having these discussions with customers? Chad Richison: I mean, our pricing, we consider it proprietary for competitive reasons, we don't really go through the pricing model. What I will say is that our pricing as far as what we charge to a client and their overall value hasn't changed meaningfully one way or the other. There are different pricing structures that are more helpful to some clients based on how they hire and their turnover and what have you. We work those through with each client individually. Operator: Your next question comes from the line of Jake Roberge from William Blair. Jacob Roberge: This is Jacob, on for Pat McIlwee. Thanks for taking my question. I just wanted to touch on retention, which we saw tick up in Q4. As you continue to see a nice momentum in usage on IWant, how should we be thinking about retention going forward? Kind of do you see it getting back to the 94%, 93% range from a few years ago? Thank you. Chad Richison: It's definitely a focus of ours. I mean, I would say not as necessarily an absolute number, but as a continuing to make sure that our clients are achieving the ROI that's out there for them, making sure that we're continuing to deliver world-class service and so that they can get that value. We are seeing our Net Promoter Score continue to be impacted to the positive, and I believe that all those things have an opportunity to impact us throughout this year. Operator: Your next question comes from the line of Brian Schwartz from Oppenheimer. Brian Schwartz: Chad, on the, on the sales, specifically with your newer sales reps, that are ramping, what are you seeing in terms of the efficiency trends relative to, say, the historical norms at Paycom? Then I have a follow-up. Chad Richison: I wouldn't say it's incredibly different yet. I mean, we have great reps that have been with us a long time, and they continue to sell and they can almost pick how much they're going to sell each year. Our new reps are coming out the gate better trained than what any rep we've put out in the last 6 or 7 years. They're more prepared to go out there. You know, we're excited about the ramp phase for them. I do believe we are seeing new ramp, new reps ramp faster than what our reps had in the past for probably the last 6 or 7 years, honestly. Brian Schwartz: The follow-up question I had was just on AI monetization in the category. I believe in your introductory comments you said that customers are now expecting AI in the HCM platform. Do you expect AI to be a lever for price realization over time or primarily a retention and a competitive necessity tool? Chad Richison: I mean, like I said, we don't sell AI in itself. We solve problems for our clients. A lot of that is through automation and AI. When we're able to do that, and we're able to impact the client in a meaningful way, and it does create measurable ROI for them oftentimes we get to share in that value that we've created. We do not charge for IWant. IWant is included with our system. Because clients use it does create greater usage for them, more value for them. Makes it easier for them to deploy additional products that we come up with to sell that creates value for them. It also makes it easier for us to service clients as they're able to service themselves much easier, through these types of technologies. All those contribute to opportunities for increases for us in both sales and other, as we move throughout, 2026 and beyond. Operator: Your final question comes from the line of Matt VanVliet from Cantor. Matthew VanVliet: I guess curious on how you've made progress, maybe breaking into some other verticals, whether that be in the public sector, or even some of the near adjacent geographies, that you've looked at. Curious in terms of what kind of resources you're putting in there and what kind of traction you're seeing. Chad Richison: Yes we've been industry-agnostic, and I would say geographically agnostic from that perspective. We do have offices that are all over the U.S., and through those we're able to cover the entire U.S. Although sometimes we have to fly to see somebody, if you will, because we don't have offices in every single city. We're continuing to see have positive discussions with clients or prospects regardless the industry or geography in which they're located. Matthew VanVliet: All right. Helpful. Then, I guess as you look at some of your competitors getting into things like expense management, curious on how you're approaching the overall product roadmap given the increase in velocity that's enabled by AI tooling. Are there areas of the platform that are interesting or do you have differing opinions on sort of whether or not you'd want to enter some things that are adjacent to what you're providing today? Chad Richison: Yes, we've provided an expense management module as part of our system probably for around 9 or 10 years. You know, we do continue to build out things that make sense. We really start with the client problem now, and that's very important, you know? We don't start with what is it like we would like to see developed. It's important that we're solving real-life client problems that they have today. That's been our focus. As we look into the future, we do continue to expand into other things. I also think there are opportunities for adjacencies for us. You know, you have to have everything prepared, and we've got to do it the right way. We have earned the trust of our clients and we'll continue to do that. The more trust we earn, the more opportunity we have to do business with them in other areas. And so we look forward to continue to earn that trust with our clients and to continue on as we have. Operator: This concludes the question and answer portion of today's call. I will now turn the call back over to Mr. Chad Richison for closing remarks. Chad Richison: Thanks, everyone, for joining our call today. We look forward to speaking with many of you at the Jefferies Conference on May 27, the Baird Conference on June 2, and the Mizuho Conference on June 9. We are executing well against our 2026 plan, delivering world-class service and ROI for our clients. I want to thank all of our employees for their contributions to a strong start to the year. With that, operator, you may end the call. Thank you. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good afternoon, and welcome to Gold.com, Inc.’s conference call for the fiscal third quarter ended 03/31/2026. My name is Matthew, and I will be your operator this afternoon. Before this call, Gold.com, Inc. issued its results for the fiscal third quarter 2026 in a press release, which is available in the Investor Relations section of the company’s website at www.gold.com. You can find the link to the Investor Relations section at the top of the home page. Joining us for today’s call are Gold.com, Inc. CEO, Gregory Roberts; President, Thor Gjerdrum; and CFO, Cary Dickson. Following their remarks, we will open the call for your questions. Then, before we conclude the call, I will provide the necessary cautions regarding the forward-looking statements made by management during the call. I would like to remind everyone that this call is being recorded and will be made available for replay via a link available in the Investor Relations section of Gold.com, Inc.’s website. I would now like to turn the call over to Gold.com, Inc. CEO, Gregory Roberts. Sir, please proceed. Gregory Roberts: Thank you, Matt, and good afternoon, everyone. Thanks again for joining our call today. Our third quarter results reflect the strength of our fully integrated platform and our ability to capitalize on strong market conditions. As I noted on our last call, we were beginning to see a meaningful shift in market dynamics, and that momentum carried over favorably into this quarter. During the quarter, we experienced an unprecedented surge in activity across both our wholesale sales and our ancillary services as well as our direct-to-consumer segments. Market participants across the spectrum, from individual investors to institutional buyers, moved aggressively to increase exposure to precious metals. This environment created a highly dynamic two-way market with elevated levels of both buying and selling activity, which allowed us to efficiently deploy inventory and capitalize on favorable trading opportunities. The pace and magnitude of the movement was extraordinary. We saw one of the most volatile spot price environments in recent history, which drove significant transaction velocity across our platform. Operationally, our teams executed extremely well under these conditions. The rapid spike in demand challenged systemwide capacity, and we were positioned to respond by quickly scaling inventory and production levels at our mints as we leveraged our balance sheet. This resulted in record financial performance, including over $10 billion in revenue, over $175 million in gross profit, and $59.5 million in net income for the quarter. Our direct-to-consumer segment led the way during the quarter, reflecting strong customer engagement, higher order values, and increased transactional activity across our platforms. JMB outperformed and delivered record profitability. Our wholesale sales and ancillary services segment also delivered significant quarter-over-quarter improvement following the more challenging market conditions we experienced last fall. The favorable market conditions we experienced this quarter were also global, with LPM continuing to build momentum across Asia and benefiting from heightened regional demand and increased trading activity. Activity began to moderate toward the end of the quarter, as is typical following periods of heightened volatility. We are now seeing a more normalized environment. While geopolitical dynamics remain an important factor influencing demand, overall market conditions remain constructive; we believe the underlying drivers for precious metals investments remain firmly in place. We also benefited as last quarter’s backwardation moved into contango. We remain focused on driving synergies across our business units and maximizing at every level. Our acquisition of Monnex during the quarter is already delivering strong returns, and the addition of Sunshine Mint to our portfolio will meaningfully expand our production capabilities going forward. As previously disclosed, in February 2026 we entered into a securities purchase agreement with an affiliate of Tether Global Investment Fund whereby Tether agreed to purchase an aggregate of 3 million 370 thousand 787 shares of Gold.com, Inc.’s common stock at a price of $44.50 per share. The first tranche of the shares was purchased on 02/06/2026, corresponding to 2 million 840 thousand 449 shares for an aggregate purchase price of $126.4 million. Following receipt of regulatory clearance, the second tranche of 530 thousand 338 shares was purchased on 05/05/2026 for an aggregate purchase price of $23.6 million. This strategic equity investment further enhanced our overall capital and liquidity position. It is a powerful validation of our vertically integrated model. During the quarter, we also entered into storage, metal leasing, and trading agreements with Tether and their affiliates, and purchased $20 million of Tether’s gold-backed stablecoin XAUT. We believe this partnership represents a meaningful step forward in aligning our physical precious metals platform with emerging digital asset ecosystems, and we are encouraged by the early progress we have made. I will now turn the call over to our CFO, Cary Dickson, who will provide an overview of our financial performance. Then our President, Thor Gjerdrum, will discuss key operating metrics. After that, I will provide further insights into the business, our growth strategy, and we will take questions. Cary, please proceed. Thank you, and good afternoon to everybody. Cary Dickson: Our revenues for fiscal Q3 2026 increased 244% to $10.3 billion from $3.0 billion in Q3 of last year. Excluding an increase of $4.3 billion of forward sales, our revenues increased $2.9 billion, or 187%, due to higher average selling prices of gold and silver as well as increased gold and silver ounces sold. For the nine-month period, our revenues increased 142% to $20.5 billion from $8.4 billion in the same year-ago period. Excluding an increase of $7.4 billion of forward sales, our revenues increased $4.6 billion, or 95%, due to higher average selling prices of gold and silver as well as increased gold and silver ounces sold. Revenues also increased in both the three- and nine-month periods due to the acquisitions of SGI, Pinehurst, and AMS in late fiscal 2025 and Monnex in fiscal 2026. Gross profit for Q3 2026 increased 331% to $176 million, or 1.7% of revenue, from $41 million, or 1.3% of revenue, in Q3 of last year. The increase was due to higher gross profit in both our wholesale sales and ancillary services segment and our direct-to-consumer segment, including the acquisitions of SGI, Pinehurst, AMS, and Monnex, which were not fully included in the same year-ago period. For the nine-month period, gross profit increased 165% to $342 million, or 1.6% of revenue, from $129.2 million, or 1.53% of revenue, in the same year-ago period. The increase was due to higher gross profit in both our wholesale sales and ancillary services segment and the direct-to-consumer segment, including the acquisitions of SGI, Pinehurst, AMS, and Monnex, which were not fully included in the same year-ago period. SG&A expenses for fiscal Q3 2026 increased 134% to $78 million from $33 million in Q3 of last year. The change was primarily due to an increase in compensation expense, including performance-based accruals; higher advertising costs of $7 million; increased insurance costs of $4 million; higher bank service and credit card fees of $1.9 million; and an increase in facilities expense of a little over $1 million. SG&A expense for the three months ended 03/31/2026 included $33 million of expenses from SGI, Pinehurst, AMS, and Monnex, which were not included in the same year-ago period as they were not consolidated subsidiaries for the full year. Excluding the increase from these newly acquired subsidiaries, SG&A increased $11.6 million. In essence, 75% of our overall increase in SG&A period over period related to the acquisitions of our new subsidiaries. For the nine-month period, SG&A expense increased 130% to $197 million from $85 million in the same year-ago period. The increase was primarily driven by higher compensation expense, including performance-based accruals of $68 million, higher advertising costs of $17 million, an increase in consulting and professional fees to $7 million, an increase in insurance cost of $6.1 million, and an increase in banking service and credit card fees of $4.5 million. SG&A expenses for the nine months ended 03/31/2026 included $93 million of expenses from SGI, Pinehurst, AMS, and Monnex, which were not included in the same year-ago period as they were not consolidated for the full period. Excluding the increase from these newly acquired subsidiaries, SG&A increased $18 million year over year. In essence, 84% of our overall increase in SG&A period over period related to the acquisition of these new subsidiaries. Depreciation and amortization expense for fiscal Q3 2026 increased 88% to $9.4 million from $5.0 million in the same year-ago period. The change was predominantly due to a $4.6 million increase in amortization expense relating to intangible assets acquired through our acquisitions of SGI, Pinehurst, AMS, and Monnex, and a $1.5 million increase in depreciation expense, partially offset by a $1.6 million decrease in intangible asset amortization from JMB and Silver Gold Bull. For the nine-month period, depreciation and amortization expense increased 72% to $24.6 million from $14.3 million in the same year-ago period. The change was primarily due to a $10 million increase in amortization expense related to intangible assets acquired through our acquisitions of SGI, Pinehurst, AMS, and Monnex, and a 600 thousand dollar increase in depreciation expense, partially offset by a $5 million decrease in intangible asset amortization from JMB and SGB. Interest income for Q3 2026 increased 1% to $6.8 million from $6.7 million in the same year-ago period. The aggregate increase in interest income was due to an increase in interest income earned by our secured lending segment of 500 thousand dollars, partially offset by a decrease of the same amount in our finance product income category. For the nine-month period, interest income decreased 12% to $18.2 million from $20.6 million in the same year-ago period. The aggregate decrease in interest income was due to a decrease in other financing income of $2.6 million, offset by an increase in interest income earned by our secured lending segment of 200 thousand dollars. Interest expense for fiscal Q3 2026 increased 47% to $19 million from $13 million in Q3 of last year. The increase is primarily due to higher interest and fees of $3 million related to product financing arrangements, an increase of $2.6 million related to precious metal leases, and an increase of 300 thousand dollars associated with our trading credit facility. For the nine-month period, interest expense increased 44% to $47.9 million from $33 million in the same year-ago period. The increase is primarily due to higher interest and fees of $7.2 million related to product financing arrangements, an increase of $5.8 million related to precious metal leases, and an increase of $1 million associated with our trading credit facility. Earnings from equity method investments in Q3 increased to $2.3 million from a loss of 200 thousand dollars in the same year-ago quarter. For the nine-month period, earnings from equity method investments increased to $2.4 million from a loss of $2.1 million in the same year-ago period. The increase in both periods was due to increased earnings of our equity method investees. Net income attributable to the company for Q3 2026 totaled $60 million, or $2.09 per diluted share, compared to a net loss of $8 million, or $0.36 per diluted share, in the same year-ago quarter. For the nine-month period, net income attributable to the company totaled $70 million, or $2.65 per diluted share, compared to $7 million, or $0.29 per diluted share, in the same year-ago period. Adjusted net income before provision for income taxes, a non-GAAP financial measure which excludes depreciation, amortization, acquisition costs, and contingent consideration fair value adjustments, for Q3 totaled $87 million, an increase of $81 million compared to $5.7 million in the same year-ago quarter. Adjusted net income before provision for income taxes for the nine-month period totaled $115 million, an increase of $81 million, or 240%, compared to $33.9 million in the same year-ago period. EBITDA, another non-GAAP liquidity measure, for Q3 2026 totaled $103.4 million, an increase of $102 million compared to $1.3 million in the same year-ago quarter. EBITDA for the nine-month period totaled $151.6 million, an increase of $116 million, or 329%, compared to $35 million in the same year-ago period. Now turning to our balance sheet. We maintain a strong liquidity position supported by expanding financing capacity, including increased precious metal lease facilities and the recently completed Tether equity and financing investments to date. At quarter end, we had $143.0 million of cash compared to $77.7 million at the end of fiscal 2025. Our non-restricted inventories totaled $1.319 billion as of 03/31/2026 compared to $794 million as of the end of fiscal 2025. Gold.com, Inc.’s board of directors has declared a quarterly cash dividend of $0.00 per share, maintaining the company’s current dividend program. The dividend is payable in June to stockholders of record as of 05/20/2026. That completes my financial summary. I will turn the call over to Thor, who will provide an update on our key operating metrics. Thor, thank you. Thor Gjerdrum: Looking at our key operating metrics for 2026, we sold 538 thousand ounces of gold in Q3 fiscal 2026, which is up 25% from Q3 of last year and down 1% from the prior quarter. For the nine-month period, we sold approximately 1.5 million ounces of gold, which is up 17% from the same year-ago period. We sold 34.6 million ounces of silver in Q3 fiscal 2026, which is up 120% from Q3 of last year and up 86% from the prior quarter. For the nine-month period, we sold 63.6 million ounces of silver, which is up 10% from the same year-ago period. The number of new customers in the DTC segment—which is defined as the number of customers that have registered, set up a new account, or made a purchase for the first time during the period—was 292 thousand 800 in Q3 fiscal 2026, which is down 68% from Q3 of last year and up 205% from last quarter. For the three months ended 03/31/2026, approximately 58% of the new customers were attributable to the acquisition of Monnex. For the three months ended 03/31/2025, approximately 93% of the new customers were attributable to the acquisitions of Pinehurst and SGI. For the nine-month period, the number of new customers in the DTC segment was 458 thousand 300, which decreased 55% from 1 million 20 thousand 300 new customers in the same year-ago period. Approximately 37% of the new customers for the nine months ended 03/31/2026 were attributable to the acquisition of Monnex. Approximately 82% of the new customers for the nine months ended 03/31/2025 were attributable to the acquisitions of SGI and Pinehurst. The number of total customers in the DTC segment at the end of the third quarter was approximately 4.7 million, which is a 40% increase from the prior year. Changes in customer base metrics were primarily due to the acquisitions of AMS and Monnex, which were not included in the same year-ago period, as well as organic growth of our JMB customer base. Finally, the number of secured loans at March totaled 337, a decrease of 31% from 03/31/2025 and a decrease of 5% from December. The dollar value of our loan portfolio as of 03/31/2026 totaled $126 million, an increase of 46% from 03/31/2025 and an increase of 5% from 12/31/2025. That concludes my prepared remarks. I will now turn it over to Greg for closing remarks. Greg, you may be muted. Operator: Apologies. Greg, thanks, Thor and Cary. Gregory Roberts: This quarter was a clear demonstration of the strength and scalability of our fully integrated platform. We capitalized on a highly dynamic market environment, delivered solid financial results, and further strengthened our strategic and financial positioning. Our strategic focus remains on integrating and realizing cost savings and synergies from our recent acquisitions, expanding both our domestic and geographic reach, and further diversifying our customer base. With an expanded portfolio of category-leading brands and improved operational leverage, we believe Gold.com, Inc. is positioned to capture growth across multiple markets and continue to deliver long-term value for our shareholders. This concludes my prepared remarks. Operator, we can now open the line for questions. Operator: Certainly. Everyone, at this time we will be conducting a question-and-answer session. If you have any questions or comments, please press 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you are listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press 1 on your phone. Your first question is coming from Michael Baker from DA Davidson. Your line is live. Michael Baker: Great, thanks. A couple of questions. Unbelievable quarter. But Gregory, you said something about business as “normalized.” What does “normalized” mean to you? We track spreads and see they have come down so far in the June quarter versus the March quarter, but still well above where they were for much of calendar 2025. We would not consider 2025 to be normal—would you? Related to that, with the much larger platform because of all the acquisitions, even a “normal” earnings power for the company should be a lot higher than it was in the past. Is there any way to quantify what normal earnings power would be? Gregory Roberts: That is a lot. First and foremost, as we have always said, the environment is going to drive the profitability. Combined with the acquisitions that we do, clearly we are going to get different revenue streams, and the revenue streams are going to vary between the different divisions and parts of the company. I think last year was below par—below normalized—for most of calendar 2025. As we talked about on our last call, things really started to improve toward October and November, and December was pretty strong. When I said normalized, I was reflecting on how crazy and active January and February were and how March became what I would call a bit more normalized for the environment. In January and February of this quarter, we significantly outperformed what I would call normalized. There was a question on the last call—if these conditions continue, what is going to happen? I said if these conditions continue, we are going to have a great quarter. Clearly, we had a great quarter. A lot of the headwinds that we had through the fall of last year were attributed to the backwardation issues we had. We highlighted that as a major headwind on performance as it related to our cost of financing and our ability to collect contango, which is a more normalized environment. Backwardation is highly unusual. What we saw this quarter was a more normalized contango environment, which did help some of our other businesses, and that has continued in what I would call normalized conditions in March and into April, the first month of our Q4. We are still very active. Certainly, the war in Iran has caused a lot of change and disruption in overall volumes in the financial markets. Although our premiums are still quite nice, we have had a bit of volume retreat from where we were in January and February. Operator: Thank you. Your next question is coming from Thomas Forte from Maxim Group. Your line is live. Thomas Forte: Great. First off, Gregory, Cary, Thor—wow. Three questions, one at a time. First, how did the M&A enable you to capitalize on the demand versus previous spikes? Gregory Roberts: In January and February, we saw an environment where the tide rose for all of our businesses, which was great to see. Within DTC, we had a couple of overachievers, and as I mentioned earlier, JMB had a great quarter—great customer counts and premium spreads. We also saw a big uptick in our LPM business in Hong Kong and Singapore. That was new for us because we were able to see what customers in a geography we had not previously operated in were capable of. We were able to benefit from that this quarter. There were days or weeks where China in particular seemed to outperform our domestic businesses, and vice versa. It was great data for us, and we are enthusiastic about what we were able to accomplish there with that new acquisition. On the other side, the bullion business was an overachiever. Collectibles were strong in the quarter, but given the nature of that business, it did not benefit as much as bullion. Thomas Forte: Second, how, if at all, did your strategic partnership with Tether contribute to your performance? Gregory Roberts: In this particular quarter, it did contribute, but I would not say it was greatly significant. As we have onboarded Tether as a trading partner, one of the most exciting things you will see in our numbers is our storage business. With Tether’s help as well as Monnex, from 12/31/2025 to 03/31/2026 we have gone from $1.1 billion in storage to roughly double that, and where I think we are today in May is about $2.2 billion. As we said in our release related to Tether, storage is a big part of our strategic relationship with them, along with the gold leasing arrangements we have with them, which are now above what we had projected in the release. We are getting those benefits now, including in the current quarter. Thomas Forte: Lastly, can you give us your current thoughts on your one-time dividend philosophy? Gregory Roberts: We have explored special dividends in the past and rewarded shareholders when we have had a great year. We are very active right now and have a lot of opportunities in front of us. As I have said before, there are five things I look at for capital deployment: paying down debt, strategic inventory increases, acquisitions, share buybacks, and dividends. Based on the performance we are seeing from our acquisitions right now, I would continue to put acquisitions near the top of the list. We are doing a good job paying down debt and lowering interest expense. Dividends and share buybacks will continue, but I would like to see how the fourth quarter shapes up before we get too far down the road on a special dividend. Operator: Your next question is coming from Andrew Scutt from ROTH Capital Partners. Your line is live. Andrew Scutt: Hey, congrats on the really strong results, and thanks for taking my questions. First, can you help us understand the little bit over $1 billion increase in restricted inventory? And in the same vein, with the addition of Sunshine Mint, how will that help you manage your inventory going forward? Gregory Roberts: They are two different things. Regarding inventory, in January and February we had record spot prices. You had days where silver was $120 and gold was $5,500. That will naturally increase our restricted and total inventory because the spot price affects valuation—if we have the same number of ounces, we will have higher inventory dollars. We pivoted very quickly from November and early December, when holding more inventory cost us significantly due to backwardation. By mid-December and January, the environment was demanding more inventory from us to accomplish these numbers, and we pivoted. Our SilverTowne Mint ramped up and got us product when there were periods where competitors did not have product, allowing us to satisfy demand. As it relates to Sunshine, we moved from an approximate 45% ownership interest to 100%. We thank Tom Power, the founder, who has retired. It was great timing for us as we moved into a very active period. We benefited from our minority interest, and now, owning 100%, we will have greater control over what products Sunshine is making. A shout out to Jamie Meadows, our new president of minting, and Jason, the president of Sunshine. As Tom has retired, those two are going to really lead our minting operations. I am confident and looking forward to what they will do together having SilverTowne and Sunshine working with a closer relationship. Andrew Scutt: Thanks. Second, you have demonstrated an ability in the past to extract SG&A synergies from JMB and other acquisitions. As we look at recent acquisitions like Monnex and Sunshine, can you help us understand potential SG&A synergies over the next couple of quarters? Gregory Roberts: Everyone on our team is looking for SG&A synergies. We are also looking for synergies that create more gross profit across the companies. A quarter like this really throws some comparison numbers out of whack because to do $10 billion in sales, we are going to spend more money doing it. Not long ago a $5 billion year was good for us, and now we have achieved a $10 billion quarter. The variable parts of our SG&A will increase. The market environment over the next six months will dictate where we can find cost savings and optimize SG&A. We are always focused on it. Investors should recognize—and we are proud of—our ability to pivot when the market shifts to a strong tailwind, as it did this quarter. Our earnings potential, which I get asked about a lot, was illustrated by this quarter—given the environment, our acquisitions, and our ability to access capital very quickly. Operator: Thank you. Once again, everyone, if you have questions or comments, please press star then 1 on your phone. Your next question is coming from Seymour Jacobs from Jam Partners. Your line is live. Seymour Jacobs: Hey, Gregory. I have two questions. First, digging into the shift in hedging costs from negative to positive as silver went from backwardation to contango. I remember it was still really bad at the end of the year and into January—badly in backwardation and costing you money—and on the last call you quantified, generally, how much it was costing you. On this call, you are talking as if the return to contango really benefited you, but it seems to me that happened during the quarter, maybe halfway through. Is the coming quarter—the April through June quarter—effectively going to be the first full quarter where you are benefiting, or did you see the full benefit in the first quarter? Gregory Roberts: Definitely not the full benefit in Q3. You are correct that we experienced backwardation and higher lease and repo costs through the first half of the quarter. When we hit record spot prices, our transactional business was extraordinary, but we still had higher expense and the backwardation issue. Things normalized in March and definitely in April. The investment from Tether, both in the stock purchase and the leases we are transacting with them, has had a positive effect on our interest expense, our carry costs, and our ability to pay down our dollar lines. So Q4 will be the first full quarter in a while without those headwinds. Seymour Jacobs: Great. Second, on the $20 million of XAUT tied to the Tether transaction—what is the strategy and what does it lay the groundwork for? My understanding is XAUT is largely offshore with restrictions in the U.S., so I am guessing the $20 million is not just to be more long gold. Can you expand on the strategy? Gregory Roberts: I will expand a bit without giving away our launch codes. We invested $20 million in XAUT. I believe our average cost is around $4,700 spot, about where it is right now. We are unhedged on that, so we are long $20 million of gold. The exercise of opening the account and putting the plumbing in place—buying XAUT, holding it in a wallet—has been completed. We have completed onboarding with a digital bank and are working on onboarding with Tether directly. I believe there is an opportunity for us to get further involved in XAUT as part of our DTC network. There will likely be trading opportunities. The ability to trade Tether truly 24/7 at good volumes, and trade XAUT and Tether, is going to be valuable for us. We have seen the volumes and what we can expect in XAUT over weekends; there could be opportunities there. We are going down the path of a Gold.com, Inc. wallet. Giving our customers the ability to access XAUT and redeem XAUT for physical is important. The redemption feature—which is not currently in place for XAUT holders—I think is going to be a good opportunity for Gold.com, Inc. As to whether this is outside or inside the U.S. for holders of XAUT, we are still researching. At the moment, it looks like more of an international opportunity than domestic, but we are still vetting that. Seymour Jacobs: Lastly, on the rebranding to Gold.com, Inc.—we saw the launch of the unified website that feeds into all your different brands. What benefits have you seen so far on the marketing front, and what is the update on potential Gold.com, Inc.-branded financial services like a credit card? Gregory Roberts: So far, the rebranding has gone great. I am speaking to new shareholders all the time. In hindsight, it was an exceptional move and it is good for the company to get everything under one umbrella brand. We continue to work on a Gold.com, Inc. credit card to give our DTC customers an opportunity to connect even better with Gold.com, Inc. That is on the to-do list. We are not in the red zone yet, but we are on the other side of the 50. I am looking forward to that and exploring how the Gold.com, Inc. credit card may connect with other opportunities on the digital side. Operator: At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Roberts for his closing remarks. Gregory Roberts: Thank you, Matt. Once again, as I do every quarter, I would like to thank our many shareholders and our employees. We look forward to keeping you updated on our future progress and everyone’s dedication and commitment to Gold.com, Inc.’s success. Thank you all for joining today. Operator: Thank you. Before we conclude today’s call, I would like to provide Gold.com, Inc.’s safe harbor statement that includes important cautions regarding forward-looking statements made during this call. During today’s call, there were forward-looking statements made regarding future events. Statements that relate to Gold.com, Inc.’s future plans, objectives, expectations, performance, events, and the like are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Securities Exchange Act of 1934. These include statements regarding expectations with respect to future profitability and growth, international expansion, operational enhancements, and the amount or timing of any future dividends. Future events, risks, and uncertainties, individually or in the aggregate, could cause actual results to differ materially from those expressed or implied in these statements. These include the following. With respect to proposed transactions with Spectrum Group International, the failure of parties to agree on definitive transaction documents, the failure of parties to complete the contemplated transactions within the currently expected timeline or at all, the failure to obtain necessary third-party consents or approvals, and greater-than-anticipated costs incurred to consummate the transactions. Other factors that could cause actual results to differ include the failure to execute the company’s growth strategy, including the inability to identify suitable acquisition or investment opportunities, greater-than-anticipated costs incurred to execute the strategy, government regulations that might impede growth, particularly in Asia, the inability to successfully integrate recently acquired businesses, changes in the current international political climate—which historically has favorably contributed to demand in the precious metals market but has also posed certain risks and uncertainties for the company—potential adverse effects of current problems in national and global supply chains, increased competition for the company’s higher-margin services which could depress pricing, the failure of the company’s business model to respond to changes in the market environment as anticipated, changes in consumer demand and preferences for precious metal products generally, potentially negative effects that inflationary price pressures may have on our business, the inability of the company to expand capacity at SilverTowne Mint, the failure of our investee companies to maintain or address preferences of our customer bases, general risks of doing business in the commodity markets, and the strategic business, economic, financial, political, and government risks and other risk factors described in the company’s public filings with the Securities and Exchange Commission. The company undertakes no obligation to publicly update or revise any forward-looking statements. Listeners are cautioned not to place undue reliance on these forward-looking statements. Finally, I would like to remind everyone that a recording of today’s call will be available for replay via a link in the Investors section of the company’s website. Thank you for joining us today for Gold.com, Inc.’s earnings call. You may now disconnect.
Operator: Good morning, and welcome to the conference call on the results of the Second Quarter of Fiscal 2026 of Infineon Technologies AG. I'm Matilda, your Chorus Call operator [Operator Instructions] And that the conference call will be recorded. [Operator Instructions] The conference may not be recorded for publication. I would now like to hand the floor to Florian Martens, Chief Communications Officer. Please, sir, go ahead. Florian Martens: Thank you so much. Good morning, ladies and gentlemen, and dear colleagues and coworkers, welcome to our conference call regarding the results of the second quarter of fiscal 2026. Representing the Infineon Management Board at this conference are, as usual, Jochen Hanebeck, Chairman of the Board of Management; and Dr. Sven Schneider, Chief Financial Officer. Dear listeners, as usual, Mr. Hanebeck will first provide you with an overview of the business performance and the outlook. Afterwards, both members of the Management Board will be available to answer any questions you may have. Our conference call will end promptly at 8:45 a.m. Of course, our press team, led by Andre Tauber and I will remain at your disposal afterwards. Having said that, I'll hand the floor over to Jochen Hanebeck now. Jochen Hanebeck: Thank you very much, Florian. Hello, and a warm welcome from me as well. Esteemed listeners, after 10 days in space, the Artemis I mission returned to earth about 3 weeks ago, 4 astronauts landed back safely on earth. The successful mission has once again proven that Infineon semiconductor solutions function reliably in all situations even under the extreme conditions of space from critical power supplies and control systems to data communication, our technologies and radiation hardened components made a significant contribution to the electronic backbone inside the Orion capsule. My heartfelt congratulations to all of our engineers. They truly contributed to the success of this historic mission. However, we're also seeing some success on our planet, a broader upswing across many end markets is clearly on the horizon. We are seeing rising demand in several key markets. While geopolitical conflicts continue to weigh on people and markets, our business indicators such as order intake, delivery times, cancellation rate and inventory levels are showing a significantly improved picture. This picture continues to vary by application area. In the field of artificial intelligence, momentum continues to grow. It is also having positive ripple effects on adjacent sectors. The market development in industrial applications is being supported by rising demand for energy infrastructure. In the Automotive sector, order intake is rising as customers begin to replenish their low inventory levels. However, electromobility remains in difficult waters, while we are seeing a positive global trend in software-defined vehicles. Overall, demand in our end markets is improving significantly. We are preparing for a broad-based upswing. Now let's take a closer look at the performance in Q2 of fiscal 2026. Infineon delivered results that were fully in line with expectations. Our company generated revenue of EUR 3.812 billion, which represents a 4% increase over the previous quarter. Compared to the same quarter last year, revenue rose by 6% and by over 14% on a currency-adjusted basis as the U.S. dollar was significantly stronger 12 months ago. Segment earnings reached EUR 653 million. The segment earnings margin was at 17.1%, down from 17.9% in the previous quarter. This development reflects, on the one hand, the positive effects of rising volumes. On the other hand, however, the usual price adjustments that take effect at the beginning of each calendar year. In addition, a decline in the high-voltage business in the Automotive segment and costs associated with its realignment created significant headwinds for profitability. More on this in just a second. Now the recovery momentum mentioned at the beginning is clearly evident in our order backlog. This rose by EUR 4 billion quarter-on-quarter and stood at around EUR 25 billion at the end of March. Year-on-year, this represents an increase of around 25%. And the order backlog continues to grow in the current quarter. To the extent that our capacities allow, we are now confirming customer orders well into the next fiscal year. Free cash flow in the second quarter was minus EUR 63 million, following minus EUR 199 million in the previous quarters. Now let's turn to the results of our 4 business segments in the second quarter, starting with Automotive. Before we look at ATV's quarterly performance, let's take a brief look back. We are very pleased to have defended our global leadership position in automotive semiconductors for the sixth consecutive year in 2025. This is shown by the recently published data from TechInsights. Ranking first or second in all major regions in the world confirms our outstanding position as the automotive industry's preferred partner. We were even able to extend our lead over our main competitors, particularly in the crucial microcontroller category. In this segment, we actually increased our market share year-on-year from 32% to 36%. Now to the quarterly figures. Automotive achieved a slight increase in revenue to EUR 1.830 billion during the reporting period. We were able to offset price declines in the low single-digit percentage range with high unit volumes. Segment earnings amounted to EUR 331 million. The segment earnings margin was at 18.1%, down from 22.1% in the previous quarter. The decline was primarily attributable to 2 factors: charges related to our businesses with high-voltage power semiconductors for electric powertrains as well as the price adjustments mentioned earlier. I will discuss the former again in more detail in just a few seconds. Looking at the automotive market, the short-term outlook remains subdued. In April, the market research firm, S&P Global, revised its vehicle sales figures for 2026 downward. The forecast now largely aligns with our original assessment. For our company, however, structural semiconductor growth driven, for example, by the rapid proliferation of software-defined vehicles is more important than actual vehicle sales figures. The trend towards electromobility also remains intact. However, the adoption of electric vehicles is proceeding more slowly than expected. Market pressure is particularly pronounced for high-voltage power semiconductors for the electric powertrain. Intense competition driven in part by the significant expansion of the manufacturing capacity in the sector and the shift in attitude towards e-mobility promotion has led to prices and volumes falling faster than expected. The result of this, the profitability level in our automotive high-voltage business is unacceptable to us. That is why we are fundamentally realigning it. In addition to the restructuring of our back-end production of automotive frame modules at the Warstein site, which was already announced in November, we're also taking further targeted measures to reduce our operating costs, including by streamlining our portfolio. However, this is also an opportunity to reallocate available front-end capacity to our rapidly growing business in the AI data center segment. There, demand continues to significantly exceed the supply. Let me now take this opportunity to emphasize 2 important points. First, Infineon is committed to electromobility, and we will continue to drive it forward, but we will not chase market share at any cost. Our focus remains on profitable growth. Second, the situation described is limited exclusively to high power voltage -- high-voltage power semiconductors, which account for about 7% of the automotive revenue. It does not affect other products such as microcontrollers, analog semiconductors and sensors in any way, not even MOSFET transistors. Infineon has a strong technology and manufacturing base for power semiconductors and an outstanding system understanding. This gives us all the key levers we need to reposition our high-voltage business in the field of electromobility for future success. Now in the meantime, Infineon is driving the adoption of software-defined vehicles. The combination of powerful computing power, fast and secure connectivity and intelligent power management forms the foundation of these vehicles, and Infineon is a leader in all of these areas. A great example is the BMW iX3, the first model based on the Neue Klasse platform. The Neue Klasse features our AURIX and TRAVEO microcontrollers, the connectivity from the BRIGHTLANE family, our power management ICs as well as smart power switches and eFuses. And of course, it has an electric powertrain. This just demonstrates how closely the 2 structural trends in the automotive sector, software-defined vehicles and electromobility are actually intertwined. We're also very pleased about recent design wins with the leading Chinese automaker, Geely. These include a large number of microcontrollers and analog semiconductors. These are used, among other things, in battery management systems and central control units in various Geely vehicle models and brands. These successes underscore the strong value proposition that Infineon offers to its Chinese customers. Let's now turn to Green Industrial Power. This business segment recorded revenue of EUR 403 million. This represents a significant increase of 15% compared to the previous quarter, which was very weak due to seasonal effects. This growth was primarily driven by energy infrastructure, HVAC and home appliances. Segment earnings improved to EUR 47 million, which corresponds to a segment earnings margin of 11.7%, up from 8.9% in the previous quarter. We were able to more than offset negative price effects with positive effects resulting from higher sales and lower vacancy costs in our factories. The situation in the market for industrial power applications is also improving. We're seeing signs of a broader economic recovery. Inventory levels in the supply chain are reaching low levels. And as a result, order intake is picking up significantly again. In addition, there are structural growth opportunities in certain areas. The necessary modernization of the power grid is driving investment in related infrastructure. This includes energy storage systems as well as equipment for power transmission and distribution. The expansion of AI data centers is fueling demand for uninterruptible power supplies and cooling systems. And in some cases, semiconductors are ideally suited to replace electromechanical components. Infineon is ideally positioned to capitalize on this trend. We're seeing strong demand for semiconductor-based power converters, so-called solid-state transformers. They enable higher efficiency, significantly greater power density and improved scalability. As a result, they will increasingly replace conventional transformers. We are already generating initial revenue in this area in the current fiscal year. We have also built up a robust design in pipeline and our business with solid-state power switches is developing well. So we have a solid foundation for future growth. But let's now move to the Power & Sensor Systems segment. Revenue here reached EUR 1.260 billion in Q2, which represents a plus of 8% compared to the previous quarter, driven primarily by our business in power supply solution for AI data centers and radar sensors for automobiles. Along with the rise in revenues, segment earnings also increased. They rose to EUR 257 million. The segment earnings margin jumped to 20.4%, up from 17.4% in the previous quarter, another major step on PSS path to profitable growth. This is closely linked to our leadership position in AI power supply solutions. Sustained high levels of investment in AI data centers and the associated infrastructure are driving demand. And currently, our AI-related business is in allocation. We're shifting spare manufacturing capacity from other areas while simultaneously ramping up new capacity as quickly as possible. We, therefore, confirm our revenue forecast for power solutions for AI data centers, EUR 1.5 billion in this fiscal year as well as EUR 2.5 billion in fiscal year 2027 despite a weaker U.S. dollar. With our solutions, we serve the entire energy supply chain from the power grid to the AI processor. To this end, we offer the most comprehensive product portfolio and stand out, thanks to deep system understanding, quality and delivery capabilities. All of this helps our customers scale AI clusters and deploy increasingly sophisticated power architectures. A key milestone in this context is the ramp-up of gallium nitride solutions for AI data centers. We're already supplying increasing volumes of these solutions to select customers and more and more customers are actually incorporating our solutions across multiple stages of power conversion. This is where gallium nitride makes a clear difference in performance. Demand for silicon carbide solutions from AI-related applications is also very strong. Our silicon carbide business at Infineon is benefiting from this in the current fiscal year with low double-digit growth numbers. These developments underscore our excellent market position. We collaborate with leading companies in the AI ecosystem and are represented in virtually all platforms of the relevant key players. The semiconductor value per kilowatt of installed power ranges between $100 and $250. The average has now risen further to around $175. This semiconductor value per kilowatt installed capacity replaces our previous forecast of an addressable market size for Infineon of EUR 8 billion to EUR 12 billion by the end of the decade. Now the background of this, gigawatt installation plans are growing rapidly, also significantly increasing the market potential for Infineon, of course. Using the aforementioned semiconductor value per kilowatt of power as a benchmark allows us to better account for this dynamic. Let's now turn to our Connected Secure Systems segment. At EUR 319 million, revenue in Q2 remained virtually unchanged from the previous quarter. Revenue growth in our microcontrollers and connectivity was offset by a decline in the Government Documents segment. Segment earnings declined to EUR 18 million. The segment earnings margin was 5.6%, down from 7.2% in the previous quarter. Now the shift from the Internet of Things to Edge AI, meaning the use of artificial intelligence directly in the end device or in its immediate vicinity is opening up new opportunities for innovation across multiple end markets. We're pleased with the growing momentum in design wins for our next-generation connectivity solutions and our AI-enabled microcontrollers. This momentum spans various application areas from servers to security cameras and wearables to in-vehicle monitoring systems. Another positive impact of AI adoption for Infineon is growing demand for our secure element to safeguard data integrity in servers. This specialized security chip uses encryption to protect the confidentiality and authenticity of data. Ladies and gentlemen, before I turn to the outlook, I would like to inform you about an important strategic decision at Infineon. Effective July 1, we will be changing our divisional structure and organizing our business into 3 divisions instead of the previous 4, namely, Automotive, Power Systems and Edge Systems. This reorganization is the next logical step of our evolution, moving beyond a merely product-centric mindset towards solutions based on a deep understanding of our systems. Our previous structure enabled us to achieve strong growth over many years. However, today, our customers expect innovative system solutions at an ever-increasing pace. And we aim to meet these demands by further enhancing customer value, reducing complexity and thereby becoming more agile. Now the guiding principles of these new structures is clear ownership of applications. Each of these 3 future divisions is responsible for strategically advancing the focus applications assigned to it. Automotive, of course, remains responsible for the key trends in the Automotive sector, software-defined vehicles and e-mobility as well as for all other automotive applications. Power Systems, or PS for short, will assume responsibility for all power supply applications outside the automotive sector. This includes, in particular, power supply for AI from the power grid to the AI processor, power generation from renewable energy sources and grid infrastructure. In addition, this division will serve all applications in the consumer communications and industrial sectors. PS is, therefore, formed from the combination of GIP and the power business of PSS. Edge Systems or ES for short, focuses on applications at the interface between the physical and digital worlds. The interplay of sensors, microcontrollers, connectivity and security is a key driver of future innovation and growth. Examples here include Edge AI robotics, medical wearables, industrial automation and smart home applications. ES brings together the current CSS division as well as PSS' sensor high-frequency and USV business. The sensor portfolio of ams-OSRAM will also become part of Edge Systems. We expect to complete the acquisition this quarter. With the 3 divisions and clear responsibilities for our focus applications, we're gaining speed, simplifying decision-making processes, reducing coordination efforts and can better leverage our deep system understanding even more effectively. Based on the 2025 financial figures, this new structure corresponds to a revenue breakdown of approximately 50% to Automotive, 30% for PS and 20% ES. The new divisions can thus also leverage economies of scale. Ladies and gentlemen, let's now move to the outlook. The upswing is gaining momentum and scope. The recovery is spreading to more and more of our target markets, although geopolitical risks and macroeconomic uncertainties remain, which we are, of course, monitoring closely. We're seeing higher order volumes, which are leading to a growing order backlog. As customer orders for the coming quarters are building up encouragingly, our outlook beyond the current fiscal year is also improving. In the Automotive sector, we see manufacturers replenishing their semiconductor inventory to reasonable levels. On the supply side, localized bottlenecks are emerging, particularly in areas adjacent to product categories related to the AI boom. Of course, the dynamics vary across different application areas, but we expect a broader upswing to be on the horizon. We are, therefore, raising our full year forecast despite unfavorable currency movements. For the current June quarter and the remainder of our fiscal year, we are adjusting our assumed exchange rate between the U.S. dollar and the euro from EUR 1.15 to EUR 1.17. For the current third quarter of our fiscal year, we expect revenue of approximately EUR 4.1 billion, which corresponds to an 8% growth compared to the prior quarter. We expect the segment profit margin to be in the high single-digit percentage range. In addition, a positive volume effect, we anticipate rising prices in certain areas, particularly in the AI sector and related product categories. This development is offset by rising costs for energy and precious metals, which are dampening our margin growth. For fiscal 2026, we now expect revenue of more than EUR 16 billion, which is, of course, a significant increase over the previous year. In 2025, Infineon generated approximately EUR 14.7 billion in revenue. The ATV business unit is expected to post slight revenue growth, driven by its broad product portfolio and the continued proliferation of software-defined vehicles on the one hand, but weighed down by the decline in our high-voltage business on the other hand. Now to put this in perspective, excluding our high-voltage business and the Ethernet business, which is being consolidated for a full year for the very first time and assuming exchange rates remain stable compared to the previous year, ATV would grow by nearly 9% in fiscal 2026. Now for the GIP segment, we expect moderate growth. PSS should grow significantly faster than the group average, driven by strong demand for our AI power supply solutions. For CSS, we expect revenue to remain stable compared to the previous year. With increased revenue forecast for the group, expected profitability is also rising. The segment profit margin should reach around 20%. Previously, we had anticipated a margin in the high single-digit percentage range. In addition to the positive revenue effect and pricing that is advantageous for us, we also expect vacancy costs to decline. However, the planned reduction of inventory levels is having a dampening effect here. These positive effects are also offset by unfavorable currency movements as well as rising costs for precious metals, energy and freight due to the war in the Middle East. We also have factored in these direct impacts. However, the outlook does not account for potential indirect effects from a prolonged or even escalating Middle East conflict or from other geopolitical tensions. Now to our investments. In the current fiscal year, we continue to plan our capital expenditures of approximately EUR 7.2 billion. As we reported in our last quarterly conference call, this figure includes around EUR 500 million in accelerated investments to support the steep revenue growth with power supply solutions for AI data centers in the coming fiscal year. In this context, I am pleased to confirm the date for the official opening of our smart power fab in Dresden on July 2. We cordially invite you to celebrate this important milestone with us. The factory will focus on state-of-the-art analog and mixed signal and power semiconductor technologies. Production is starting at exactly the right time to strengthen our growth opportunities in highly attractive markets such as AI data centers, software-defined vehicles as well as robotics and Edge AI in the coming years. Finally, here our expectations for free cash flow. Due to the improved business outlook and the planned reduction in inventory levels, we are raising our forecast for reported free cash flow to approximately EUR 1.25 billion, up from EUR 1 billion previously. Free cash flow adjusted for major investments in front-end facilities and acquisitions is expected to be around EUR 1.65 billion, up from EUR 1.4 billion previously. Ladies and gentlemen, this concludes my remarks. And now together with Sven Schneider, I'm happy to answer your questions. Operator: [Operator Instructions] The first question comes from Hakan Ersen from Thomson Reuters. Hakan Ersen: Mr. Hanebeck, earlier you mentioned that if capacities allow, you could confirm customer orders through to the next fiscal year. Does that mean that you're fully booked through to the next fiscal year? Jochen Hanebeck: No. This doesn't generally translate into that message. But in some areas, we see an upcoming allocation, especially in all product groups, which also go into AI power supply solutions and also potentially in other markets. There, we are doing all we can to continue expanding our capacities. But whether this will be sufficient for everyone and everything isn't something I can say today. Hakan Ersen: Okay. You're saying that you're fully booked in some areas, but that you're not fully booked in other areas. Is that correct? Jochen Hanebeck: Yes, that is correct. Especially the 300-millimeter fabs really have very, very high capacity utilization. That I can tell you. Operator: [Operator Instructions] The next question comes from Joachim Hofer of Handelsblatt. Joachim Hofer: I have 3 questions. The first one is just for the sake of clarification. You're talking about significant revenue growth, EUR 16 billion, that is roughly 10%. Is that correct? Jochen Hanebeck: Yes, that is correct. Joachim Hofer: Okay. Great. The second question, because you -- a lot of people have been speaking about the critical situation in helium supply because of the situation in the Gulf region. What about Infineon? Are you lacking helium and other raw materials? Jochen Hanebeck: Sven Schneider will answer that question. Sven Schneider: Yes. Indeed, we see that, but it is safe for you to assume that the industry has learned its lessons from the past crisis in order to come up with a multi-sourcing strategy and network so that you don't depend on deliveries from individual suppliers. This is something that we do with helium as well. So we see that, but we can always work around such problems. So from our current standpoint, we don't have any material effects. But as Mr. Hanebeck alluded to earlier on, we have been witnessing price increases, for instance, for copper, for gold, for the gases that you spoke about for logistics and freight. We see substantial cost increases. However, they are also factored into our outlook. Joachim Hofer: The third question I have is this, perhaps you can give me a more detailed explanation of what you want to do with the high-voltage business because it was rather complex in your presentation. So what you're doing is fitting out the portfolio, if I understood it correctly. But what are you doing above and beyond that? Jochen Hanebeck: Yes, that's correct. But let me put it in these words. We believe in the mobility trend, and we sell a lot of products that are built into EVs. Now there's one area, the high-voltage products. And here, we're talking about the inverters, in particular, which take the current from the battery. They turn the AC current into DC current. And in the past, this was done by IGBTs. And now and in the future, we're moving increasingly to silicon carbide. This market, especially in China, is under substantial price pressure. IGBTs are increasingly manufactured in China. This isn't surprising to us because a while ago, our R&D was orientated towards silicon carbide. In the area of silicon carbide in this application, however, we also see a very aggressive pricing strategy from other market participants outside of China. This coupled to a drop in worldwide volumes because you mustn't forget that the market in the United States has basically collapsed. It is growing in Europe, but not as fast as anticipated. And China as a local market is running into a phase of stagnation. So unit figures are going down. And therefore, in turn, revenues are going down. The idle costs are increasing in this area. However, in this respect, the front end, the wafer capacities can be repurposed or rededicated quickly, for instance, into AI applications, if needed. And when it comes to assembly, we need to adjust capacities. And this is why we are taking the measure in Warstein, which we announced in November. Above and beyond that, we are taking a look at our portfolio to figure out where in the future, when new price points are formed, we can generate customer benefits. And here, in the future, we will invest into R&D in these areas because we believe that we have all of the key elements necessary to do so. We have the technological expertise. We have the right manufacturing footprint and of course, the system competence that's necessary as well. Certain other product families may perhaps not be developed or maybe put on the back burner. So what we are doing is to refocus the business because the margins that we're currently earning with it in this special situation, as I said before, revenue today is about 7% of the ATV revenue for the high-voltage components for the inverters. It used to be far north of 10%, and we need to realign this business, put it on new pillars, and this is what we intend to do. Thank you very much. Operator: [Operator Instructions] We do not have any further questions. I hereby close the Q&A session, and I would like to ask Mr. Hanebeck to make his concluding remarks. Jochen Hanebeck: Dear listeners, I'll summarize. The second quarter of the current fiscal year was closed by Infineon fully within expectations. We have achieved our targets for the first half of the fiscal year. The growth outlook is improving. We are seeing a broader upturn in several of our markets. However, the momentum varies by application area. Based on an overall more positive business outlook, we are lifting our full year forecast. We expect significant revenue growth to more than EUR 16 billion and a segment profit margin of around 20%. In the future, we will transition from 4 to 3 business divisions with a streamlined structure and clearer responsibilities for the various application areas, we will deliver value to our customers even faster and thus further accelerate our profitable growth trajectory. Thank you for your interest, and goodbye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Hello, and welcome to Alpha Teknova, Inc. first quarter 2026 financial results. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. I would now like to hand the conference over to Jennifer Henry. You may begin. Jennifer Henry: Thank you, operator. Welcome to Alpha Teknova, Inc.'s first quarter 2026 earnings conference call. With me on today's call are Stephen Gunstream, Alpha Teknova, Inc.'s President and Chief Executive Officer, and Matthew C. Lowell, Alpha Teknova, Inc.'s Chief Financial Officer, who will make prepared remarks and then take your questions. As a reminder, the forward-looking statements that we make during this call, including those regarding business goals and expectations for the financial performance of the company, are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning these risk factors is included in the press release the company issued earlier today and they are more fully described in the company's various filings with the SEC. Today's comments reflect the company's current views, which could change as a result of new information, future events, or other factors, and the company does not obligate or commit itself to update its forward-looking statements except as required by law. The company's management believes that in addition to GAAP results, non-GAAP financial measures can provide meaningful insight when evaluating the company's financial performance and the effectiveness of its business strategies. We will therefore use non-GAAP financial measures for certain of our results during this call. Reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this afternoon, which is posted to Alpha Teknova, Inc.'s website and at sec.gov/edgar. Non-GAAP financial measures should always be considered only as a supplement to, and not as a substitute for or as superior to, financial measures prepared in accordance with GAAP. The non-GAAP financial measures in this presentation may differ from similarly named non-GAAP financial measures used by other companies. Please also be advised that the company has posted a supplemental slide deck to accompany today's prepared remarks. It can be accessed on the Investor Relations section of Alpha Teknova, Inc.'s website and on today's webcast. And now I will turn the call over to Stephen. Stephen Gunstream: Thank you, Jennifer. Good afternoon, and thank you, everyone, for joining us for our first quarter 2026 earnings call. It was a relatively straightforward quarter for us across the board, with revenue and operating expenses delivering in line with or better than our expectations. Revenue grew 13% compared to the same period last year, led by 85% growth in Clinical Solutions. Gross margin, operating expenses, and free cash outflow were in line with our expectations, including the planned incremental spend in sales and marketing. From a macro environment perspective, we continue to see stabilization across our end markets, and as we learn more about how our customers are planning for late-stage clinical trials and commercial production, we are growing increasingly confident in our ability to deliver long-term, sustainable, above-market growth. Building on that, I would like to provide a little more detail around our thoughts on the current macro environment. In the first quarter, we saw an increase in the number and total dollar value of orders over $25 thousand compared to the same period last year, which we believe indicates that some of our customers are shifting their focus from cash conservation to strategic execution. While there are still accounts focused on conserving capital, we believe this headwind has now been offset by an increase in customers placing orders to move their research and clinical studies forward. Notably, we are seeing growth in nearly every end market segment we serve, including life science tools, diagnostics, and biopharma. Moreover, some of our leading indicators, such as customer engagement and funnel health, provide us more confidence in a predictable market backdrop going forward. We are therefore encouraged that we began ramping our commercial investment at the beginning of 2026. As a reminder, the roughly $2 million annual increase in commercial spend is split between marketing and sales to increase lead generation activities, build lead qualification infrastructure, and onboard sales associates with experience in tools, diagnostics, and large pharma. I am happy to say that these initiatives are on track and that we should be able to see their impact on revenue by early 2027. We believe these investments, combined with the rebound in biotech funding and the progression of our customers' therapies and diagnostics towards commercialization, should position us for approximately 20% revenue growth in 2027. Operationally, we continue to focus on driving throughput, process improvements, automation, and software implementation. In the first quarter, we increased our high-volume bottle production by tripling our single-batch size and implementing an automated aseptic filling line. This project allows us to not only scale production volumes but also to reduce labor hours per unit. From a software perspective, we have now migrated 90 of our 3 thousand-plus paper batch records to digital, providing enhanced data analytics, increased visibility, better documentation quality, and improved standardization. We are fortunate to have dedicated engineering and software development teams on staff to lead these initiatives as we look to scale and achieve profitability. In the meantime, we remain focused on executing our plan by driving growth in Lab Essentials customer wallet share and increasing our active Clinical Solutions customer count. We are excited about the traction we are seeing so far in 2026 and believe the substantial investments we have made over the past three years have positioned the company to scale and generate significant value for our customers and stockholders alike. I will now hand the call over to Matthew to talk through the financials. Matthew C. Lowell: Thanks, Stephen. Good afternoon, everyone. As Stephen explained, revenue was up 13% for the first quarter of 2026 compared to the same quarter in the prior year. This was also the first Q1 in which we earned over $11 million in revenue in nearly three years. I am also very pleased with our progress on key profitability measures and cash usage. Overall, we delivered strong financial results for the first quarter of 2026. For revenue, Lab Essentials products are targeted at the research use only, or RUO, market and include both catalog and custom products. Lab Essentials revenue was $8.4 million in the first quarter of 2026, up 3% compared to $8.1 million in 2025. The increase in Lab Essentials revenue was attributable to higher average revenue per customer, partially offset by a decreased number of customers. Clinical Solutions products are made according to Good Manufacturing Practices, or GMP, quality standards, and are primarily used by our customers as components or inputs in the development and manufacture of diagnostic and therapeutic products. Clinical Solutions revenue was $2.1 million for the first quarter of 2026, an 85% increase from $1.2 million in the first quarter of 2025. The increase in Clinical Solutions revenue was attributable to an increased number of customers and, to a slightly lesser extent, higher average revenue per customer. We expect revenue per customer to increase over time when a subset of these customers ramp up their purchase volume as they move through the clinical phases. However, this metric can be affected by the addition of newer Clinical Solutions or GMP catalog customers, who typically order less. Just as a reminder, due to the larger average order size in Clinical Solutions compared to Lab Essentials, there can be more quarter-to-quarter revenue lumpiness in this category. Onto the income statement. Gross profit for the first quarter of 2026 was $3.8 million, compared to $3.0 million in the first quarter of 2025. Gross margin was 34.2% in the first quarter of 2026, up from 30.7% in the first quarter of 2025. The increase in gross profit was driven primarily by higher revenue. Operating expenses for the first quarter of 2026 were $8.1 million, and for the first quarter of 2025 were $8.0 million. The increase in 2026 was primarily driven by higher spending in sales and marketing resulting from higher headcount and increased marketing expenses, partially offset by lower general and administrative expenses attributable to lower stock-based compensation expense and professional fees. Net loss for the first quarter of 2026 was $4.6 million, or negative $0.08 per diluted share, compared to a net loss of $4.6 million, or negative $0.09 per diluted share, for 2025. Adjusted EBITDA, a non-GAAP measure, was negative $2.0 million for 2026, compared to negative $2.5 million for 2025. Capital expenditures for the first quarter of 2026 and 2025 were both $200 thousand. Free cash outflow, a non-GAAP measure which we define as cash provided by or used in operating activities, less purchases of property, plant, and equipment, was $3.6 million for the first quarter of 2026, compared to $4.3 million for 2025. This decrease compared to the prior year was due to lower cash used in operating activities. Turning to the balance sheet. As of 03/31/2026, we had $17.8 million in cash, cash equivalents, and short-term investments, and $13.2 million in total borrowings. 2026 outlook. Turning to our 2026 guidance and outlook, we are reiterating our 2026 total revenue guidance of $42 million to $44 million. At the midpoint, this implies approximately 6% revenue growth compared to 2025. As our underlying end markets continue to recover, we have seen improvement in orders of custom products from both biopharma and life science tools and diagnostics customers. Customer conversations about future 2026 custom product orders continue to be encouraging, and we have started to see more large orders, those greater than $25 thousand, but are waiting to see more durability before we consider changing our guidance for the year. As we have indicated before, due to the high percentage of fixed costs associated with our operations, we estimate that each additional dollar of revenue drops through at a marginal cash rate of approximately 70%, with some variability quarter to quarter in reported results due to GAAP accounting. We continue to expect gross margin in the mid-30s percentage range for the full year 2026. The company posted operating expenses of $8.1 million in Q1 2026, which reflects our scaled investment in sales and marketing, which we expect to be approximately $2 million for the full year 2026. Our expectation is that these investments will pay off as soon as the end of 2026, but more likely in 2027, in the form of double-digit revenue growth rates. At this higher spending level, we expect to become adjusted EBITDA positive in the range of $52 million to $57 million in annualized revenue. As customer end markets are stronger in 2027 and our stepped-up commercial activity bears fruit as expected, we should report a positive adjusted EBITDA quarter by 2027. The company continues to see a reduction in free cash outflow during the first quarter of 2026 compared to the same quarter in the prior year. While the company saw an increase in free cash outflow compared to Q4 2025, this is consistent with the company's expectations for the year and is higher due to certain larger payments typically occurring during the first quarter. We anticipate lower average quarterly free cash outflow for the remainder of the year. As such, the company continues to expect free cash outflow of less than $10 million for the full year 2026, even with the increased investment in our commercial capabilities. With that, I will turn the call back to Stephen. Stephen Gunstream: Thanks, Matthew. Overall, we were very pleased with the start to 2026 and the progress we have made against our strategic priorities. We believe the outlook for our end markets remains positive, and we are committed to executing on our strategy to help our customers accelerate the introduction of novel therapies, diagnostics, and other products that improve human health. We will now open the call for questions. Operator: Thank you. Please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while we compile. Our first question comes from the line of Mackie Tau with Stephens. Your line is open. Mackie Tau: Hey. Good afternoon, and thank you for taking my questions. Great to hear about the updated macro outlook. I have heard some of your peers talk about maybe a little bit of bifurcation between earlier-stage biotech and later-stage biotech. I would love to get your sense of what you are hearing at this point from these individual customers and whether you are seeing a similar trend in your customer base. Thank you. Stephen Gunstream: Yeah, thanks, Ben. In some ways, yes, we are seeing some similarities. We had some nice large pharma growth in the quarter, but on the clinical side of our business, we did still see some of these earlier-stage phase one, phase two place some nice orders with us. A lot of that probably has to do with the work we have been doing with them for some time. In the very early stage, on the research in the Lab Essentials, there is a little softness there, but we have not seen it as much. It could just be some of the accounts that we are supporting today, but we are starting to get more customer engagement from these smaller biotechs, and it is looking pretty encouraging right now. Mackie Tau: As we think about your different end markets, it sounds like all of them are coming back together as one. Are there any that are leading the pack more so than others? Stephen Gunstream: Yeah. Like I just mentioned, we had some nice growth in large pharma in the quarter. We did get some nice growth on the diagnostic side as well and the tools and diagnostics, but particularly on the biotech side we had some nice orders come in there. We are seeing some growth there. I think, like I said, the biopharma as a whole is a little bit slower, but you are starting to see some growth there. There are certainly pockets where we expect that to increase throughout the year. Mackie Tau: I appreciate the color. Thank you. Operator: Our next question comes from the line of Brendan Smith with TD Cowen. Your line is open. Brendan Smith: Great. Thanks for taking the questions, and congrats on the quarter. Following up on the commentary regarding customers advancing through clinical development, do you have a sense, even broad strokes, what percent of customers are in that preclinical/phase one bucket versus those in phase three or approaching commercial? I am wondering how that funnel is looking at this point, especially if the funding environment continues to improve. Stephen Gunstream: Yeah, Brendan. It is not that different than what we put out in our slides for the 2025 full year. We are supporting approximately 70 therapies. There are five therapies in phase two or phase three that are nearing completion at the moment, and then 12 in phase one, and then the rest are preclinical. We would expect those numbers to increase as we go throughout this year. That is our strategy as you onboard more of these clinical customers, and certainly if biotech funding comes back, we would expect that to continue, and we have done that really since we started targeting these clinical customers back in 2020. Brendan Smith: Got it. And as a quick follow-up, we have started to see some increases in wet lab spending activity as a result of customers rolling out AI capabilities and needing to validate models and new targets. It feels early, but do you have any sense of this materializing in your customers' ordering patterns, and is there any reason why that would not be a notable tailwind for Alpha Teknova, Inc. over the coming quarters? Stephen Gunstream: Yeah. I think these AI data generation programs are significant, and it is lots of reagents. They are generating significant amounts of data. We are supporting many of the customers that are supporting the end users here to generate that data, or directly. So the standard products we offer in our catalog, products like LB broth for bacteria, or the buffers and things to purify proteins, I would expect that to be a tailwind for us. There are customers we are supporting that we are seeing pick up their spend with us for those reasons, but it is not yet significant or material. Operator: Thank you. Our next question comes from the line of Matthew Richard Larew with William Blair. Your line is open. Matthew Richard Larew: Nice upside in the quarter relative to the Street, but the guide was maintained. You referenced wanting to see more durability before changing the guide. It seems like more companies than normal have called out benefit from more days in the quarter that reverses later in the year. Was there any timing impact like that or any orders that got pulled forward into the print, or is it just an effort to be conservative given the broader macro picture? Matthew C. Lowell: Good question, Matt. We do have some of this phenomenon where we have business days impacts, particularly in the catalog portion of our business, which is about 60% of the total business. I would say that was not really a factor for Q1. It will be and usually is for Q4. We saw pretty typical ordering and delivery behavior in Q1, so I do not think that really impacted the quarter. As you noted, and I did as well, there is still macro uncertainty, and while we are off to a good start here, we are certainly optimistic, but not ready to increase our guidance range at this time. It is definitely something that we are evaluating each quarter, and it is encouraging to have this great start. Matthew Richard Larew: You brought up 2027 in your remarks and being in position for 20% revenue growth. If I look at TTM revenue, it has improved over a year ago, particularly on the Clinical Solutions side, and Lab Essentials has stabilized at least in the mid-single digits. From where we are today, what elements do you see improving the most to get to 20% in 2027? Stephen Gunstream: A couple of things come into play. First is an improving backdrop. We have seen biotech funding now two quarters ahead of where it has been. From past data, we think it is pretty similar this time that we will start seeing an impact with about a three- to four-quarter lag, and we are expecting to see that towards the end of this year. That will drive a portion of that growth, so the baseline is picking up a little bit. On the clinical side, we are supporting more customers, and more of them are moving later into the pipeline, including where we would expect either diagnostic or therapeutic commercial approval by the end of next year. Even moving from phase one to phase two or phase two to phase three or phase three into commercial will drive significant growth. That base is relatively small, and on the diagnostic side there are a couple in there, including on the leukocyte side, that we may be supporting larger volumes for next year. In addition, the investment we are making on the commercial side, both in marketing and in the field, will take six to twelve months to ramp up, and that will help us as well. Historically, Lab Essentials has grown 11% on average since 2008. I think we start to see that pick up a little bit, and combined with these other things, that should get us into that 20% range. Operator: Thank you. Our next question comes from the line of Matthew Hewitt with Craig-Hallum Capital Group. Your line is open. Matthew Hewitt: Good afternoon, and congratulations on the nice start to the year. Regarding Clinical Solutions, phenomenal Q1, up 85% year over year. Was there a larger order that drove some of that, or was it more broad-based as you noted several large orders? And how should we be thinking about cadence for that bucket over the remainder of the year? Stephen Gunstream: I will let Matthew touch on the cadence in a minute, but when you look at the customers we supported in Q1—and we have talked a lot about the lumpiness—the question is right: Is this just a lumpy quarter, or is this more broad-based? In this case, it is more broad-based. In fact, we had a fairly large customer last year order, and then we came over that, and we had a number of customers that we delivered for in Q1. I would say it is pretty positive that this one is not just a one-time lumpy piece for a quarter. I will let Matthew talk a little bit about the cadence for the rest of the year. Matthew C. Lowell: I would echo what Stephen said. We are feeling pretty good about the diversity in that part of the business in Q1 and also based on the discussions we are having now for the rest of the year. That is an area where we should continue to see results at these kinds of levels, let us say in the $2 million range per quarter or better, depending on how things go later in the year. That is definitely going to be an important component of growth this year. All to say that part is looking good, and we should continue to see good results there. Matthew Hewitt: Thank you. Switching gears a bit, with the investments you have been making—digitizing paper, creating larger batch sizes—as I think about your target 60% to 65% gross margins in a few years, how much of that comes from volume leverage versus these strategic initiatives? Matthew C. Lowell: That is a good question. I believe the single biggest driver, and it will continue to be, is volume growth. But we are not going to sit and rest on our laurels and wait for that to play out. There are lots of other things we can be doing and are doing. The example you gave is a good one, and they are meaningful. These are not trivial things. Sometimes they play out as productivity benefits where we see the benefit more as we grow than immediately in terms of cost reduction. It can show up as cost strength as we grow. We have that digitization and a lot of other projects always going on, and there is a never-ending set of opportunities. But I would still say the main driver is volume growth, and we are seeing that happen right now, and we are excited about it. Matthew Hewitt: Got it. Thank you. Operator: Please stand by for our next question. Our next question comes from the line of Matthew Moriarty Parisi with KeyBanc Capital Markets. Your line is open. Matthew Moriarty Parisi: Hi. This is Matthew Parisi on for Paul Knight. Congrats on the quarter, and thanks for the question. You mentioned the onboarding of new sales associates during the call. How long does that ramp period take? Stephen Gunstream: Typically, my experience is six to twelve months until you really start to see the impact. I mentioned that probably towards the end of this year we will be able to see it. We are starting to see some early indicators with more meetings and more engagement with some of the target accounts that we are after. It has been great to onboard them, and we are very happy we started in January. I think all is going to plan. Matthew Moriarty Parisi: Thank you. That is all for me. Operator: Ladies and gentlemen, I am showing no further questions in the queue. That concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to the J&J Snack Foods Corp. Second Quarter 2026 Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Reed Anderson with ICR. Please go ahead. Reed Anderson: Thank you, operator, and good morning, everyone. Thank you for joining the J&J Snack Foods Corp. Fiscal 2026 Second Quarter Conference Call. Before getting started, let me take a minute to read the Safe Harbor language. This call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical facts should be considered forward-looking statements, including statements regarding management's plans, strategies, goals, expectations, and objectives, as well as our anticipated financial performance. This includes, without limitation, our expectations with respect to the success of our cost savings initiatives, customer demand improvements, and the sales channels in which we operate. These statements are neither promises nor guarantees and involve known and unknown risks, uncertainties, and other important factors that may cause results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Risk factors and other items discussed in our Annual Report on Form 10-Ks and our other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made on the call today. Any such forward-looking statements represent management's estimates as of the date of this call today, 05/06/2026. While we may elect to update forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause expectations to change. In addition, we may also reference certain non-GAAP measures on the call today, including adjusted EBITDA, adjusted operating income, or adjusted earnings per share. All of which are reconciled to the nearest GAAP measure in the company's press release, which can be found in the Investor Relations section of our website. Joining me on the call today is Daniel J. Fachner, our Chief Executive Officer, along with Shawn C. Munsell, our Chief Financial Officer. Following management's prepared remarks, we will hold the call for a question and answer session. With that, I would now like to turn the call over to Mr. Fachner. Please go ahead, Dan. Daniel J. Fachner: Good morning, everyone, and thank you for joining us today. We are excited to discuss our second quarter fiscal 2026 results. I am pleased to share continued progress this quarter on our strategic priorities. We delivered positive earnings and margin expansion despite a quarter that was impacted by demand softness amid rising fuel costs. Adjusted EBITDA increased 9.5% year-over-year to $28.7 million, and adjusted EPS increased 14.3% to $0.40, while sales declined 3.2% to $344.8 million. Foodservice sales declined 5%, with most of the decline attributed to the anticipated sales reductions in our bakery business, consistent with Q1. And while retail sales declined 4.1%, the decline was due to higher slotting fees and trade investments to support our innovation pipeline and brand share growth objectives. Frozen beverage results improved due to an increase in beverage volume and cost control. Apollo initiatives and mix improvements helped to drive gross margin expansion in the quarter. Our ability to improve earnings and margins as we reshape the portfolio demonstrates that our transformation initiatives are working. Our plant consolidations have created significant plant efficiencies, and we are on track to deliver at least $20 million of annualized Apollo savings once all initiatives are implemented. We are now focused on driving administrative and distribution cost reductions. To that end, we executed several of the administrative initiatives later in the second quarter as we reduced corporate expenses, and we expect to achieve the remaining initiatives in the third quarter. Overall, given the implementation later in the quarter, we realized just a modest level of administrative savings in the second quarter, and our distribution efficiencies initiatives will ramp up in Q3. I want to share a few other highlights from the quarter. First, an update on our innovation pipeline. It is important to note that we are still early in the process as several products begin shipping later in the quarter. However, the sell-in process has been progressing very well, and we are securing distribution across multiple retail and foodservice channels. In the quarter, we shipped over $2 million in new products, including about $0.9 million of Dippin’ Dots for retail, $0.9 million of new Dogsters ice cream products, and $0.2 million of Luigi’s Mini Pups. Our pretzel innovation shipments are ramping up now, and we expect that these new products will deliver exceptional consumer experiences and sales growth. We had another quarter of standout performance in foodservice pretzels. Sales were up $6.7 million and dollar share increased 4.3%. As in prior quarters, the primary growth driver was Bavarian-style pretzels. In retail, our Dogsters products continue to perform well. We shipped volumes up over 20% versus the prior year. Again, we are encouraged that the new Dogster sandwich will be well received by our four-legged consumers. We have entered into a new licensing partnership with the Peanuts character Snoopy, to be used in conjunction with our Dogsters brand. We are now also introducing the Dogsters product lineup to pet stores. In frozen beverage, our themed brand activation around some solid movie releases supported segment performance. Looking ahead, we are encouraged by the slate of releases for our fiscal second half. We are optimistic that movies like Super Mario Galaxy, Star Wars Mandalorian, and Toy Story 5 will support theater performance in 2026. Additionally, the ongoing ICEE test with a West Coast QSR has expanded to additional markets. We are encouraged by the progress and believe that we are nearing completion of the test phase. I am also proud to share that in honor of our nation's 250th anniversary, we are rolling out several themed products including a star-shaped SUPERPRETZEL, red and blue ICEE squeeze tubes, and red, white, and blue cups for our Luigi’s Real Italian Ice. Our financial position remains strong with a clean balance sheet. During the quarter, we repurchased $22 million of shares at an average price of $84.56, along with dividends of $15.2 million, returning over $37 million to shareholders in the quarter. With that, I will now turn the call over to Shawn to walk through the financial details. Shawn? Shawn C. Munsell: Thanks, Dan, and good morning, everyone. As Dan mentioned, we are pleased with the profitability improvements we delivered in the second quarter, reflecting continued progress on our transformation initiatives. Foodservice segment net sales declined $11.4 million, or 5%, to $214.7 million. The largest driver of the decline was the anticipated reductions in our lower-margin bake business of about $8 million. Additionally, cookie sales to a large customer declined about $4 million in the quarter due to the customer working through elevated inventory levels. We expect their orders to rebound in the third quarter. Churro sales declined about $3 million, while handheld sales declined $3.4 million. Partially offsetting these headwinds was continued strength in pretzels, which increased $6.7 million. Overall, our foodservice segment demonstrated resilience with notable bright spots and a significant improvement in profitability. Foodservice operating income increased $3.4 million to $10.9 million, largely reflecting gross margin improvements from plant consolidation and mix improvements. Retail segment net sales decreased $2.2 million, or 4.1%, to $51.6 million. Frozen novelty sales declined about $3.9 million during the quarter, which was partly offset by an increase in handheld sales. Retail sales were impacted by an increase in slotting fees of approximately $2 million to support new product innovation, along with increased trade investment primarily in frozen novelties. Retail segment operating income declined $3.9 million due to slotting fees, trade, and mix shift. Looking ahead, we intend to continue investing in trade and promotion to support our retail business in the second half. Frozen Beverage segment net sales increased $2.3 million, or 3.1%. Beverage sales grew 13%, driven by an increase in theater sales and favorable foreign exchange. A decline in service sales of $3.2 million is expected to persist due to a customer decision to insource maintenance. Despite this decision, we do not expect a meaningful margin impact as we temporarily downsize our tech network until we onboard prospective replacement business. Frozen Beverage operating income increased $2.1 million to $4.6 million. Consolidated gross margin improved 190 basis points to 28.8%, primarily reflecting Apollo initiatives and favorable mix in foodservice and frozen beverage. Operating expenses increased $7.8 million to $97.5 million, which included $6.5 million in nonrecurring items related to plant closures and other restructuring costs, of which $4.1 million was noncash. Selling and marketing expenses increased 5.5%, or $1.6 million, compared to the prior year, representing 8.7% of sales compared to 8% last year. The increase includes investments in marketing equipment and brands. Distribution expenses increased and represented 12.1% of sales compared to 11.7% in the prior-year period. Distribution costs included a $0.4 million headwind from higher fuel costs. If fuel remains at current rates, fuel costs would be expected to increase approximately $3.5 million in the second half versus the prior year if not mitigated. Administrative expenses were $21.2 million, an increase of $1.4 million, or 7.2% from the prior year, primarily due to an increase in nonrecurring charges in the quarter. The charges, which totaled $1.7 million, are primarily associated with legal expenses and other restructuring charges, including severance. Adjusted operating income was $9.6 million compared to $8.9 million in the prior year. Adjusted EBITDA increased 9.5% to $28.7 million versus $20.2 million last year. The effective tax rate was 28.1%. On a reported basis, earnings per diluted share were $0.09 compared to $0.25 last year, primarily reflecting the impact of one-time charges. On an adjusted basis, earnings per share were $0.40, a 14.3% increase from last year. Our balance sheet remains strong with approximately $31 million of cash, net of debt. We had approximately $181 million of borrowing capacity under our revolving credit agreement. During the second quarter, we generated approximately $16 million in operating cash flow and invested $16 million in capital expenditures. Over the past twelve months, we have repurchased approximately 0.705 million shares for an aggregate of $72 million. In 2026, we have returned $95 million in cash to shareholders through share buybacks and dividends. That concludes our prepared remarks, and we are now ready to take your questions. Daniel J. Fachner: Operator? Operator: We will now open the call for questions. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. At this time, we will pause momentarily to assemble our roster. Our first question today is from Jon Andersen with William Blair. Please go ahead. Jon Andersen: Hi, good morning everybody. Thanks for the questions. Daniel, you mentioned at the top of your prepared comments that in the quarter you experienced some demand softness amid rising fuel costs. I am wondering if you could talk a little bit more about maybe where you experienced that the most, and when I say where, maybe if you could discuss it in the context of categories and maybe channels, and then how you expect that to play out in the back half of the year based on what you know right now? Daniel J. Fachner: Good morning, Jon. Right. Yes. Thanks, Jon. Thanks for the question. Where you get hit the most right off the bat with fuel costs rising is in your convenience store business. That is where you feel it the most at the gas pump. The price is high when they are filling up the tank, and they decide not to go in and purchase something more. We also see that in our foodservice side of our business too. That is an area that gets hit quicker than some of the other spots. We are seeing a consumer that already has a sentiment around worries about costs rising, and then the fuel uncertainty makes it that much more live to them. Jon Andersen: Okay. Fair enough. I know you do not offer guidance per se, but if we look to the back half of the fiscal year, given that you also have quite a bit of good innovation coming or in the works or in flight right now, and it sounds like some tests may be coming to some kind of resolution—hopefully resolution—how are you thinking about growth in the back half of the year? And then I guess part of that question is also whether we need to consider the ongoing impact of SKU rationalization in bakery or just the business rationalization you are doing in the low-margin part of bakery. Does that continue at the levels you have experienced in the first half? Any thinking around that would be helpful from a modeling perspective. Thanks. Shawn C. Munsell: Sure. Daniel J. Fachner: Yes, good question, Jon. And you are right. We do not really give specific guidance in that space. What we do know is we have some planned volume reductions like what we have talked about in both Q3 and Q4. In Q3, I think that is about 3.5%; in Q4, about 2.5%, consistent with the 3% that we have talked about for the year. We also know, like I just talked about with you, we have that wary consumer sentiment with the higher oil prices, and that is bouncing around even as we speak this morning. And we also know we have some really strong benefits coming from Apollo in the second half. We saw that in the first half of the year. We saw that this quarter. I am proud of the way the teams are working towards that, and so we see that benefit. As I sit today, I would see the environment in Q3 being pretty much the same as the environment we saw in Q2. Jon Andersen: Makes sense. Maybe pivoting to Apollo and the benefits from that, could you just bring us up to speed on what the run-rate benefits are as we exited the first half—run-rate annualized benefits from Apollo—and then it sounds like you are making good progress on the next phase of benefits, administration and distribution. Where might that mean for run-rate annualized savings exiting fiscal 2026? Shawn C. Munsell: Yes, sure. I will take that. The plant savings, or the plant consolidation work, is materially complete. And if you recall, that was about $15 million worth of annualized benefits at our estimate. In the quarter, we actually achieved above $4 million in plant savings, so a bit above that run rate. The balance, that $5 million, is coming from a combination of G&A administrative savings as well as the distribution savings. On the administrative savings front, we implemented a number of initiatives later in the second quarter, so you did not really see a lot of the benefit show up in the second quarter. The remaining initiatives were actually completed in April, so we will be at the full run rate on the G&A savings, which is at least $2 million annualized. And of the $3 million of distribution cost savings, we will be ramping that up in Q3 and Q4. By the time we get to the end of Q4, we should be on the full run rate for all the initiatives. We feel good about where we are. Jon Andersen: Great. Maybe I will get one more in. It seems like you have been buying back stock a little bit more regularly. As you look ahead, and obviously supporting the dividend, as you think about returning cash to shareholders going forward, could you talk a little bit about the priorities there? Would you continue the approach you have taken over the last twelve months? Thanks. Shawn C. Munsell: Yes, sure. We continue to see compelling value in the shares. We bought back $22 million in the quarter, and I can tell you that we will continue to buy back stock. We have seen an increase, I would say, in potential M&A activity, and so that is probably going to factor into the calculus here in the back half. But our stock buyback does reflect our conviction. Jon Andersen: Thanks so much. Shawn C. Munsell: Thanks, Jon. Operator: The next question is from Todd Morrison Brooks with The Benchmark Company. Please go ahead. Todd Morrison Brooks: Hey, thanks for taking my questions, I appreciate it. Good morning, Dan. Shawn, can we lead off on oil? Because I think it touches you in multiple places, right? It is at the consumer level, it is at the raw distribution level, it is also in the packaging. So I think you gave some color on what the incremental pressure from fuel would be, the $3.5 million in the second half if we stay at current levels. But is that just on the distribution side? And then I know there is no way to really gauge the consumer demand, but how about on the packaging side? Shawn C. Munsell: Yes, it is a great question. That is just the direct fuel piece. There is some potential risk around packaging as we get later into Q3 and Q4. But the lion's share of the impact is going to be on those direct fuel costs. We have not attempted to quantify what it means from the consumer outside of the comments that Dan made earlier. But that $3.5 million is representative of the second half within distribution. Now I will say that we are taking steps to try to mitigate some of that exposure, and hopefully we get a little bit more relief than what is modeled there. Todd Morrison Brooks: That is where I wanted to go next. Is this something that you can fuel-surcharge immediately to customers? Is it something that has to be negotiated price increases at least in retail? And given the volatile nature of what we are living through now and how the markets are spiking up and down, do people want to try to price to offset this pressure yet, or do we need to have more of a permanent resolution before you try to take those actions? Daniel J. Fachner: I will take that, Todd. It is one of those things you have to watch really closely. We have some disciplines in the business on both the ICEE and Dippin’ Dots side that allow us to be able to almost take those immediately. On the foodservice side of the business and retail, it is a little bit more difficult than that. But we are meeting and talking about it, and we will take price action if need be. Todd Morrison Brooks: Perfect. If I can pivot, and you are one of the few calls I have been on this cycle that did not call out the impact from the winter weather reality that we lived within January and February in a good-sized footprint of the country. Have you sized either lost revenue from weather disruption or margin pressure or anything that you would want to share with us as we are evaluating the results? Daniel J. Fachner: There is no way in our business that weather does not impact you. We do not have a number that we have been able to put to that, Todd, but it certainly has an impact on our business, especially in some of our products that are in locations that are outside in foodservice and areas that people just cannot get to. But it certainly has an impact. We have not put a number to that, though. Todd Morrison Brooks: Great. And then if I could squeeze one more in. You talked about the West Coast ICEE test progressing, which is great to hear. Can you update us on how the Taco Bell limited time offer performed, and their thoughts on the performance and maybe where that relationship could go from here? Thanks. Daniel J. Fachner: Two questions there, I think. Let me talk about the West Coast QSR test with ICEE. We are excited about that one. It is continuing to expand. We are actually rolling out into another market right now, which is claimed to be the last test phase of this, with a potential decision to be made before we even exit summer. So we are really excited about where that one is going. The Taco Bell volume in the quarter was not as great as we originally had anticipated. There is some volume from it that will still come through in this next quarter. The relationship is strong, and we think there is an opportunity to be able to come back and do some more with that customer. Todd Morrison Brooks: Great. Thanks, Dan. Shawn C. Munsell: Thank you. Operator: The next question is from Scott Michael Marks with Jefferies. Please go ahead. Scott Michael Marks: Hey, good morning, Dan, Shawn. Thanks for taking our questions. I wanted to ask a little bit about the retail business, if I could. I know you called out some of the innovation initiatives and some of the higher trade and slotting fees associated with getting those in store. Wondering if you can help us understand demand for some of those products where they are in market, just in terms of volumes and consumer response, even beyond the trade and slotting fees that you called out. Daniel J. Fachner: It is early still. They just started to roll out in the back half of the quarter. But we are really excited about the opportunities that we have in retail. One of the things we learned last year as you get into the second quarter is you do need to up your trade spend to get your frozen novelties in place as you get into the third and fourth quarter. That was a mistake we called out last year. And so some of that trade spend that is in Q2 will benefit us now in Q3 and Q4. The slotting fees associated with some of our new products appear to be paying off. Those new products appear to be kicking off really well. We have the Dogsters brand that is doing really good. Luigi’s is rolling out Mini Pups really nicely. The Soft Sticks are doing pretty good. And then the one that we keep touting more than anything is the high-temp Dippin’ Dots, and we expect that to do really well for us as we get into the back half of the year. Scott Michael Marks: Understood. Appreciate the thoughts there. If I could shift over to the foodservice side of things, I know Shawn called out—if we put aside the bakery SKU rationalization—a few moving pieces in the quarter with, I think, cookie inventory at a certain retailer and also some weaker volumes from the Taco Bell program that you have been running. Wondering if you can help us understand how we should be thinking about cadence or trajectory for that foodservice business moving ahead, just given some of these moving parts that we saw in the quarter? Shawn C. Munsell: Yes, good question, Scott. As it relates to the cookies with the customer that had reduced its volumes because of inventory levels, we are already seeing those volumes pick up. So we do not expect that to be a headwind in upcoming quarters as it was in Q2. Pretzels continue to be strong. We did $6.7 million in pretzel sales in foodservice in the quarter. I think in the prior quarter, we were up around $4 million in foodservice pretzels, so it continues to perform well, and we are confident that we are going to continue growing that business. And I can tell you too that even though we unfortunately did not quite realize the benefits from that LTO that we were hoping, we do have a couple of initiatives in the pipeline around churros for the back half of the year that could have some promise. I will not get into any more detail on it now, but hoping that maybe with the next call, we will be able to update you. Scott Michael Marks: I appreciate the thoughts there. And maybe if I turn over to the OpEx side, you made some comments about the distribution cost and not having realized the efficiencies from Apollo in that yet. Can you help us understand, is that the main driver of distribution as a percent of sales being up on a year-over-year basis? Was there some other dynamic in the quarter that had an impact on that part of the P&L? Shawn C. Munsell: Great question. You have got about $0.4 million in fuel that we flagged. That was really all coming from the exposure in March when diesel prices started to rise. The other piece of that is we had about $0.2 million worth of higher dry ice costs, and that was weather-related, so we do not expect that to be recurring. The other piece is we did have some cost shift around between distribution and cost of sales, and so that led to about a $0.5 million increase in distribution relative to cost of sales. Scott Michael Marks: Understood. Appreciate it. I will leave it there and pass it on. Daniel J. Fachner: Thanks, Scott. Operator: This concludes our question and answer session. I would like to turn the conference back over to Daniel J. Fachner for any closing remarks. Daniel J. Fachner: Thank you, operator. In closing, I want to emphasize that our Q2 results demonstrate that our transformation project is taking hold and we can drive earnings growth despite some top-line softness. We are building momentum for sustainable growth. Our strong balance sheet provides flexibility to invest in growth opportunities while returning capital to shareholders. We remain confident in our ability to deliver the full benefits of Project Apollo and drive long-term value creation. Thank you again for your continued support, and we look forward to updating you on our progress throughout fiscal 2026. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to Community Healthcare Trust Incorporated 2026 First Quarter Earnings Release Conference Call. On the call today, the company will discuss its 2026 first quarter financial results. It will also discuss progress made in various aspects of its business. Following the remarks, the phone lines will be opened for a question and answer session. The company's earnings release was distributed last evening and has also been posted on its website chct.reip. The company wants to emphasize that some of the information that may be discussed on this call will be based on information as of today, 05/06/2026, and may contain forward-looking statements that involve risks and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the company's disclosures regarding forward-looking statements in its earnings release as well as its risk factors and MD&A in its SEC filings. The company undertakes no obligation to update forward-looking statements whether as a result of new information, future developments, or otherwise, except as may be required by law. During this call, the company will discuss GAAP and non-GAAP financial measures. A reconciliation between the two is available in its earnings release, which is posted on its website. Call participants are advised that this conference call is being recorded for playback purposes. An archive of the call will be made available on the company's Investor Relations website for approximately 30 days. It is the property of the company. This call may not be recorded or otherwise reproduced or distributed without the company's prior written permission. Now I would like to turn the call over to David H. Dupuy, CEO of Community Healthcare Trust Incorporated. David H. Dupuy: Thank you very much. Good morning, everyone, and thank you for joining us today. For the 2026 first quarter conference call. On the call with me today is William G. Monroe, our Chief Financial Officer, Leanne Stack, our Chief Accounting Officer, and Mark Kearns, our Senior Vice President of Asset Management. Our earnings announcement and supplemental data report were released last night and furnished on Form 8-Ks along with our quarterly report on Form 10-Q. In addition, an updated investor presentation was posted to our website last night. During the first quarter, the behavioral hospital operator, a tenant in six of the company's properties, paid rent of approximately $300 thousand, an increase of $100 thousand over last quarter. On 07/17/2025, this tenant signed a letter of intent for the sale of the operations of all six of its hospitals to an experienced behavioral health care operator and is under exclusivity with that buyer. The buyer is finalizing legal and business due diligence and has entered the drafting phase of the definitive purchase documents, including new leases on the six hospitals owned by the company. We continue to maintain frequent, productive communication with the buyer's team to advance the closing process. While the transaction is progressing, we cannot provide specific timing or certainty that it will close. However, we remain committed to providing further updates as the process moves forward. We had a busy first quarter from both an operations and a capital recycling perspective and continue to be selective from an acquisition standpoint. Our occupancy decreased from 90.6% to 89.8% during the quarter due to lease terminations. However, our leasing team is very busy with renewals and new leasing activity and we expect leased occupancy to grow next quarter. Our weighted average lease term increased slightly from 7.0 to 7.1 years, and our asset management team continues to do a great job serving our tenants while focusing on property operating costs. We have three properties that are undergoing redevelopment or significant renovations with long-term tenants in place once the redevelopment or renovations are complete. The largest of these projects, a behavioral healthcare facility, received its certificate of occupancy in March. Due to health care licensure requirements, we expect this property to commence its lease and contribute NOI during 2026. During the first quarter, we acquired an inpatient rehabilitation facility after completion of construction for a purchase price of $28.5 million. We entered into a new lease with a lease expiration in 2044 and an anticipated annual return of approximately 9.3%. We also have signed definitive purchase and sale agreements for four properties to be acquired after completion and occupancy for an aggregate expected investment of $99 million. The expected return on these investments should range from 9.1% to 9.75%. We expect to close on two of these properties in 2026 and the remaining two in 2027. In February, we sold one building in Fort Myers, Florida and received net proceeds of approximately $5.2 million, resulting in a small loss on the property sale. We also received net proceeds of approximately $700 thousand from the disposition of a property in 2025. We did not issue any shares under our ATM last quarter. However, we continue to evaluate capital recycling opportunities and we would anticipate having sufficient capital from selected asset sales, coupled with our revolver availability, to fund near-term acquisitions. Going forward, we will evaluate the best uses of our capital, all while maintaining modest leverage levels. To wrap up, we declared our first quarter dividend and raised it to $0.48 per common share. This equates to an annualized dividend of $1.92 per share, and we are proud to have raised our dividend every quarter since our IPO. That takes care of the items I wanted to cover, so I will hand things off to Bill to discuss the numbers. William G. Monroe: Thank you, Dave. I will now provide more details on our first quarter financial performance. I am pleased to report total revenue grew from $30.1 million in 2025 to $31.5 million in 2026, representing 4.8% annual growth over the same period last year. On a quarter-over-quarter basis, total revenue grew 1.9%, primarily from higher rental income from our recent acquisitions and higher property operating expense recoveries, partially offset by recent capital recycling dispositions and net leasing activity. Moving to expenses, property operating expenses increased by approximately $360 thousand quarter over quarter to $6.4 million for 2026. This increase was a result of seasonally higher snow plow and utility expense at several properties that we typically see in January and February in particular. Total general and administrative expense was $5.1 million in 2026, which was approximately $330 thousand higher quarter over quarter, primarily as a result of higher noncash amortization of deferred compensation and our typical first-quarter adjustments due to the timing of annual employee salary increases, employer HSA and 401(k)s contributions, and employer tax payments. On a year-over-year basis, G&A did not increase from the same $5.1 million in the first quarter 2025. Interest expense decreased by $160 thousand quarter over quarter to $6.8 million in 2026 due to two fewer days in the first quarter and slightly lower floating rates on our revolving credit facility. I will note that we expect our second quarter interest expense to be higher, however, based on an additional day in the second quarter, a full quarter of our current revolver balance which includes net borrowings from our inpatient rehabilitation facility acquisition in February, and the expiration in late March of $75 million of interest rate hedges. Moving to funds from operations, FFO in 2026 was $13.4 million, a 5.8% increase year over year compared to the $12.7 million of FFO in 2025. On a diluted common share basis, FFO increased $0.02 year over year from $0.47 in 2025 to $0.49 in 2026, and remained the same quarter over quarter from the $0.49 of FFO in 2025. Adjusted funds from operations, or AFFO, which adjusts for straight-line rents and stock-based compensation, totaled $15.4 million in 2026, a 4.1% increase year over year compared to the $14.7 million of AFFO in 2025. AFFO on a diluted common share basis was $0.56 in 2026, which was $0.01 higher both year over year and quarter over quarter from the $0.55 of AFFO in 2025. That concludes our prepared remarks. Dorwin, we are now ready to begin the question and answer session. Operator: We will now open the call for questions. Please pick up your handset before pressing any keys. At this time, we will pause momentarily to assemble our roster. Our first question comes from Alexander Goldfarb with Piper Sandler. Please go ahead. Alexander Goldfarb: Thank you, and good morning down there. Dave, you made some promising comments about the Assurance hospital transfer. It sounds like things are progressing, sort of getting in late stages. Can you just give a little bit more color? Do you feel like we are getting close to the end, or is this sort of typical government work where you have to enjoy the process? And at this point, based on the shot clock, you are like, okay, we should be at the point of the shot clock where this should be coming to a conclusion. David H. Dupuy: Hey, Alex. Thanks for the question. We are feeling like we have definitely made some progress over the last quarter. Some of the roadblocks that we have seen, as you have alluded to, have related to getting some confirmation on some outstanding liabilities from a couple of the various governing bodies that pay. In particular, as it relates to Ohio Medicaid, firming up the amount that is owed. But we do feel like we are making good progress. The company is highly engaged, the buyer is highly engaged in the process, and we do feel like we are hopefully going to get final confirmation on timing and everything very shortly. As I said in the prepared remarks, we are currently trading documents and purchase agreements, and we would anticipate getting this in a good place, hopefully, in the next quarter. Alexander Goldfarb: Okay. That is certainly good to hear. Second question is, obviously, housing is all the rage these days, and MOB, I think your traditional property types, may not be as in vogue, at least when you look at the public stock prices. When you look in the market for acquisitions, is that the same that you see in the private market? Or is your acquisition pipeline coming down mainly relative to your cost of capital? I am also trying to understand what is going on in valuation land and if all the health care private capital is heading only to senior housing, and your traditional target class remains still very attractive, and therefore your decision to pull the pipeline down is more based on just your cost of capital versus everything once again getting bid up and therefore there is less product of interest to you. David H. Dupuy: No, it really has to do with the latter, Alex. We see a number of acquisitions. We continue to have investment committee every couple of weeks where we go through opportunities, and if we were in a different position and were not doing capital recycling and having to sequence those asset sales in order to acquire new assets—because we do not want to raise capital through our ATM—we would definitely see the types of properties and the types of opportunities that we would like to invest in. What we are doing in terms of focusing on capital recycling is using this as an opportunity to do two things. Obviously, we are using this as an opportunity to trim some of the properties that are in less attractive markets. A lot of these facilities that we sold, we sold five properties in 2025; we sold another one in 2026. We are using this as an opportunity to really prune the portfolio and improve the portfolio. It is not the most fun in terms of selling a property in order to buy properties, but that is what we are going to focus our time and efforts on. What we expect is in the second half of the year, as some of these redevelopment projects and other things that we have been working on come online, we would expect to start posting AFFO growth, and we hope that is recognized as a positive in the marketplace and puts us in a position to start doing what we have been doing historically as a company, which is not just growing the portfolio performance through leasing, but also growing the portfolio through acquisitions. Operator: Thanks, Alex. Our next question comes from Jim Kammert with Evercore. Please go ahead. Jim Kammert: Hi. Good morning. Thank you. The acquisition you noted was quoted at about a 9.3% yield, I believe. Is that a GAAP or a cash yield? And if GAAP, I am trying to understand what are the representative annual escalators on that long lease, and are they representative of the other four assets in the pipeline? David H. Dupuy: That is a cash yield, that 9.3% cap rate. Jim, you were not coming through very clearly. Are you asking what the escalators are on that property? Jim Kammert: Yes, sorry, Dave. Thank you. What are the escalators, and are they representative of the other four assets? David H. Dupuy: Yes. They are 2% escalators and would be consistent with the other ones that are in the pipeline. Jim Kammert: Great. That is all I had. Thank you. Operator: We have no further questions at this time. I would now like to turn the conference back over to management for closing comments. Over to you. David H. Dupuy: Great. Thanks, Dorwin, and thank you, everybody, for dialing in. We hope to see many of you at NAREIT coming up in June. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon. Thank you for attending Hallador Energy's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this call will be recorded. I'd now like to turn the conference over to Sean Mansouri, the company's Investor Relations Adviser with Elevate IR. Please go ahead, Sean. Sean Mansouri: Thank you, and good afternoon, everyone. We appreciate you joining us to discuss our first quarter 2026 results. With me today are President and CEO, Brent Bilsland; and CFO, Todd Telesz. This afternoon, we released our first quarter 2026 financial and operating results and a press release that is now on the Hallador Investor Relations website. Today, we will discuss those results as well as our perspective on current market conditions and our outlook. Following prepared remarks, we will open the call to answer your questions. Before we begin, a reminder that some of our remarks today may include forward-looking statements subject to a variety of risks, uncertainties and assumptions contained in our filings from time to time with the SEC and are also reflected in today's press release. While these forward-looking statements are based on information currently available to us, if one or more of these risks or uncertainties materialize or if our underlying assumptions prove incorrect, actual results may vary materially from those we projected or expected. In providing these remarks, Hallador has no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law to do so. And with the preliminaries out of the way, I'll turn the call over to President and CEO, Brent Bilsland. Brent Bilsland: Thank you, Sean, and thank you, everyone, for joining us this afternoon. Before diving into our first quarter results, I want to begin with what we believe is an important milestone in a multiyear transformation of Hallador, one that has been in the works for a long time now and reflects the steady, deliberate execution of a strategy our long-term shareholders have been patient with. Subsequent to quarter end, we executed a 12-year capacity agreement with a subsidiary of utility, that is expected to generate more than $1 billion of contracted revenue from 2028 through 2040 at pricing levels more than 2x our historical contracted capacity pricing. This agreement is subject to approval by the Indiana Utility Regulatory Commission, which we anticipate will occur in the second half of 2026. The agreement represents one of the most significant commercial achievements in our company's history. It may be helpful to put today's announcement in the context of the path that brought us here. Six years ago, Hallador was originally an underground coal mining company. In 2021, we began acquiring a 1 gigawatt interconnection. In '22, we acquired the 1 gigawatt power plant that utilizes the interconnection. In 2024, we began marketing long-term output of the plant. And in '25, those discussions broadened from data center developers to utilities. In March of this year, we executed a 3-year capacity agreement at approximately twice our historical pricing. And today, we are announcing a 12-year $1 billion-plus capacity agreement that follows directly behind it. Each of those steps was deliberate, each built on the one before. And we believe the same pattern of disciplined sequential execution will continue to define how we create shareholder value from here. Combined with the 3-year capacity agreement we announced in March that contracted our accredited capacity for planning years '26, '27 and '28, the agreement we are announcing today contracts the back portion of planning year 2028 and each year thereafter through mid-2040. Together, these 2 capacity-only sales total approximately $1.1 billion and place Hallador in a substantially sold-forward position on accredited capacity for approximately the next 14 consecutive years. We believe this represents a meaningful structural improvement in the durability of our earnings power and our balance sheet. And importantly, it provides the capital raising foundation from which to pursue the next set of opportunities in front of us. The agreement initially covers a smaller volume of accredited capacity in planning year 2028, increasing to approximately 2/3 of our accredited capacity beginning in planning year 2029 and continuing through 2040. This structure provides the kind of long-duration revenue visibility that is increasingly rare for dispatchable generation in MISO and validates the durable economic value of our dispatchable generation platform. It is worth noting that this agreement is only for our capacity. We are not committing energy under this contract, which enables us to secure durable contracted revenue, while preserving full exposure to future upside in energy markets as demand for power continues to rise across MISO. Preserving that energy side optionality is intentional. As we will discuss in a moment, we believe the energy market is on a different time line than the capacity market, and we are positioning the portfolio to participate in both as they develop. To us, that is the bigger story. While our first quarter results were generally in line with our expectations due to previously mentioned availability constraints at Merom, the underlying value of Hallador is increasingly tied to the growing scarcity of reliable, dispatchable generation. The agreement we announced today is one clear data point of that dynamic. And we believe it is one of several you should expect to see emerge from the role our assets can play in meeting this demand. When we look at the market, we view capacity as the critical first step. For large load customers, particularly data centers, access to accredited capacity is often the gating factor. Without it, projects cannot move forward. As a result, we are seeing capacity markets tighten and reprice ahead of the physical demand that these developments will ultimately bring. Energy demand follows on a different time line. These projects require several years to build. And as they come online and begin to draw power from the grid 24/7, 365, that is when we expect to see more meaningful response in energy pricing. Our portfolio is constructed to participate in both phases. The capacity contracts we have announced this year address the first. The merchant energy position we have intentionally retained is positioned to address the second when it arrives. This dynamic is central to how we are positioning the business. Our strategy is to monetize capacity where we can secure attractive, long-term value today, while maintaining flexibility to participate in future upside in energy markets. We are being deliberate in how we contract our portfolio, locking in value where scarcity is already evident and preserving exposure where we believe demand has yet to be fully reflected. Capacity remains a critical requirement for large load development, and we continue to see strong interest from counterparties seeking reliable supply over longer periods. The agreement we signed is an important anchor in our forward sales book, but it is by design, not the last commercial step we expect to take. We continue to evaluate additional ways to monetize our remaining capacity and optimize our forward energy position. We will maintain a disciplined approach, and we will be deliberate about the timing and structure of any future commercial agreements. That said, the level of inbound interest we are seeing today is meaningfully higher than it was even 6 months ago across multiple counterparty types and contract structures. The contracted high conversion cash flows from these agreements also support a broader transformation we are pushing, building in Hallador over time into a multi-fuel independent power producer with a more diversified generating fleet. We have spoken previously about the proposed 515-megawatt combustion turbine project at our Merom Generating Station site under the MISO ERAS program. Additionally, we are continuing to evaluate dual fuel initiatives for our existing generation. We will work towards making progress on these work streams in the same disciplined sequential way as the contracting strategy has unfolded into the past year. Now turning to our first quarter 2026 results. As we discussed on our last call, we experienced availability constraints at Merom in Q4, that continued into the first quarter and reduced generation from the plant. First quarter results reflected those constraints as lower generation at Merom pressured electric sales and intercompany coal sales, which ultimately impacted our profitability for the quarter. We also incurred outage-related replacement power costs during Q1, which created an additional headwind. While these results were generally in line with the expectations we provided in March, they are below the level of performance that we expect from our Merom power plant over time. Maintaining high levels of reliability remains a top priority for our team, particularly as MISO increasingly depends on dispatchable resources during periods of peak demand. As such, the generating unit in question is currently in a planned maintenance outage, and we are using this period to make reliability-related investments that we believe should improve performance as we move through the balance of the year. As we have discussed previously, Hallador operates as a vertically integrated platform, and Merom sits at the center of that system. When the plant is running efficiently, it drives performance across the business, supporting electric sales, creating consistent internal demand for coal, improving mine productivity and enhancing overall operating efficiency. When performance at Merom falls below planned levels, those impacts extend throughout the platform. Coal inventories increase, production at Sunrise becomes less efficient, and it becomes more difficult to optimize our cost structure. That is why our focus on improving reliability at Merom is so important. The outage currently underway is a key part of that effort. We are making targeted capital investments in the unit, and we believe that, that is the right decision given both the value of Merom today and the increasing importance of reliable, dispatchable generation going forward. Historically, similar investments have led to meaningful improvement in operating performance, and we expect the work being completed now to position the plant for higher availability as we move into the summer and upcoming peak demand periods. We are also in a much stronger financial position to support these investments. At quarter end, we had no outstanding bank debt and meaningfully improved liquidity compared to year-end. That improved capital position gives us greater financial flexibility to invest in the assets, support our ongoing operation and pursue the strategic opportunities we are seeing across the power market. Looking ahead, our second quarter results will reflect the planned outage currently underway, which we expect will temporarily reduce generation as we complete the necessary maintenance. As we move into the second half of the year, the underlying setup begins to shift with the plant returning from outage and availability improving. We expect to be better positioned heading into the peak summer demand period. As I mentioned earlier, more consistent performance at Merom supports not only electric sales, but also internal coal demand, mine productivity and overall operating efficiency across the platform. This is important because the opportunity in front of us ultimately depends on execution. While the agreement we discussed earlier reinforces the value of accredited capacity and dispatchable generation, realizing that value over time requires consistent performance at Merom. We're focused on improving reliability, driving efficiency across our coal operations and translating the market opportunity we see into durable cash flow. Although the first quarter was operationally challenging, it does not change our view of the long-term earnings potential of the platform. The fundamental signals across our markets remain constructive, and we believe Hallador is well positioned to compound shareholder value over a multiyear horizon as the strategy we have been describing continues to unfold milestone by milestone. With that, I'll turn the call over to Todd to take you through our financial results. Todd Telesz: Thank you, Brent, and good afternoon, everyone. Jumping into our first quarter results. Electric sales for the first quarter were $65.1 million compared to $85.9 million in the prior year period, while third-party coal sales increased to $35.1 million compared to $30.2 million in the prior year period. Electric sales in the first quarter reflected the availability constraints at Merom, that Brent discussed earlier, which reduced generation during the period and resulted in lower electric sales compared to the prior year. These impacts were partially offset by stronger credit capacity revenue during the quarter. The increase in third-party coal sales during the first quarter was driven primarily by improved pricing on shipments to customers, reflecting continued execution across our external customer book and Sunrise Coal's ability to supply both internal fuel requirements at Merom and external market demand. On a consolidated basis, total operating revenue was $101.8 million for the first quarter compared to $117.7 million in the prior year period. Net loss for the first quarter was $9.3 million compared to net income of $10 million in the prior year period. Operating cash flow for the first quarter was $20.5 million compared to $38.4 million in the prior year period, with the decrease primarily reflecting lower generation of Merom, higher purchase power costs during the quarter and an increase in coal inventory of approximately $4.6 million. Adjusted EBITDA, a non-GAAP measure, which is reconciled in our earnings press release issued earlier today, was $5.5 million for the first quarter compared to $19.3 million in the prior year period. We invested $7.7 million in capital expenditures during the first quarter of 2026 compared to $11.7 million in the year ago period. As Brent mentioned earlier, we are currently in a planned major maintenance outage at Merom and expect capital spending to remain focused on planned maintenance, reliability and operational improvements across the platform. For the full year, we continue to expect capital expenditures to increase modestly compared to 2025 levels, excluding potential ERAS-related development investments. As of March 31, 2026, our forward energy capacity sales position was $571.2 million compared to $543.5 million at December 31, 2025, and $630.4 million at March 31, 2025. When combined with our third-party forward coal sales of $288.4 million as well as intercompany sales to Merom, our total forward sales book as of March 31, 2026, was approximately $1.2 billion. Importantly, these figures do not include the 12-year capacity agreement signed last week. Hallador had no outstanding bank debt at March 31, 2026, compared to $29.7 million at December 31, 2025, and $21 million at March 31, 2025. Total liquidity at March 31, 2026, was $97.5 million compared to $38.8 million at December 31, 2025, and $69 million at March 31, 2025. The increase reflects both the capital raised during the quarter, capacity payments received and the addition of borrowing capacity under our new credit facility. As Brent mentioned earlier, we took several steps during the quarter to strengthen our capital structure. In early March, we entered into a new credit agreement with Texas Capital Bank, Old National Bank and other long-term relationship lenders, replacing our prior facility. The new agreement includes a $75 million revolving credit facility and a $45 million delayed draw term loan, with maturity in March 2029 and includes an accordion feature that provides additional flexibility. We believe this new facility, combined with our improved liquidity position and the absence of outstanding bank debt at quarter end, provides a more flexible capital structure than we had entering the year. It allows us to fund the planned outage and reliability investments at Merom, manage working capital across both segments and support the commercial strategy Brent outlined, while maintaining a disciplined approach to leverage and preserving the financial flexibility to support the disciplined multiyear transformation Brent described. With that, operator, we can now open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Julien Dumoulin-Smith with Jefferies. Unknown Analyst: This is [indiscernible] on for Julien. Congrats on the big contract. It's been a long time coming, so nicely done there. Just wanted to ask you, now looking forward towards the gas extension, can you talk about what would get you more confident here in pursuing that moving forward with the gas extension and what your strategy there is both with regards to securing the turbine and towards the EPC? I think you've talked about partnerships on the turbine side, but we're also hearing constraints on the EPC side. So curious if you can add more color on how you move forward with the gas reset? Brent Bilsland: Yes. Thank you. Look, I mean, certainly, selling a big block of capacity puts us in better financial footing. It increases our confidence. As far as equipment, yes, equipment is hard to get. EPCs are hard to get, but we're in conversations with those parties, and we're moving those discussions forward. When we secure equipment in an EPC, we will announce such a transaction if we decide to go forward with that. But yes, it's -- what we're seeing in the market is the value of PPAs go up, but equipment prices also go up. And so we're trying to align those economics and see if we can get a development build. Operator: Your next question comes from the line of Nick Giles with B. Riley Securities. Nick Giles: Congrats on the capacity deal. That's really great to see. Brent, in your prepared remarks, you noted that capacity is the bottleneck between data center deals being finalized. And I know you've signed this deal with the utility, but should we assume that this deal is ultimately linked to a hyperscaler end user? And how should we think about how end users have shifted on the energy front? Brent Bilsland: Well, we're a little limited on what we can say just based on some of the confidentiality requirements in the agreement. That said, this is a material agreement, and so it will be filed as an exhibit in our -- with our 10-Q. So there'll be a little more information there. But I would say, overall, data centers are the big demand that we're seeing everywhere. It's not the only demand. I mean we're seeing potential steel plant expansions in Indiana. We're seeing announcements of new aluminum smelters, I think, in Oklahoma. I mean you're seeing manufacturing show up as well, particularly as you look at energy disruption around the world, the United States truly is energy independent. We truly do have some of the cheapest energy and most secure energy in the world. And so if you're going to build anything, it's going to be built upon that foundation. Now AI, I think it's revolutionary technology. I think people are just starting to get the first taste of some of these new products. I mean, Anthropic's new offering is amazing. And once your teams start to experience that, you see the productivity gains. And that's just -- I don't know that any of this is new information. It's just we're seeing it. And why are we seeing in Indiana? Specifically, we've talked about Indiana is welcoming data centers to the state, whereas there's something like 30 different states across the country who have some form of pause or moratorium on new data centers. And so where can you go that has population or is near population, has a great business climate, has favorable tax policy to attract data centers, Indiana is checking that box. And that's why we're just seeing such an intensified interest level in the state. And so that's the wind behind our sails. We executed on it in March. We've executed again here in May. And we hope to announce -- hopefully, we can execute on further deals later this year. Nick Giles: Appreciate that perspective, Brent. Maybe just back on the energy side. In the past, you've talked about kind of where you saw pricing at any given time, and you've made references to the forward curve. And -- so I was hoping just to get an updated view on that? It's been a while. There were some other deals across the space, some on the nuclear side, that we could use as precedent, but I don't think we've seen any of that nature here more recently. So just was hoping for an updated view on kind of where you see energy pricing today? Brent Bilsland: Yes. So there's a lot of different curves out there, a lot of different companies put them out. We generally think capacity is a lead indicator for energy, right? I mean, first, if you're going to build a data center or even a factory for that matter, you really need to secure your credit capacity first. And then once you've secured that, now you can start building your factory or data center. And then once that -- let's just use data center because that is the biggest portion of the demand we're seeing. Once you see that being built, once it gets turned on, now we're using energy, right? And so there's typically a couple of year lag between what we're seeing in the capacity markets to kind of the response we're seeing in the energy markets. And I think the curves are just starting to reflect that. We've seen a little price movement up, which is encouraging. We'll see if that holds. And -- but by and large, I mean, everything we're seeing is encouraging. Nick Giles: And maybe just one more, if I could. Given that some of the juice on the energy side, if you will, could come with a lag, would you be willing to kind of wait it out given you have the stability of the capacity revenue secured now? Or would you rather send something sooner? Brent Bilsland: Well, I think -- look, first of all, we're well hedged for 2026, right? And so that's -- this year's book is in great shape. These capacity deals sets a great foundation for the company through 2040. That's 14 years of forward visibility, a large portion of the book. And again, if you kind of look back to our March release, we talked about if we could continue to sell capacity at the prices we sold out in March, and we could sell everything at that price. That would be $130 million of revenue before we turn the plan on, right? We have a fixed cost of roughly $60 million. This deal was priced higher than that. So we have -- we think we've locked in -- now we've only sold 2/3 of the forward capacity that we have to sell, but we've locked in a profit for 14 years before we even turn the plan. I think that's a great position for us to be in. It definitely -- we feel no pressure. And I think as far as selling energy goes, I think we just have to take the deals as they come. Different customers have different needs, different opportunities. And so if we see opportunities to lock in energy tomorrow at prices that we deem appropriate for the future, we will do so. But where we've seen the biggest response, again, more than doubling the price of what we were doing 2 years ago is in the capacity markets. And so that's where we've been most aggressive. Operator: Your next question comes from the line of Jeff Grampp with Northland Capital Markets. Jeffrey Grampp: Congrats on the announcement. I wanted to talk on -- you're a little more vocal it seems in this release regarding the dual fuel ambitions at Merom. Is there any more detail you can share regarding potential timing, next steps? And as I recall, it was a little bit more of a potential bargaining chip, I suppose, for prospective customers. With that seemingly not really a constraint or consideration, can you talk about what the, I guess, benefits for Hallador would be should you pursue a project like that? Brent Bilsland: Yes, great question. Look, if we bring a gas line in for the gas plant, right, that has a dual use. It can be used for the gas plant, but it also could be used if we decide to dual fuel the coal-fired units. And again, it wouldn't be a replacement of coal. It would be a -- we would have the ability to burn both, right? We could burn coal, we could burn gas. And there's a lot of reasons to do that, right? Some of it is there's times the gas is cheaper than coal. It could be -- it helps our investors, bankers, insurance companies kind of protect the company. And well, if we have a different administration with a different viewpoint, then all of a sudden, Hallador is a multi-fuel company that isn't just a coal company. We think as you progress through this, right, we're locking in the economics of the existing generation. We're trying to step towards building of a gas unit to both expand our capacity, but also add a separate fuel source. If we could then upon that dual fuel the existing plant -- now Hallador has really transitioned from a coal company to a multi-fuel company. And I think there could potentially be a multiple uplift in being able to pull all that off. Now that doesn't mean -- I don't want to sit here today and say we're going to do that. I'm trying to say that because of the contracts we've signed, we've derisked our balance sheet. We've increased the ability to access capital, and these are the type of projects that we are reviewing and trying to work towards. So I just want to kind of give the investor a little bit of insight into how we're thinking. We'll have to see if those investments make economic sense and it's ultimately what we decide is the best use of our capital. Jeffrey Grampp: Understood. I appreciate that thorough answer. For my follow-up, I know in the past, you talked about M&A ambitions and some opportunities there. It's obviously a big derisking event for the Hallador story at large. Does this help further or serve M&A ambitions? Are these independent? And can you just give us a broad update on the opportunity set in that world? Brent Bilsland: Yes. Look, I think there's a lot of opportunity. If you look at -- there's a lot of people that own assets that are funds. And what is unique about Hallador is we have a public vehicle. We have a sales team that can help lock in long-term contracts to add value to those existing assets. And we have a team that is working on developing the interconnect and expanding upon that to meet market demand. So I think Hallador is unique in that -- and we can touch coal assets. So those 4 attributes, I think, really set us apart and make us a more interesting vehicle for potential M&A possibilities down the road. We'll see if those come to pass. We're only going to do deals that we think are smart, and we're going to do the deals that we think bring the most value to the shareholder at the time that they're in front of us. So hopefully, we can have some success on that. Operator: Your next question comes from the line of Matthew Key with Texas Capital. Matthew Key: Congrats on the new agreement. I was wondering if you could help quantify the pricing a little more on the new capacity agreement? I think you mentioned that it was done above the previous 3-year deal that was announced. Could you provide a rough ballpark on that improvement on pricing? Brent Bilsland: Yes, Matt, I apologize, we're somewhat limited on what we can say just due to the confidentiality that is in the agreements. But I think that if you look at the tenor and the volume that we've talked about, and we've given roughly the total dollar amount, I think everybody can kind of get in the ZIP Code. There were a lot of reports out on what our last deal was at. And some of that will show up now. So what we announced in March, some of that does show up in our forward sales book in this 10-Q. So if you compare the previous 10-Q to this 10-Q, I think you can get a feel for what that pricing is. On this particular $1 billion deal, once it's approved by the IURC, that -- then that deal is firmly bound, right? That's the last approval that we're waiting for. I mean we're bound, the counterparty is bound. We just have to have IURC approval. Once that happens in our -- whatever Q follows that time period, then we'll start to report what the volumes and the pricing is on the deal we just announced. Matthew Key: Got it. No, that's helpful color. And for my follow-up, I wanted to talk a little bit about the natural gas expansion. I believe in the previous earnings call, you mentioned that you would expect MISO to complete kind of the ERAS application in 3Q '26. Have there been any changes to that time line? And have they picked up the application as we stand today? Brent Bilsland: They've not picked up the application yet, but we still anticipate them doing that in June, and then that will require us to make the decision sometime in September. Matthew Key: Got it. Yes. So about 90 days, right, after they pick it up to kind of work through the details of that? Brent Bilsland: Yes, that's how the ERAS program is supposed to work. Once they pick it up [indiscernible] the 90-day on. Matthew Key: Got it. Brent Bilsland: We do not control when they pick it up. Operator: I'll now turn the call back over to Brent Bilsland for closing remarks. Brent Bilsland: Yes. I want to thank everybody for their patience in us getting this capacity deal done. We're very excited about the future of the company, and we think we've got just great things in store. So thank you for your time today. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day, and welcome to the Realty Income Q1 2026 Earnings Conference Call. [Operator Instructions] Please also note, today's event is being recorded. I'd now like to turn the conference over to Alex Waters, Vice President, Investor Relations. Please go ahead. Alexander Waters: Thank you for joining Realty Income's First Quarter 2026 Results Conference Call. Joining us on the conference call today are Sumit Roy, President and Chief Executive Officer; Jonathan Pong, Chief Financial Officer and Treasurer; Neil Abraham, Chief Strategy Officer and President, Realty Income International; and Mark Hagan, Chief Investment Officer. During this conference call, we will make certain statements that may be considered forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in any forward-looking statements. We will disclose in greater detail the factors that may cause such differences in the company's Form 10-Q filed today with the SEC. We will observe a one question and one follow-up limit during the Q&A portion of the call to ensure that everyone has an opportunity to participate. And with that, I would now like to turn the call over to our CEO, Sumit Roy. Sumit Roy: Thank you, Alex, and welcome, everyone. We entered 2026 with strong momentum, and our first quarter results demonstrate progress across the priorities that matter most for Realty Income. Disciplined capital deployment, durable portfolio performance and continued expansion of our private capital platform. In the first quarter, we delivered AFFO per share of $1.13, up 6.6% year-over-year and invested approximately $2.8 billion or $2.6 billion on a pro rata basis at a 7.1% initial weighted average cash yield. Our investment activity remained balanced between North America and Europe, and we also deployed approximately $1 billion into credit and structured investments. That strong start to 2026 supports our decision to raise the midpoint of full year AFFO per share guidance by $0.025, or approximately 60 basis points at the midpoint. Jonathan will walk through the quarter and our updated guidance in more detail. Looking ahead, our 2026 outlook reflects an anticipated acceleration from 2025 as we leverage our scale, data-driven and robust platform to strive towards consistent double-digit total operational returns for our shareholders. I'd like to briefly step back and place our recent announcements into the broader strategic context for Realty Income. Over the past several months, we've been deliberate in building a private capital ecosystem to diversify our sources of permanent equity, expand our investment opportunity set and support long-term value creation, all while remaining anchored in the same underwriting discipline, credit standards and focus on durable growing cash flow that have defined Realty Income since our inception. This is demonstrated through 3 critical achievements. First, we completed our $1.7 billion cornerstone capital raise for our Perpetual Life U.S. Core+ fund. Second, we formed a strategic partnership with GIC focused primarily on construction financing and takeout commitments for build-to-suit industrial in the U.S. and Mexico. Lastly, we raised $1 billion in equity from Apollo as part of a programmatic venture that strives to ultimately deliver Realty Income's dependable income to the massive insurance and annuity market. Taken together, these initiatives represent what we view as a meaningful evolution of the Realty Income platform, rooted in years of intentional planning to strengthen how we fund growth and deploy capital across cycles. Several years ago, we identified a potential concentration risk in relying primarily on public equity markets, where pricing, at times, can become disconnected from underlying operating performance and this discrepancy persists for prolonged periods. That realization led us to a fundamental question: how do we diversify capital sources to better leverage a platform designed to deploy billions of dollars annually while seeking to create long-term value for public shareholders. These partnerships represent the early stages of our private capital journey, and we expect to continue adding accretive sources of permanent capital over time. Today, we view private capital not as a single strategy, but as an ecosystem of distinct non-overlapping verticals tailored to different geographies, property types and investment mandates. This approach has expanded our investor base, strengthened our return profile through asset-light fee income and meaningfully broadened our investable universe. Importantly, it allows us to deploy capital across property types and across the real estate capital structure while preserving the core DNA of Realty Income. Each vehicle is designed to be complementary to our public REIT model and accretive to long-term per share value. Alongside that backdrop, our global platform evolution drove transaction activity during the third quarter. With approximately $2.8 billion of investment volume, we delivered one of our higher levels of quarterly deployment in recent years, supported by consistent execution across geographies, property types and investment structures. We sourced approximately $31 billion of investment opportunities during the first quarter, reflecting the depth of our global relationships and the scale of our platform. That sourcing allowed us to remain highly selective, closing on roughly 9% of what we reviewed while maintaining discipline on yield structure and credit. Approximately 94% of opportunities were relationship-driven, reinforcing the durability of our origination engine. Our European platform continues to be a key competitive advantage. Markets remain more fragmented and less crowded than in the U.S., allowing us to source portfolio-oriented tailored transactions with attractive duration and credit and to flex capital toward highly compelling opportunities. In the U.S., transaction markets remain active and competitive, particularly for small one-off assets. We continue to see meaningful value creation in larger and more structured investments where our relationships scale and underwriting capabilities provide a competitive advantage. We deployed $1 billion into credit investments globally, including 2 mezzanine transactions. The first was a $375 million loan alongside a sovereign capital investment firm backed by a portfolio of high-quality logistics assets leased to a strong investment-grade e-commerce client with a right of first offer on the underlying real estate. The second was a $190 million loan supporting the development of a data center campus in Virginia, pre-leased to an investment-grade hyperscale tenant. Our ability to invest across owned real estate, loans, preferred equity and structured investments gives us flexibility to remain disciplined and selective, particularly in periods of macro volatility. Our global platform, long-duration leases and conservative balance sheet position us to stay active while maintaining underwriting rigor. Our platform advantage continued to deliver strong operating results, and we ended the quarter with robust occupancy and reported recapture. Through proactive asset and property management, our teams remained focused on driving AFFO per share growth from the core portfolio. We combined deep familiarity with our assets and clients, proprietary predictive analytics and disciplined credit underwriting to maximize risk-adjusted economics on re-leasing and renewal outcomes. That approach generated outsized lease termination income of $40.2 million during the first quarter. And based on current visibility, we've increased our full year termination income outlook range to $45 million to $50 million. Overall, we believe Realty Income today is more differentiated and better positioned for long-term growth than at any point in our history. With that, I'll turn the call over to Jonathan. Jonathan Pong: Thanks, Sumit, and good afternoon, everyone. We had an active first quarter with several new capital partnerships that expand our financial flexibility and deepen our access to long-term oriented private capital. Combined with our established access to public markets, these initiatives broaden our investment buy box and support sustained global development. We ended the quarter with approximately $3.9 billion of liquidity on a pro rata basis. Subsequent to quarter end, we raised an additional $174 million of forward equity, bringing our current ATM unsettled balance to approximately $1.4 billion. Net debt to annualized pro forma adjusted EBITDA was 5.2x, within our targeted leverage range. And, inclusive of our outstanding forward equity, our leverage would sit at 4.9x. Subsequent to quarter end, we issued $800 million of 4.75% senior unsecured notes due 2033, swapping $500 million into euros for a blended yield of 4.44%. In addition to diversifying our sources of equity, we are also taking steps to broaden our access to unique sources of debt capital. In the first quarter, we established a new form of debt financing through a 10-year unsecured term loan with an affiliate of Goldman Sachs. The capital raise provided Realty Income the opportunity to partner with the local community via San Diego Community Power, supporting its long-term energy procurement objectives for San Diego residents. To facilitate this arrangement, San Diego Community Power utilized a well-established municipal prepay structure that enables a public agency to issue municipal bonds and use proceeds to prepay for future electricity deliveries while effectively lending a portion of the proceeds, in this case, $694 million, to Realty Income. In return, we agreed to pay a fixed annual interest rate of 4.91% through the Goldman Sachs term loan. We subsequently swapped $500 million of the notes to euros via a cross-currency swap, resulting in a 4.34% all-in blended cost of debt. The strategic benefit to Realty Income is the creation of a deep pool of new debt capital at attractive pricing that can complement our access to the public unsecured debt market. Our European operations continue to provide incremental low-cost financing flexibility. Euro-denominated debt is priced approximately 100 basis points inside comparable tenor U.S. dollar debt and serves as both a natural currency hedge and a tool to offset higher cost U.S. refinancings while remaining leverage neutral. Given our strong start to the year, we are increasing full year investment volume guidance to $9.5 billion at 100% ownership and raising the AFFO per share guidance range to between $4.41 and $4.44. As Sumit noted, we are also increasing the expected lease termination income guidance range to between $45 million and $50 million as we become increasingly proactive with our asset management platform. And lastly, we are lowering our credit loss outlook to approximately 40 basis points of rental revenue, reflecting improved visibility and performance across the portfolio. As Sumit highlighted, we now have 3 distinct and intentionally structured private capital vehicles through our partnerships with Apollo, GIC and the Perpetual Life U.S. Core+ Fund. Each vehicle serves differentiated investment mandates and is designed to provide Realty Income with 3 new alternative sources of long-term oriented equity. Our most recent strategic partnership with Apollo seeks to provide a repeatable source of low-cost property level equity while allowing us to retain operational control. We view this structure as a compelling complement to traditional public equity, and we expect it will carry comparatively less volatility of pricing and availability. A diversified net lease portfolio at scale is a natural complement to Apollo's perpetual capital AUM, which comprises a significant majority of their total AUM. Our initial transaction with Apollo resulted in a $1 billion equity investment in a highly granular, well-diversified long-duration retail portfolio of approximately 500 single-tenant properties contributed off our balance sheet. The joint venture includes a call option exercisable between years 7 and 15 that caps the cost of this equity at 6.875% during Apollo's ownership period. This structure provides meaningful long-term optionality as contractual rent growth compounds over time, increasing spread versus our long-term cost of equity and enabling incremental investment volume at lower return hurdles. We are pleased to partner with one of the world's leading asset managers and intend to scale this relationship beyond this initial product. The partnership is well aligned with Apollo providing long-term equity capital and Realty Income delivering sourcing, underwriting and asset management capabilities through our global net lease platform. The Apollo partnership represents our second programmatic private capital joint venture following the January announcement of our build-to-suit development JV with GIC. Finally, during the first quarter, we completed the cornerstone fundraising round for our U.S. Core+ open-ended fund, raising $1.7 billion of institutional capital, primarily from state, city and employee pension plans. The vehicle is designed to allow us to invest alongside high-quality institutional partners and assets with lower initial yields, but strong long-term growth characteristics, while generating high-margin capital-light fee income. Just as important, it is intended to broaden our buy box and enhance day 1 accretion by more efficiently matching capital to opportunity. With that, I'll turn it back to Sumit. Sumit Roy: Thank you, Jonathan. Our private capital initiatives represent a natural extension of Realty Income's long-standing business model. They're expected to enhance our ability to deploy capital through cycles, improve our cost of capital efficiency and strengthen our long-term value proposition for shareholders. We are encouraged by the progress to date and look forward to building on this momentum. Operator, we are ready for Q&A. Operator: [Operator Instructions] And our first question today comes from Jana Galan at Bank of America. Unknown Analyst: This is Dan for Jana. Could you provide more detail on the $40 million lease termination income recognized this quarter? For example, was it driven by a small number of tenants or broad-based activity and were they re-leased or sold? Sumit Roy: So this was obviously part of the forecast that we had shared with the market. If you recall, we had come out with a forecast of $40 million to $45 million. We were expecting this to be front loaded. We have increased that based on the momentum we've seen to $45 million to $50 million. So this was not concentrated in any one single name. It was across the board. And again, the rationale for doing this remains the same. It is 100% focused on trying to create and maximize our total return profile on our investments. And if we feel like we have the ability to recoup the remaining rent and be able to lease these assets to alternative tenants who are better suited for those locations, that is one of the main drivers of doing this. The second being rather than waiting for an asset to become vacant in 3 to 4 years from now, being able to recycle the capital today and create a value proposition for our clients who are not long-term occupiers of that asset is, again, a win-win situation. So it is really us leaning into our analytics and being much more proactive about harnessing these types of opportunities in our portfolio that's driving this. And despite the fact that it was all pretty much front loaded, the actual increase in lease termination is only $5 million. Unknown Analyst: And just as a follow-up, could you walk through the rationale behind the $40 million add-back to AFFO related to credit loss? Jonathan Pong: The add-back AFFO for credit loss is really a noncash dynamic. So we have loans that we invest in. These are noncash allowances for loan loss, very standard with how we've treated similar situations in the past. Sumit Roy: Coincidentally, they happen to be the same number, but it's -- one is CECL noncash-driven add-back, the other one is an actual cash payout to us, which is certainly part of AFFO. Operator: Our next question today comes from Brad Heffern at RBC Capital Markets. Brad Heffern: You obviously have the various private capital vehicles now. Clearly, you want to grow those. So I'm wondering where you see the split of private capital investing versus the traditional investing going in the coming years? Sumit Roy: Brad, this is a continuation of a theme that we've been touching on for the last, call it, 18 months now, where we used to share pretty much every quarter, some of the transactions that we were passing on just because it wouldn't fit what our public shareholders demand, which is day 1 accretion or spread investing along with meeting a long-term hurdle rate. And part of why we are doing what we are doing is to be able to continue to take advantage of transactions that we think that actually meet the long-term return profile. These are very good investments, and there's a pocket of private capital that is very interested in trying to take advantage of that. So that was really the genesis behind why we started to look at these opportunities. And if you think about the 3 buckets of capital that we have and you try to sort of dive in and analyze what is the potential overlap, if you will, on strategies, there's very little, if any, to be very honest. One is a potentially lower initial yield, but with higher growth, which lends itself to our open-ended fund. The insurance capital is much more steady-eddie, low-growth investments that don't necessarily meet the long-term hurdles, but are very good, predictable cash flow streams that works very well for insurance capital. And then the third is a build-to-suit that we have with GIC that is we go in with the intention to provide debt capital and then have the path to ownership downstream if we so choose to exercise. So I think these are 3 distinct strategies, which if you think about in the traditional sense of the word and how we were able to or not able to recognize earnings in these 3 different buckets and in some cases, not even do these transactions, it is now allowing us to execute those 3 strategies, and it's largely based off of third-party capital. And the way it translates to a positive for our public shareholders is through predictable permanent fee income stream, allowing us to recognize development investments that we make and interest income during development, which we were not able to do in the past and be able to satisfy a need by insurance capital that doesn't really work long term on our balance sheet, but allows us to create a fee income stream by leveraging our platform. So that's how the strategy that we have now started to implement and will continue to grow is going to benefit our shareholders is essentially monetizing the platform that we've built. Brad Heffern: Okay. And then it sounded like you did a data center development loan during the quarter. You obviously did the deal with Digital a few years back, hasn't been a ton of consistent investment in data centers. I'm wondering what does the playing field look like for O today in that space? And does it look more like data center loans? Or is there a chance that maybe the deal like you did with Digital would potentially come back from a pricing standpoint to being attractive? Sumit Roy: Yes. So the rationale here is, again, any time we are making credit investments, it's with a desire to own the real estate or at least a path to ownership. And so what we have said about our data center sleeve is we are highly selective around who our operator is going to be. And I'm very happy to say that we are partnering with one of the best private operators out there. We are also very highly selective in terms of the location of these assets. Once again, it is in Virginia, what I've described in the past as the epicenter of the data center business to, again, address the residual risk that is associated with these assets. And then the underlying asset itself, the lease itself needs to be able to fit into our investment thesis of being a single-tenant asset, long-duration lease well above growth rates that we've been able to realize on the retail side of the business, and it fits all those boxes. And so my hope is this is the second investment we've made with this particular developer, and it is with the intent to have a path to actual ownership of these assets. And in the meantime, we are lending our balance sheet. We are getting very decent yields on these investments, which will then allow us to be able to ultimately own the real estate. Operator: Our next question today comes from Michael Goldsmith at UBS. Michael Goldsmith: Sumit, in your prepared remarks, you talked about just all these private credit vehicles. And -- but you also mentioned that you're kind of in the early stages of this. So just kind of curious, are you thinking, hey, we've got -- we've done these 3 things and now we've got another 3 more to do in the next 24 months? Or should we be thinking about this as more longer term? I'm just trying to get a sense of how much more activity you expect in this avenue going forward? Sumit Roy: That's a good question, Michael. So let me step back and share with you that any time we are exploring attracting third-party capital, it was the singular intent to grow our earnings per share for our public shareholders. If it doesn't translate to that, there is no reason for us to be attracting third-party capital. So let's stop there. And if you filter any decision that we make and how it translates to growth and if there isn't a clear tie-in, then we are not going to be pursuing that capital source. So that's the governing factor on anything we do. The reason why I've said is what are we going to do in the future remains unclear. But our intent is we have effectively solved for what we need here in the U.S. and our build-to-suit with GIC also includes Mexico. But we are -- we do happen to be in other geographies as well. We are being approached by other sources of capital. And if we can create a distinct strategy that does not interfere with our ability to continue to buy on balance sheet and is truly accretive to what we are doing on balance sheet, those types of decisions and those types of channels are ones that we are going to continue to look at, continue to consider and potentially add to the ecosystem that we have created. Just like we've done on our investment side, where we've diversified asset types, we've diversified across geographies. We are trying to do the same on the capital side. Jonathan has done an amazing job diversifying on the fixed income side. We continue to do that today with this muni prepay structure that he talked about. But we had a single point of failure when it came to our equity capital, and that's what we are trying to diversify today. And hopefully, this is the path to being able to get to our double-digit total return profile that we are all singularly focused on. Michael Goldsmith: Got it. And just as a follow-up, it seems like you're doing an increasing amount of these credit investments. So how should we think about the duration of some of these investments? And it seems like a shorter WALT than maybe we've seen in the past. So can you just talk a little bit about what does that mean for the portfolio going forward? Sumit Roy: Sure. And again, great question, Michael. Now a portion of the investment that we made was on this build-to-suit in Mexico. It's a perfect example of how we are effectively lending during the construction phase with the intent to own the asset once it's fully stabilized. That is part of our credit investment. The other bigger credit investment was on this data center project. Again, the intent there is to lend capital to a partner that we have decided is the right partner going forward on our data center strategy. And what we are hoping and we believe will happen is on the back end, we are going to be the owners of these data center assets. And what it is effectively allowing us to do is get a much higher yield on the front end of the -- on the development side, which can then make up for perhaps a nominal yield when we are actually buying the assets on balance sheet. And so again, this is a strategy. Yes, we start off with the credit side of the business, but it is leading to what we believe is the real estate, which was the intent behind why we instituted this credit investment strategy to begin with. So there's a similar story behind every credit investment that we do. And we are acutely aware that these tend to be shorter duration, which, by the way, is by design. We want it to be shorter duration. so that we can then have the decision on whether or not when it comes to an end, do we own the real estate or not or at least develop relationships with clients or with developers who can then feed us a lot more product downstream, but we are starting the relationship building on the development side. So that is really the thesis behind why we are making credit investments. Operator: Our next question today comes from Smedes Rose at Citi. Bennett Rose: I just wanted to follow up on that on the credit investments or that sort of loan portfolio because we definitely see it with some of the other names that we cover, and it seems like, frankly, a good way to kind of build relationships and end up with real estate ownership. Is there kind of a I guess, sort of a limit and upper limit on how much you'd be willing to sort of build in this book. It looks like it's a little over $1 billion right now. Or like where do you think that could be in the next 2, 3 years as some of these early loans start to roll off and you're replacing them presumably? Sumit Roy: It's a good question, Smedes. Look, obviously, it's not going to suddenly start to dominate what we do. Our capital is very dear to us. And it is very important that we allocate it appropriately. And look, we turned down a lot more credit investments than we actually engage in. And so despite the plethora of opportunities available to us on the credit side, we are highly selective. And what size could it become? It's going to be a function of the overall size of our platform. Today, we are $90 billion plus/minus. We have a small book of loans. But again, it's by design, these loans are short duration and the hope is that the same capital will then be used towards the permanent buying of the real estate. And so if we can't create that clear path, it's not something that we are going to be leaning into unlike a credit -- a true credit company that all they do is invest in loans. In terms of percentages, I really don't have a number, Smedes. This is going to be opportunistic driven. It's going to be driven by the strategy that I've laid out. Bennett Rose: And then I just wanted to ask you too, maybe just a little bit just bigger picture. I mean you obviously took the investment volume outlook for the year up quite a bit. Also a theme we see across many of the reports this quarter. Could you just sort of talk to kind of generally what you're seeing? I mean I assume part of this is you have this access to these other pools of capital that's bringing opportunity. But just sort of bigger picture for the market in terms of how competition is trending or just U.S. versus Europe, sort of bigger picture. Sumit Roy: Yes. Look, we are -- obviously, we feel very confident of what our pipeline looks like. It is largely a function of the pipeline and our ability to forecast out what that's going to translate into for the entire year. That's what's helped us raise our number from $8 billion to $9.5 billion. And what I would say is we did about -- it was an even split between the U.S. and Europe. And this was something we started talking about last quarter, where we had started to see a bit more of a momentum here in the U.S. than we had seen for the prior 3 quarters in 2025, where Europe was dominating what we were getting over the finish line. And so I think that trend, we are continuing to see a lot of opportunities in Europe, and that will continue to drive a lot of the volume. But we are starting to see similar impact here in the U.S., which is a good thing, which is why it gives us the confidence to increase the investment to $9.5 billion. And the other piece is what you touched on, Smedes. I mean the fact remains that having these different sources of capital will allow us to do transactions that we wouldn't have done in the past. And again, why are we doing all of this? It is to help grow our earnings per share. And so that's what we are seeing. From a competition perspective, public markets here in the U.S., I think that hasn't changed much. There is certainly a lot more competition on the private side here in the U.S. I think our product is well understood now, and it's very attractive to private sources of capital to sort of pursue. So we do see that competition, but elevated interest rate environment will continue to be a benefit for us because debt capital remains elevated. And so in order for these private sources of capital to meet their return hurdles, it's going to be a little bit more of a challenge. Europe continues to be a very interesting area for us. I mean, I've mentioned this in the past, and I'll mention it again. I think Neil and the team have done a great job of becoming the go-to net lease name, especially in the U.K. and soon it's translating into mainland Europe as well, where we get a lot of off-market transactions where transactions are negotiated on an off-market basis and closed. And the fact that we have delivered for so many of our clients there, the repeat business continues to be a big driver of the volume that we've gotten over the finish line. I believe for this quarter, it was circa 94% was effectively relationship-driven businesses. So I think that's what the landscape looks like from a competition perspective. Operator: Our next question today comes from Wes Golladay at Baird. Wesley Golladay: Just a question on the U.K. Are you doing much over there right now on the investment side or in the pipeline? I'm just curious how the bond market volatility is impacting the bid-ask spread and maybe there's some opportunistic opportunities in the pipeline there? Sumit Roy: So I'll start it off and then, Neil, if I miss something, please jump in. Yes, it is absolutely true that the bond market in the U.K. is quite elevated. But it is also true that we are getting higher cap rates as a -- because of the cost of capital environment in the U.K. And more importantly, we are pursuing transactions, and we are providing solutions because of the retail footprint that we have that continues to be very attractive to potential clients, and it creates opportunities for us to invest with them either via the sale-leaseback route or through repositionings of assets where we are attracting these clients remains an area that is very helpful. But outside of that, Neil, if there's anything else you'd like to add in terms of the market, in terms of what you're seeing, that would be great. Neil Abraham: Thanks, Sumit. So I would say we continue to see a very healthy pipeline in the U.K. The higher rate environment has meant that yields are either moving out or will soon move out. And then beyond that, the historical pattern that we saw of funds having to sell just because of redemptions or end of life continues and makes it a very good time for us to consolidate the market there. Operator: And our next question today comes from Jim Kammert at Evercore. James Kammert: Given the intensified sort of asset management function vis-a-vis the capture of the lease term fees, is it a reasonable assumption that the annual lease term fee revenue can trend in the 85 to 95 basis point type level of ABR, which I think the '26 guidance equates to? Sumit Roy: I wouldn't look into what we are doing, what we did in 2025 and what we are planning on doing in 2026 as the new watermark for lease terminations. I think what we are trying to do, Jim, is make sure that if we are starting to see opportunities with certain clients, with certain assets that we are taking care of those right now. And this is an intent to sort of -- look, we did 2 very large-scale M&A deals in the last 4 years. And we obviously inherited a lot of assets that were not ideal for the long-term hold strategy that we have, generally speaking, on anything that we do organically. And so this is a mechanism that we are using to sort of reposition those assets with the right clients or accelerate the rent collection and dispose of these assets so that we can get to a profile of portfolio that will become -- that will fall into that long-term hold strategy. So I don't see $45 million to $50 million, which is our current forecast, continuing indefinitely for our strategy going forward. This is much more episodic and much more around what we see in our portfolio today. And I gave you the rationale as to why we see that. It's largely through these M&A transactions. James Kammert: The M&A context and cleanup makes a lot of sense. I get it now. Operator: Our next question today comes from Haendel St. Juste at Mizuho. Unknown Analyst: This is Mike on with Haendel at Mizuho. My question is, what is the time line to full deployment of the $1.7 billion U.S. Core+ Fund raise? And how much management fee income could that generate on an annualized basis? Sumit Roy: Thanks, Mike. Look, we are very close. I think in our opening remarks, we mentioned that we've raised the $1.7 billion, which we had forecasted to the market. We are very close to full deployment. Our belief is that the next time we are having this earnings call, all of that equity capital will be fully deployed. And then, of course, given that it is largely an unlevered structure today, we will still have dry powder to continue to invest beyond the $1.7 billion and get to a ZIP code of $3.5 billion to $4 billion of assets under management. I think we also share -- Jonathan, do you want to take the management fee comment? Jonathan Pong: Yes. In terms of the annualized management fees once fully drawn, it will be a little bit over $10 million on an annualized basis. And these are all base management fees, doesn't include any kind of promote accruals or anything. Operator: And our next question today comes from Anthony Paolone at JPMorgan. Anthony Paolone: Sumit, I think you talked a lot about just the debt and the why and so forth around all the deal activity. But just on -- for this year, the $9.5 billion, any sense as to, like, how much of that is likely going to be debt? And then of the rest, like how we should think about your share, just to try to roll all that up. Sumit Roy: I really don't have a number for you in terms of what's going to constitute debt of that $9.5 billion, Tony, I'm sorry. Like I said, it is very opportunistic. It is very episodic. Some of what initially starts off as a debt investment will then convert over to an equity investment because ultimately, the name of the game here is to own the real estate. So if this is the way how we can ultimately own the real estate and in the meantime, get enhanced returns, I think that is why we are doing what we are doing. But I'm sorry, Tony, I don't have a number of that $9.5 billion that I can share with you with a high level of confidence that it will constitute the debt piece of our investment strategy. Anthony Paolone: Okay. Fair enough. And then just my follow-up is on the Apollo transaction. How should we think about that as being whether -- like if there's new money coming in from that, is it likely that you'll just sell stakes in existing assets? Or will that be used to go out and buy new assets? I'm just trying to think whether that falls into the full year $9.5 billion if you continue to go down the path of using that capital? And also, just what do you think the capacity is there to -- that they have to offer you? Sumit Roy: Yes. You should expect any new capital that we raise through the Apollo channel will be on new investments. Now it is possible that just because of expediency, we end up warehousing the assets on our balance sheet, but it will be assets that we are buying with the intent of putting in into this Apollo strategy. So look, the proof of concept was very important for everyone involved, including Apollo and including us. And now that we have the mousetrap fully functional, fully endorsed by the rating agencies and the SEC, we're going to really lean into expanding that channel, but it should be on new investments that we make. Operator: And our next question today comes from Ronald Kamdem with Morgan Stanley. Ronald Kamdem: Just my quick one. Just looking at the real estate acquisition cap rates look like it came down another 20 basis points this quarter, similar to last quarter. Maybe can you just talk a little bit about the competition? And just your thoughts on just the cap rate compression that you've seen in any forward thoughts? Sumit Roy: Yes. Sure, Ron. Good question. No, this is precisely what we expected. When you are starting to buy assets into the fund, we have shared with the market that the fund is going to be buying assets at a lower yield. And when you blend all of that in, the fact that our average cap rate is going to be a little lower is a function of that strategy. So ultimately, it's all about growth. And if you look at the fact that we have effectively increased the midpoint of our guidance by $0.025, that is what's driving a lot of what we are doing. But the 6.7% is -- was fully expected, and it's a function of our -- us being able to deploy more and more of the fund capital into the assets that are lower yielding. Ronald Kamdem: Great. My quick follow-up would just be on -- if you could just give us an update on the watch list again. And going back to sort of the termination cost in the quarter, like how much of that are we through? Like is that a number that's going to recur over time? Or does that create a tough comp for next year? Sumit Roy: No, it's -- I think somebody prior to you asked this question, Ron. And I don't think you should expect us to come out with the same number year in, year out. I'm not going to say that next year, we won't have a similar number, but I'm just saying that this is being done with the intent of making sure that the remaining portfolio that we have is truly a long-term hold strategy for us. And we are trying to create a win-win situation for our clients who are not long-term tied to that particular location. And at the same time, for us, when we believe we can actually collect on the remaining rent and then be able to entice another client to step in on these particular locations. But yes, if next year, mathematically speaking, if our termination income is going to be less, it is a headwind. But we are not doing this with the intention of this is going to become an ongoing strategy, and it will have a similar quantum. It is largely being driven by asset management decisions that our asset management team is very focused on executing upon. Operator: Our next question today comes from Eric Borden at BMO Capital Markets. Eric Borden: Same-store rental revenue for theaters declined about 10% year-over-year. Just curious what drove the underperformance this quarter? And how are you guys thinking about the outlook and potential credit risk within the theater segment going forward? Sumit Roy: Yes. Great question, Eric. Look, I think there were a lot of adjustments that we made to both the -- when Regal came out of their Chapter 11 situation. And so -- that obviously is part of what is flowing through on a same-store basis. Also, I think the first quarter of last year, we moved some of the cash accounting to accrual accounting. And so from a comp perspective, we recognized and accelerated the recognition in the first quarter of last year. And so when you compare that to what we have this year, it was again a headwind. Some renewals that have gone through, we have shifted more to a percentage rent type of arrangement with some of these operators. And so the base rent is lower vis-a-vis the base rent, and that's all we actually compare. And so again, from a same-store basis, that too would have been a bit of a headwind. And then some restructurings at home emerged. And though the outcome for us was very good, there was a slight adjustment down on some of those on those rents, and that's what's flowing through the business. If you're talking about what do we think about the theater business going forward, there was a big conference a couple of weeks ago. So far, so good. First quarter was great. Second quarter is turning out to be pretty good. And the numbers that I've heard bandied about is $9.5 billion in sales, which is, of course, still not anywhere close to 2019 levels of $11 billion, but moving in the right direction. And so we hope to see some of this flow through on the percentage rent, but that gets calculated at the end of the fiscal year. Eric Borden: I appreciate it. And then more of a bigger picture question. Sumit, in your prepared remarks, you noted that you sourced $31 billion of opportunities, but only closed 9% selectively. Where are you seeing the largest disconnects today between your underwriting and seller expectations? Sumit Roy: Yes. Look, I do see some of it is just unreasonable expectations. The pricing seems to be off. Everything else would work, but there's a disconnect between what the seller wants versus what we are willing to pay. And some of the sourcing is on the higher-yielding stuff that we just are not comfortable given the risk-adjusted return profile that we are seeing, especially in an environment where interest rates are highly volatile and the cost of debt could be something that we are acutely aware of could be a headwind for some of these operators. And so it's a combination of multiple factors. Look, we've always been very selective. If you look at the history of what we've sourced and what we've closed, it is right in that 5% to 10% ZIP code. And so 9% this quarter is in line with what we've done. But the point for sharing these sourcing numbers is to say, look, it's all trending in one direction, and we are starting to source more and more, and it is absolutely a byproduct of the team that we have developed, the geographies that we've added, the asset types that we have decided to pursue, all of these swim lanes are translating into much higher volume. And it's allowing us to pick and choose the investments that makes sense for us. And so what we pass on, there could be so many different reasons, including the couple that I just shared with you. Operator: And our next question today comes from Greg McGinniss at Scotiabank. Greg McGinniss: Sumit, is there any color you could provide in terms of the potential annual capital contributions from GIC or Apollo, they're looking to place -- newly placed into these programmatic ventures? Sumit Roy: Yes. So Greg, the GIC partnership is $1.5 billion. That's their initial contribution to the partnership, the JV that we've created. Apollo, obviously, was $1 billion of $2 billion of assets under management. We don't have a number that we have shared with the Street in terms of how much more could this be. I mean it's going to be, again, opportunity driven. And this will be us in constant contact with our partners to make sure that when we are seeing something that they would be interested in participating and it meets their return profiles, et cetera. The return profile, obviously, it will meet because those are the only ones we're going to be sharing with them. But we don't have, Greg, a number in mind in terms of how much bigger each one of these partnerships would be. But let me just tell you this, that we wouldn't have engaged in either one of these partnerships if we didn't believe that this was programmatic in nature and could become a huge source of our alternative equity capital going forward. Greg McGinniss: Okay. And then from your data center comments, should we interpret that to mean that there's more of these investment opportunities in the pipeline with the same partner? And then any color on the magnitude or yield on those would be appreciated. Sumit Roy: Yes, you should assume that we are in ongoing discussions with our partners to obviously continue to grow this relationship. But once again, there are no definitive commitments on either side. So -- but the goal is when you're engaging with someone, the intent will always be to deploy more capital. And like I said, they are, in our opinion, one of the best-in-class private developers of data centers. Operator: And our next question today comes from Ryan Caviola at Green Street Advisors. Ryan Caviola: Europe investments this quarter had a weighted average lease term close to 6 years. Is that driven by potentially a return to retail parks that have those shorter terms or just a result of the general mix or maybe a different property type? Any color you could share there would be appreciated. Neil Abraham: I'll take this, Ryan. Thank you. So look, I think as we look at retail parks, we are consciously prioritizing investments where we believe there's roll-up potential. I think if you look at the recent re-leasing that we've talked about and other peers in the U.K. have talked about, there's now an acceleration in rent and a shrinkage in giveaways like TIs or CapEx. And so we're actively looking for retail parks. We continue to have a high-yield bogey on those. But increasingly, if we can find short tenancy, we are taking that. Ryan Caviola: Got it. That's helpful. And then just on cap rate trends, we touched on it briefly earlier in the call, completely stripping out the private fund cap rates that obviously drive down that weighted yield. Could you just give color on public acquisition cap rate commentary in terms of compression or stability, maybe a Europe versus U.S. split? Anything would be helpful. Sumit Roy: Yes. So Ryan, I mean, obviously, if you -- we've been asked this question every quarter for the last, I don't know, how many years. But every time I've made a comment around, we're starting to see the direction of drift of cap rates one way or the other, I've turned out to be wrong. I mean it's pretty much stayed in this ZIP code, if you will, for now 2 years and continuing. And if you look at what's happened to the 10-year, it stayed in this band of 3.8% to 4.4%, 4.5% for that same duration. And so it is so difficult. If you're asking for a forecast, Ryan, of where I see cap rates going, I might answer that question with a question, which is what is the direction of drift for the 10-year. I mean every day, we get this incredible volatility in terms of what people think will happen to the short-term rate and how it translates to the longer-term rate, et cetera, et cetera. So at this point, I'll tell you what we are seeing in the market is effectively what we've seen these last couple of years. It's the same ZIP code for assets that we are buying 100% on balance sheet. But obviously, our ability to do more and go after lower-yielding, higher quality, more growth assets has now widened. And so we are able to do a lot more. Operator: And our next question today comes from Jay Kornreich at Cantor Fitzgerald. Jay Kornreich: Just wanted to ask about geographies. You entered Mexico recently. And just wondering as you explore new investment locations beyond where you currently have a presence, are there any new frontiers that, I guess, screen more favorably that you'd like to expand into in the future? Sumit Roy: Yes. So Jay, if we talk about Mexico just for a second since you brought it up, and it is the last geography that we entered into. Look, it was largely a client-driven opportunity for us. We went in there with our partners who had decades of experience developing in that market. We tried to minimize the risk in terms of currency fluctuations by making sure that our leases were dollar-denominated with clients that we understood and we knew very well. And it was largely a macro thematic play seeing the nearshoring and the onshoring of what we see as basically tailwinds in the logistics sector, in the industrial sector. So this was our way of playing that particular theme with partners who we felt very comfortable with. And so if these types of thematic opportunities present themselves, Jay, we are happy to continue to expand geographies, et cetera. The good news is we've done it now in so many different geographies. We have the playbook down. We understand the risk. We know how to get our arms around the inherent risk of investing in new geographies. There was a piece that my colleague Neil did in the Financial Times, where he talks about how people underestimate the operational intensity of making these investments. We've got that covered. We are, I would say, at this point, got the blueprint and we recognize the risk, and we are happy to sort of absorb those for the right opportunities. Jay Kornreich: Okay. I appreciate that. And then just going back to the 94% of investments that you mentioned were relationship-driven, which seems like a very high number. Was that more so tied to the private partnerships that you've recently done? Or were there other dynamics that led to leveraging current relationships, I guess, more so than seeking new ones this quarter? Sumit Roy: A lot of them are existing clients that we have operating our assets. Some of it was developers that we have done repeat business with. Some of it was clients that we are co-investing with and looking at opportunities together. It's all of those elements that go into that 94%. And I think as we cultivate new relationships, as we cultivate new opportunities, you will see that number right around that 85% to 90%, 95%. It's been very steady. It's just that the quantum that, that percentage represents is continuing to grow as we become more familiar with -- as our name becomes more familiar in the sale-leaseback arena with developers, with clients and with capital sources. Operator: And our next question today comes from Jason Wayne at Barclays. Jason Wayne: Just on the properties that vacated early to date in your asset management strategy, could you talk to your expectations on mix for sale versus re-lease and what kind of re-leasing capture -- what kind of recapture rates you're seeing on those? Sumit Roy: Yes, sure. So Jason, any time an asset is coming up for -- there's a lease expiration in the near term, and I would say in the next 2 to 2.5 years, our asset management team is very focused on trying to figure out what is going to be the ultimate outcome. And then it can effectively take multiple routes. That is one of the strategies that they are executing. Another one would be if through our predictive analytics channel, if we're looking at location risk and we see that particular assets are no longer going to be viable, even if the expiration is 5, 7 years out, we would put those on the disposition bucket, and we would try to dispose of those assets. And so there's a variety of reasons. There could be a credit event that we see coming down the pipe that could help drive disposition decisions. We then look at, okay, even if this particular client is going to be willing to stay, what is the re-leasing rates that we believe we can get. And if our asset management team thinks that there is enough alternative clients that could be stepping in and giving us more, that's, again, a decision that they rely upon. Of course, all underpinned by the predictive analytics and what it's suggesting would happen in that particular location. So there's a variety of analysis that the asset management team goes through. And what they are focused on is what is going to yield the highest return -- economic return based on these various different decisions that one can take. And then they try to implement that highest return probability. And in some cases, taking a rent haircut is the right long-term decision. Having said that, if you look at what we've been able to achieve in totality every quarter, it's been like even last quarter, we just reported it, it's north of 103%. So our renewal rates and re-leasing rates in combination is yielding us north of 102%, 103% quarter in, quarter out. But like I've said before, sometimes the right decision is to take 99% recapture rate rather than trying to sell that asset vacant or try to attract a client knowing fully well that the recapture rate is going to be lower. So it's a very fluid strategy, Jason, but one that we believe that we have the best asset management team on the street. They have years and years of experience. And when you control so many assets for a given client, the benefit of having a conversation not on a single asset, but on multiple assets for that client is something that translates into these higher recapture rates that our asset management team does brilliantly on. So that's really how we think about renewals and releases and sales. Jason Wayne: Yes, that makes sense. And I guess just on the full year disposition volume. You gave $750 million last quarter on track. Is that still the expectation for this year? Sumit Roy: Yes. It certainly is. Operator: And our next question today comes from Upal Rana with KeyBanc Capital Markets. Upal Rana: Just one for me. I assume that you've spoken on several industries already, but I had a question on the gaming category. How are you viewing the industry today? And what's your appetite to invest more into that category through any of your investment vehicles as the category did tick a little higher to 3.2% in the quarter? Sumit Roy: Sure, Upal. Good question. I would put gaming in a similar thought process that I described our digital investments. And what I would say is the operator is going to be very important to us. The location of these assets is going to be very important to us. The sustainability of EBITDA and the ability of these operators to extract that EBITDA is what we are very focused on, which is why if you look at the investments we've made, largely 3 investments. right, Mark? It's CityCenter, Bellagio, and we own 100% of the Wynn in Boston. And so that will continue to dictate our gaming strategy. And obviously, having a very close relationship with both MGM and Wynn, one could argue 2 of the best operators in the space should yield more transactions for us. But again, we're going to remain very, very selective, Upal. Operator: And that does conclude our question-and-answer session for today. I'd like to hand the conference back over to Sumit Roy for any closing remarks. Sumit Roy: Thank you very much for joining us today, and we look forward to seeing you at NAREIT in a few weeks. Operator: Thank you, sir. That does conclude today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.
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: Good morning, and welcome to the Twin Disc, Incorporated fiscal third quarter 2026 conference call. I am Frans, and I will be the operator assisting you today. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Jeffrey S. Knutson, Chief Financial Officer. Please go ahead. Jeffrey S. Knutson: Good morning, and thank you for joining us today to discuss our fiscal 2026 third quarter results. On the call with me today is John H. Batten, Twin Disc, Incorporated’s CEO. I would like to remind everyone that certain statements made during this conference call, especially statements expressing hopes, beliefs, expectations, or predictions for the future, are forward-looking statements. It is important to remember that the company’s actual results could differ materially from those projected in such forward-looking statements. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company’s annual report on Form 10-K, copies of which may be obtained by contacting either the company or the SEC. Any forward-looking statements that are made during this call are based on assumptions as of today, and the company undertakes no obligation to publicly update or revise these statements to reflect subsequent events or new information. During today’s call, management will also discuss certain non-GAAP financial measures. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. I will now turn the call over to John. John H. Batten: Good morning, everyone, and welcome to our fiscal 2026 third quarter conference call. Let me start with a few highlights from the third quarter. As we noted during our previous earnings call, we expected a stronger second half, and our third quarter results marked the beginning of that. We delivered meaningful sales growth, margin expansion, and improved free cash flow generation through solid execution and healthy demand across our end markets. Sales increased 19% year-over-year to $96.7 million, supported by strength in Marine and Propulsion Systems with continued demand for our Veth products, along with contributions from acquisitions and favorable foreign exchange. On an organic basis, sales grew 7%, reflecting healthy demand across Marine and Propulsion, defense, and select industrial applications. Profitability also improved meaningfully in the quarter. Gross margin expanded to 28.1%, driven by higher volumes and operational improvements. EBITDA increased to $9.4 million, and EBITDA margin expanded by approximately 480 basis points versus the prior-year period, reflecting higher volumes as well as the benefit of our margin improvement initiatives. From an operating and cash flow standpoint, we made solid progress as well. Inventory improved again as a percentage of backlog, and together with higher profitability that supported free cash flow generation of $1.8 million in the quarter. Looking ahead, our six-month backlog increased sequentially to approximately $179.5 million, supported by healthy order momentum across core markets, including demand for our land-based transmission products and continued strength in defense-related activity, which continues to serve as an important long-term growth driver for Twin Disc, Incorporated. At the same time, our third quarter results demonstrated improved execution on that backlog, as reflected in meaningful sales growth and margin expansion. Overall, this growing backlog, together with improved execution, gives us solid visibility into near-term demand and supports our confidence in the path ahead. Turning to our defense-related business, we continue to see robust demand across multiple programs and geographies, supported by elevated defense spending both in the United States and across NATO markets. As a result, defense continues to become an increasingly meaningful and durable component of our overall backlog, and we view this as a secular trend given the increased geopolitical environment we are currently navigating. Today, defense represents approximately 15% of our backlog, and we continue to see encouraging momentum in both backlog and pipeline activity. Defense backlog increased year-over-year by roughly 20%, and the opportunity moving forward remains sizable with a pipeline of roughly $50 million to $75 million. That continued momentum reinforces our confidence in the durability of demand we are seeing across this part of our business and supports our outlook for future growth. From a product perspective, we are well positioned across a broad range of defense applications, including marine transmissions, controls and steering systems, propulsion systems, transmissions, gearboxes, and transfer cases. These offerings support a diverse set of end users and programs across North America, Europe, and Asia Pacific, and we believe that breadth continues to differentiate Twin Disc, Incorporated as customers prioritize modernization across marine, land-based, and autonomous platforms. The opportunity continues to be driven by the same two core buckets we discussed last quarter: activity tied to unmanned and autonomous U.S. Navy vessel programs as well as growing demand in Europe through CASA supporting NATO-related vehicle platforms. Importantly, we have a substantial portion of the acquired capacity in place today in North America. However, in Europe, we are advancing targeted facility expansion efforts in Finland to add test stand and assembly capacity, which will better position us to support expected growth in European defense demand over the long term. Overall, with our current structure and targeted investments to support growth, we believe Twin Disc, Incorporated is well positioned to continue capturing this demand and further expand our presence in the defense market. Now let me walk you through product group performance. Marine and Propulsion Systems remained a key driver of performance in the quarter, with sales up 20% from the prior-year period. We continue to see healthy demand across workboat, government, and specialty marine applications, along with sustained higher-content propulsion solutions and integrated systems supported by continued demand for our Veth products. Improved aftermarket execution also drove positive results in the quarter, which is encouraging in light of the short-term softness we discussed last quarter that was largely timing-related and not indicative of any change in underlying demand. Overall, we remain encouraged by the demand environment and by how the business is performing. Land-based transmissions delivered strong year-over-year growth in the quarter, with sales increasing 22.2% compared with the prior-year period, driven primarily by improved shipment volumes and favorable mix. Importantly, shipment trends improved from the delays we discussed last quarter. Although a subset of deliveries, including certain oil and gas transmission shipments to China, shifted into the fourth quarter based on customer timing preferences around complete system deliveries, we view those remaining delays as timing-related and not reflective of any broader change in underlying demand. From a market standpoint, conditions remain mixed, and North America oil and gas customer behavior continues to be cautious, with rebuilds and refurbishments still outpacing new equipment purchases, although we are beginning to see signs that cycle is maturing. Internationally, order trends have shown improvement, particularly in oil and gas, where activity in China and customer engagement continue to support the outlook for the business. We also continue to see healthy demand in ARF applications and are advancing next-generation electrified and hybrid solutions that support longer-term growth. Industrial sales increased 15.2% year-over-year, largely due to the contribution from Cobalt, as well as steady underlying demand. We continue to focus on higher-content solutions and on leveraging engineering and manufacturing capabilities across the platform, which we believe will help improve mix and support better margins over time. Our six-month backlog increased to approximately $179.5 million in the third quarter, up both sequentially and year-over-year. Growth was driven by broad-based demand across our core markets, such as land-based transmissions, and by continued defense-related order activity. Backlog also included approximately $2.5 million of negative foreign exchange impact relative to the prior quarter. We also continued to make progress on working capital management, as inventory declined by roughly $3 million from the second quarter and inventory as a percentage of backlog improved to approximately 89%. Overall, that improving backlog profile continues to support solid visibility into near-term demand, and our improved working capital management demonstrates our focus on converting backlog effectively into cash. Looking forward, our long-term strategy remains unchanged. We are focused on driving profitable growth through operational excellence, footprint optimization, and disciplined capital allocation. As discussed earlier, we continue to execute targeted initiatives across our manufacturing footprint, including the planned relocation of ARF assembly to our Lufkin facility and targeted expansion efforts in Finland to support expected growth in European defense demand. Together, these actions are intended to improve operational flexibility, mitigate tariff exposure, and better align capacity with demand. With continued momentum across our core markets, a growing backlog, and improving profitability, we believe Twin Disc, Incorporated is well positioned to build on this progress through the balance of the fiscal year. With that, I will now turn the call over to Jeffrey S. Knutson to discuss our financial results in greater detail. Jeffrey S. Knutson: Thanks, John. Good morning, everyone. During the third quarter, we delivered sales of $96.7 million, an increase of 19% compared to the prior-year period. This growth was driven primarily by strength in Marine and Propulsion Systems and contributions from our recent acquisition of Cobalt. Gross profit increased 25% to $27.1 million, and gross margin expanded to approximately 28.1%, reflecting higher volumes and operational improvements. SG&A expenses were $21.3 million in the quarter compared to $19.8 million in the prior year. As a percentage of sales, SG&A decreased by approximately 230 basis points, reflecting strong operating leverage on higher revenue. Net income attributable to Twin Disc, Incorporated was $3.3 million, or $0.23 per diluted share, compared to a net loss of $1.5 million, or $0.11 per diluted share, in the prior-year period. This improvement was driven by higher operating income and lower expenses. EBITDA was $9.4 million in the quarter, representing an increase of approximately 135% year-over-year and an EBITDA margin improvement of roughly 480 basis points when compared to the prior-year period, reflecting higher volumes and the successful implementation of our margin improvement initiatives. Geographically, sales growth was led by North America and Europe, supported by sustained demand for Veth products and incremental contributions from recent acquisitions. As a result, North America represented a higher share of quarterly revenue, while Asia Pacific and Latin America made up a smaller portion, reflecting regional market dynamics—a trend that we expect to continue and which should soften tariff impact moving forward. Turning to cash flow, we generated approximately $1.8 million of free cash flow in the quarter, reflecting improved operating performance and continued signs of working capital normalization. We ended the quarter with cash of approximately $16.1 million. Total debt increased to $45.1 million, and net debt increased to approximately $29 million, an increase of 10.5%, primarily reflecting higher long-term debt associated with the Cobalt acquisition. Margin performance was a key highlight of the quarter, with significant expansion both sequentially and year-over-year. This improvement was driven by increased volume and the impact of margin improvement initiatives. Sequentially, growth was supported by increased aftermarket execution as we effectively delivered against strong demand. Regarding tariffs, we continue to monitor the evolving landscape closely and are actively executing mitigation initiatives, including adjustments to our manufacturing strategy where appropriate. Based on the current environment and our favorable regional mix, we expect tariff-related impact in the upcoming quarter to be approximately 1% to 3% of cost of goods sold. Looking ahead, we expect continued progress supported by backlog conversion, improving mix, and ongoing operational initiatives. From a capital allocation perspective, our priorities remain unchanged. We continue to focus first on investing in the business to support growth, including capacity, operational efficiency, and product development, while maintaining a strong and flexible balance sheet. At the same time, we remain disciplined in our approach to capital deployment, with an emphasis on preserving liquidity, managing leverage, and improving working capital efficiency as we convert backlog into revenue and cash. I will now turn the call back to John for his closing remarks. John H. Batten: Thanks, Jeff. In closing, the third quarter represented a strong step forward for Twin Disc, Incorporated as we delivered meaningful improvement in revenue, margins, and cash flow. Underlying demand across our core markets remains healthy, supported by a growing record backlog and continued momentum in key areas such as Marine and Propulsion Systems and land-based transmissions, along with increasing defense-related activity. At the same time, working capital continues to improve along with enhanced profitability, positioning us for stronger cash generation in the fourth quarter. As we look ahead, we remain focused on executing our operational initiatives, optimizing our footprint, and supporting long-term growth. With improving profitability, healthy demand visibility, and continued execution, we believe Twin Disc, Incorporated is well positioned to build on this progress through the balance of the fiscal year. We will now open the call for questions. Operator: Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. There are no further questions at this time. Ladies and gentlemen, thank you all for joining. This concludes today’s conference call. All participants may now disconnect. Thank you.
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 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, greetings, and welcome to the Hagerty First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jay Koval, Head of Investor Relations. Please go ahead. Jason Koval: Thank you, operator, and good morning, everyone, and thank you for joining us to discuss Hagerty's results for the first quarter of 2026. I'm joined this morning by McKeel Hagerty, Chief Executive Officer and Chairman; and Patrick McClymont, Chief Financial Officer. During this morning's conference call, we will refer to an accompanying presentation that is available on Hagerty's Investor Relations section of the Company's corporate website at investor.hagerty.com. Our earnings release, slides and letter to stockholders covering this period are also posted on the IR website as well as our 8-K filing. Today's discussion contains forward-looking statements and non-GAAP financial metrics as described further on Slide 2 of the earnings presentation. Forward-looking statements include statements about our expected future business and financial performance and are not promises or guarantees of future performance. They are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations. For a discussion of material risks and important factors that could affect our actual results, please refer to those contained in our filings with the SEC, which are also available on our Investor Relations website and at sec.gov. The appendix of the presentation also contains reconciliations of our non-GAAP metrics to the most directly comparable GAAP measures that are further supplemented by this morning's 8-K filing. And with that, I'll turn the call over to McKeel. McKeel Hagerty: Thank you, Jay, and good morning, everyone. Spring has finally arrived in Northern Michigan, and with it comes the unmistakable sound of engines turning over after a long winter's rest. Our members have been pulling their cars out of storage, checking all the fluids and tire pressures and getting back out on to the open road. I for one drove a 1963 Corvette split window into the Hagerty headquarters this morning, and I am smiling year-to-year. And One Team Hagerty has been right there with them and with me ready to welcome a record number of new members in 2026 as the driving season gets underway. Let me jump to the headline. We are off to an excellent start to 2026. Written premiums increased 18% in the first quarter, ahead of our full year expectations. This marks 13 consecutive quarters of executing on our strategy to deliver compounding top line growth while making investments in our team, technology and members that should sustain high rates of growth in the years to come. As we discussed last quarter, 2026 marks the first year in our history that we control 100% of the economics on our own U.S. book of business. This structural milestone shows up clearly in our results, 42% growth in earned premium and a 77% jump in adjusted EBITDA. The GAAP presentation of revenue down 5% and our net loss of $13 million are temporarily different due to the new Markel Fronting Arrangement, but the underlying business performance has never been stronger. GAAP profits in 2026 are negatively impacted by the amortization of deferred ceding commissions paid to Markel in 2025 for policies written before January 1st. Think of it as settling the tab on the old structure. These deferred acquisition costs were $89 million in Q1 and wind down to 0 by the year-end 2026. With that, let me walk through our first quarter results shown on Slide 3. We added a record 112,000 policies during what has historically been a seasonally light quarter for us. Top cars added are not surprising as they are the bread and butter for Hagerty, Mustangs and Miatas, C10 Pickup Trucks and Cameros. We are also seeing a rapidly growing contribution from more modern enthusiast vehicles, including German and Japanese imports, sought after by the rising generations of drivers. Our written premium growth has been and will continue to be powered by new business count, unlike the broader industry that fluxes with the cycle. PIF growth jumped 15% as our retention rate remained steady at an industry-leading 89%. Retention at that level is not an accident. It is the product of decades of delivering on our brand promise to members who genuinely love their cars and trust Hagerty to protect them. We are delivering this growth with a careful focus on maintaining high-quality underwriting. Hagerty Re's combined ratio was 87%, and we took down our reserves by $6 million in the first quarter. Our underwriting team is one of the best in the industry, and we have been strengthening the capabilities of our in-house claims team. Our sustained market share gains are impressive and indicative of the enormous B2B opportunity for us. We are diligently working on additional partnerships as well as deepening existing relationships by earning the right to ask for more business. Hagerty is uniquely positioned to help protect the carrier's classic car book of business with automotive expertise and excellent service, and we are making the necessary investments to lengthen our lead. State Farm Classic+ is a great example of a tightly integrated partnership where both parties win. We now have an accelerating growth engine with expectations for their 19,000 agents to be selling new business in 40 states by year-end. The conversion of State Farm's existing 525,000 collector car policies to the Hagerty platform is also progressing well, and we remain on pace to convert most of these members to the new Classic+ program by the end of 2027. In addition to the white space with national carriers, our independent agency channel with 50,000 agents is ripe with potential. We are investing to make it easier for these agents to do business with us, including straight-through processing and the automated tools that help them identify enthusiast vehicles already sitting in their existing books of business, likely insured as daily drivers. Our addressable market of 36 million vehicles expands every year, and we want to empower these agents to think of Hagerty as the best solution for their customers. Let me move on to something that genuinely stopped all of us in our tracks during the first quarter. In March, Broad Arrow Auctions hosted a 2-day sale at Amelia Car Week in Jacksonville, Florida, and the results were historic, $111 million in total sales, 50% higher than any prior Amelia auction and with a 92% sell-through rate. The top lot was a 2003 Ferrari Enzo that sold for over $15 million, and we set 12 pricing records. The market for modern enthusiast vehicles has never been stronger, and every car that trades hands at a Broad Arrow Auctions is a potential Hagerty insurance policy. That is the flywheel in action. Our marketplace is not only a rapidly scaling profit center, but it is also a customer acquisition machine that gets cheaper with every car sold. I want to put that into context. In just 4 years and through the hard work of an exceptional global team, we have become one of the world's leading collector car auction houses. When you combine Broad Arrow's deep expertise with the Hagerty brand, our global community of members and our unmatched proprietary valuation data, you get results that surprise even us. And those results tell us something important about the health of our market. International demand for the finest cars is strong. Values on great cars continue to appreciate. Buyers from 23 countries do not show up to an auction in Northern Florida unless they trust Hagerty and Broad Arrow. That is all good news for Broad Arrow's transaction revenue. It is also good news for Hagerty Re as insured values rise, so to written premiums. Approximately 20% of our per policy premium growth over the last 15 years has come from our members voluntarily choosing to ensure their appreciating vehicles for higher guaranteed values. Our customers want their coverage to grow because their cars are worth more. That alignment between asset appreciation and insurance economics is absent from the standard auto market where vehicles tend to devalue or depreciate, and it is a structural advantage that compounds every year for Hagerty, augmenting our PIF-driven written premium gains. Over the same 15-year period since 2010, our regulatory rate increases for Hagerty Re has averaged only 1.5% per year, bolstering our consumer-friendly value proposition. We saw robust auction demand continue at the Porsche Air/Water auction in April with sales up 30% year-over-year and a sell-through rate of 84%. And in May, Broad Arrow will once again serve as the official auction partner of the Concorso d'Eleganza Villa d'Este with the BMW Group on Lake Como, Italy. This will be our second year at Villa d'Este, widely considered to be one of the most prestigious Concours events in the world, and we expect to build on last year's inaugural event as Broad Arrow is increasingly recognized as the trusted brand in auctions across major European markets. So in summary, our first quarter results were not only ahead of expectations, but they were far and away the best first quarter we have ever delivered. While it is only May, we are highly encouraged by how we are tracking towards our full year outlook. With that, let me turn it over to Patrick to walk through the financial details. Patrick McClymont: Thank you, McKeel, and good morning, everyone. Before I begin, let me reiterate the headline. The underlying business is performing very well. Written premiums increased 18% ahead of full year expectations with record new member additions. Adjusted EBITDA jumped 77% to $85 million, including a $6 million reserve reduction due to favorable prior year development. And Hagerty Re's combined ratio was 87%. This is what a healthy compounding specialty insurer looks like when firing on all cylinders. As McKeel mentioned, the GAAP presentation this year requires a brief reminder of what we shared on our fourth quarter call. Starting January 1 of this year, Hagerty Re assumed 100% of the underwriting risk on our U.S. book, a great economic outcome for us given the bump in underwriting profits and investment income. Under the new structure, the MGA commission revenue and the associated ceding commission expense that previously appeared gross on our P&L now eliminate against each other in consolidation, i.e., they net to 0. This is why reported revenue declined 5%, even though written premiums grew 18%. Additionally, there are $89 million of costs in the first quarter from the amortization of deferred ceding commissions for pre-2026 policies that result in a GAAP net loss of $13 million. This charge burns off entirely by year-end. With that, let me walk through the financials shown on Slide 6 and 7. Written premium in the first quarter was $289 million, up 18% versus the prior year period. This is ahead of our full year guidance of 15% to 16%, an acceleration from last year's 14% growth driven by our omnichannel approach, combined with 89% retention. Earned premium jumped 42% to $240 million, reflecting the 100% quota share retention in our U.S. book of business plus written premium growth. This is the structural improvement in our reinsurance economics that we have been working towards for a decade as we evolve our partnership with Markel. Commission and fee revenue in the quarter was $16 million. As I noted, this line is no longer comparable to prior periods given the elimination of Markel-related commissions. As State Farm conversions continue during the next 2 years, commission revenue inflects upwards. And unlike the prior Markel commission structure, the State Farm MGA fees carry no offsetting ceding commission expense falling through more cleanly. Marketplace revenue was $26 million, down 12%. We delivered record auction results at Amelia this year, but had lower inventory sales as we compared against last year's one-time sale at the Academy of Art University. Amelia cemented our position as a leader in the high-end auction market. We are investing significantly to position Hagerty as the undisputed global leader in both live and online sales. Membership and other revenue was $22 million, reflecting steady growth in Hagerty Drivers Club, paid memberships and ancillary revenue streams. Net investment income came in at $10 million, benefiting from our now larger investment portfolio at Hagerty Re that enjoys steady returns with low volatility, thanks to our focus on high-quality fixed income investments. Moving on to expenses. Let's start with losses. In 2025 and into 2026, we are seeing declines in frequency and favorable development from prior years that allowed us to reduce reserves by $6 million in the first quarter. Hagerty Re's loss ratio was 38%, resulting in a combined ratio of approximately 87%. We deliver high rates of written premium growth with excellent underwriting discipline, thanks to more than 40 years of proprietary data on 40,000 distinct makes and models, increased efficiency of acquiring and serving members and selecting members who take exceptional care of their toys. With the new Markel Fronting Arrangement, we have also adjusted our presentation of our expenses to allow investors to track and model our core insurance operations the way other insurance companies disclose their results. We will report the balance of the year consistently with our first quarter disclosures. After adjusting for the amortization of the ceding commission for policies issued in 2025, the underlying business showed significantly improved profitability, which can be seen in our adjusted EBITDA of $85 million. We believe that adjusted EBITDA is the best metric to focus on as it reflects the true operating momentum of our differentiated business strategy. We are growing quickly and efficiently converting premium growth into cash flow. I would point out that operating cash flow of $16 million was lower than the prior year's $44 million. With the new Markel Fronting Arrangement, we are paying claims directly, while under the prior structure, Markel paid the claims and we reimbursed Markel with a lag. So in Q1 of 2026, we made both the direct payments and the reimbursement for Q4 2025 claims of approximately $65 million. This normalizes during the balance of 2026. Adjusted for this doubling up of payments, operating cash flow increased roughly in line with adjusted EBITDA growth in the quarter. First quarter loss before taxes was $21 million and includes $89 million of deferred acquisition costs. First quarter net loss was $13 million and net loss attributable to Class A common shareholders was $7 million. GAAP basic and diluted loss per share was $0.06 for the quarter based on 101 million weighted average shares of Class A common stock outstanding. Adjusted diluted loss per share, defined as adjusted net loss divided by 361 million fully diluted shares was $0.04 for the quarter. We ended the quarter with $212 million in unrestricted cash, total investments of more than $1.1 billion and total debt of $229 million, which includes $110 million of back leverage for Broad Arrow's portfolio of loans. Given the strength in our first quarter results and momentum as we head into the summer driving season, we are reaffirming our full year 2026 guidance and are trending toward the high end of these ranges. This includes anticipated written premium growth of 15% to 16%, adjusted EBITDA of $236 million to $247 million and a GAAP net loss of $41 million to $51 million. As has been our practice in prior years, we will revisit our full year outlook on the second quarter call, but we are increasingly confident in our ability to deliver great 2026 results for shareholders. Looking forward a year, 2027 should be a more normalized year for Hagerty's P&L post 2026 complexity, where revenue growth more closely tracks written premium growth. We anticipate another year of mid-teens growth in written premium. While we continue to make multi-year investments in member growth and other initiatives. These include increased capabilities around the Markel Fronting Arrangement, technology investments in our B2B distribution, build-out of our product and Broad Arrow teams, enhancements to our digital marketplace as well as expansion of our special investigation and material damage units. Early indications point to these being high-return investments that will fuel member LTV in the years to come. That wraps up our prepared remarks. Operator, we can open the line for questions. Operator: [Operator Instructions] We take the first question from the line of Pablo Singzon from JPMorgan. Pablo Singzon: Is there any seasonality considered for EBITDA through the balance of the year? It seems to me or as you pointed out, Patrick, right, it seems to me that at least through 1Q, you're running above the full year guide, and I'd expect revenues to increase through the balance of the year. So I'm just not sure if there's any offsets maybe I don't know if you're considering GAAP in the third quarter or some pick up in expenses that might sort of derail the simplistic math of just annualizing the 1Q number. Patrick McClymont: Yes. I think business is seasonal, and so the seasonal pattern has not changed. So you should always consider that in your modeling. And then we are investing in the business, and we talked about that on the last earnings call. And some of that ramps up over the course of the year. And we have the normal dynamic of inevitably in the first quarter, you don't end up filling all the headcount slots that are open. It just takes a little longer than expected. So we would expect to see some ramp-up of expenses embedded in the full year guidance. So I wouldn't just annualize the first quarter. Hopefully, that's helpful that gives you a direction. Pablo Singzon: Yes. And then the second question I had, just a broader topic, right? So competition in personal auto is increasing. I'm wondering how that's affecting dynamics in your core classic car insurance business. And then maybe just to tack on something to that, like how is the current environment affecting your thinking about the rollout of Enthusiast Plus? McKeel Hagerty: Thanks, Pablo. It's McKeel. As you may recall, we've discussed this in some of our previous calls that when rates have gone up, for example, in standard auto, it tends to create shopping behavior that we actually benefit from. As you know, we're in a different kind of cycle now with standard auto where states are -- standard auto carriers are holding pretty steady right now, if not down. But we're seeing very strong year-over-year PIF growth in the core business, not just because of the additional new partnership accounts that are coming in from State Farm and others. So in this case, just I think the flywheel effect of the business is holding our momentum strongly into this year, and we're not in any way negatively affected by the fact that the standard auto carriers are kind of in a lateral moving year from a rate standpoint. Operator: We take the next question from the line of Michael Phillips from Oppenheimer. Michael Phillips: You've talked a bit about in recent calls about your European expansion for the auction business. I guess, given the flywheel that exists in your overall business, can you talk about your appetite -- just remind us your appetite for expansion internationally for insurance business? McKeel Hagerty: Yes. Thanks, Michael. It's a topic we've discussed for years. We've had an international business for over 20 years with our first entry outside of the country was actually in the U.K. We still have that business. It's growing. It's doing well. I think this order of things that we've really discovered by unlocking these very successful sales in Europe with Broad Arrow is helping us to understand the market differently than just sort of starting with insurance and then deciding whether membership is added and then thinking about marketplace later is that the order of things for us first is understand the market with these European auctions, getting that kind of sales team in force, in place, understanding the event environment and then deciding whether insurance is something that needs to be added on the back. Something we have discussed in the past is that when we started our U.K. business back in the day, the U.K. was sort of a golden place to be able to operate throughout Europe selling insurance. So our MGA structure over there, we were able to consider writing directly into the European continent without having to create an additional entity after Brexit, that became much more difficult. So right now, we are still just operating in the U.K. We write a little bit of some larger collection business in Europe, but we're looking at opportunities, but right now, focusing on just rounding out that auction schedule on the continent. Michael Phillips: Okay. I guess I was hoping you could expand a little bit more on the -- you mentioned the strengthening of your in-house claims team and kind of what's happening there and why -- how much of that's related to the change in the structure of this quarter? How much of that is related to -- I know you wanted to expand more enthusiast market, so kind of a different book of business that's coming. But just can you talk about that in-house claims team and what's happening there and why and how it's related to the changes that's happening in your overall business? McKeel Hagerty: I'll take the high end of it and if Patrick wants to follow-up, I'll let him. So yes, we've always done claims in-house. It was a real differentiating thing for us even when we were just operating as an MGA. Of course, now having 100% of your risk, you want to be paying attention to every dollar you spend when it comes to claims while maintaining a very high level of NPS and customer satisfaction and sort of overall claim service rates. But even though this is a low-frequency claim business, the bigger you get, we will have more claims. And we decided we really needed to make the investments to upgrade that team. We have some incredible leadership on the claims side who bring sort of the best of big auto industry claims expertise, but that understand the unique nature that repairing the types of vehicles we insure in our core book is very different than repairing a sort of standard auto where you can just bolt on a brand-new part because in many cases, repairing a vintage car, it takes time. You got to find the right kind of shop. You have to sometimes fabricate parts or parts have to be sourced from a variety of different places. So we have teams of people who help find those parts very different than a standard repair shop. So I think what we're doing just sort of structurally bringing best practices from standard auto claims and kind of turnaround times and all the things that you can do to contain the leakage that can happen around claims practices while maintaining the high quality of work that our customers expect because you want to pay fast, but you don't want to rush so that they're concerned about the quality of the repair. So that's the sort of maybe structural piece. And I don't know how much it's affecting the math specifically, Patrick, or we just... Patrick McClymont: Yes, it's meaningful. The claims organization that they've changed the mix, right? The meaningfully increased the number of claims that are dealt with in-house versus using independent adjusters. And every time they've increased that baseline, they've proven that the return on that is pretty compelling. And so we sit down and decide to increase the baseline again. That's what happened over the last couple of years. And that return comes from when you're processing things in-house, velocity increases, the customer service is better and the ultimate economic outcomes are better as well. And so the overall frequency and severity trends have been -- for the industry have been positive. We think we've got more tailwinds behind that because of this strategic decision to really invest in that capability. So we view it as a differentiator because these cars are different. They need a different level of expertise, and it's driving real value. Operator: We take the next question from the line of Elyse Greenspan from Wells Fargo. Elyse Greenspan: My first question is just on PIF. How should we just think about seasonality during the year? And I think in some years, right, Q1 tends to be like the lowest growth quarter of the year. Would you expect to see similar trends this year as we think about PIF growing during the year? Patrick McClymont: Yes. So this year -- last year, this year, next year, we do have the impact of the State Farm conversions. And so that's driving a meaningful increase in PIF. And that is not seasonal, right? That's based upon the rollout schedule with our partners at State Farm. And so that's meaningful and attractive. You have to kind of put that aside from a seasonality perspective. And then we're seeing the same trends that we typically would see. The first quarter typically is a lower quarter for us in terms of PIF growth. We ramp-up starting kind of in April and now into May and through the summer months, and you see it ramp down again in the fourth quarter. So we're seeing those same -- that same underlying dynamic. But right now, we're also seeing a very attractive healthy growth in that traditional core business. Elyse Greenspan: And then my second question, you guys, I think, are typically weighted to Q2 to update full year guidance, but you did say -- and I think you made some comments that said you're trending towards the high end of the ranges. It does seem like based on the Q1, right, that you're trending favorable to most items. So anything that we should think about like reversing? I mean, I guess I'm more interested just in thinking about adjusted EBITDA, right, and written premium growth, but really any components of guidance? Or is it just being somewhat conservative and just waiting to provide an update with Q2? Patrick McClymont: It's just waiting to provide the update. That's our approach on this. We've been consistent. We've concluded that not enough chapters of the books have been written at the end of 3 months. And so we'll do our first update after the second quarter. Elyse Greenspan: Okay. And then I think you said with State Farm that you would be active, I think, in 40 states by the end of the year? And then would you expect to add the additional states in '27 to be at full capacity? Is that how to think about that? Patrick McClymont: Pretty much. There could be states that stretch a little bit beyond that just because they're more challenging from a regulatory standpoint. But by the end of 2027, we should be selling in almost all the states, and then we'll still have a little bit of a tail in terms of the conversions, right? There's always that lag where we sell new business first, you make sure that everything is working and then start the conversion process. Operator: We take the next question from the line of Gregory Peters from Raymond James. Charles Peters: McKeel, in your opening comments, it's quite envious of your description of driving the Corvette into the office this morning. And I guess I'm going to go down a path that's probably unexpected, but I recently leased out a model Y, the Tesla Model Y. And I know this isn't your classic car addressable market, but I find the experience with it shockingly positive. I'm just curious because you're a car enthusiast, what you think of these new electric cars with the self-driving feature? McKeel Hagerty: First of all, thank you. Yes, it was -- it's a super fun drive to drive the Corvette. And I'm reminded why they made some significant changes in 1964 after 1963 when you drive it. So it's a fun car, but you can't see out of the rearview mirror. I'm a huge fan of electric cars. And some car people who view it as some sort of dogmatic war going on. I don't view it that way. I think we're going to have more and more electric cars. I own an electric car. I have one of the Porsche Taycans, and I'm a big fan. I drive that year around. Like you said, shockingly impressed. They're just great. They're great. They're simple, they're fast, they're quiet. They do a lot of great things. And I think you'll see more of them, and I think we'll be ensuring more of them in years to come. Like for us, it's -- there's always this shifting process, right, even with like the daily -- the cars that we insure today were daily drivers, some number of decades ago or some number of years ago. And there's a shifting process where people decide, I like this one, I don't like that one and the ones that survive are the ones that we end up insuring. And so there is no doubt, as we do now, ensuring Tesla Roadsters that we will be ensuring certain Teslas out there in the future. And -- but finally, just on the self-driving thing, I also -- I took my first Waymo ride for what it's worth a couple of weeks ago, and I thought it was really cool and I played my own music in it and all that stuff. And I think we're going to have more self-driving cars as well. But I think there will be a world where there are human-driven cars. I think there'll be self-driving cars. And I think as that technology becomes safer and safer outside of cities right now, I think it's better off in cities personally. That it will be part of our world. So we're going to be the ones out there advocating. We're the company that was built by drivers like me for drivers, and we'll be advocating for those people. But we recognize that we will be surrounded by self-driving cars. Charles Peters: Great. I know it was a little bit off topic, but not really. I mean it's a great... McKeel Hagerty: Not really, non-topic. Yes. Charles Peters: It's a great product. It's not in your classic car sweet spot yet, but I'm sure it will be at some point. Listen, I know you spent some time in your prepared remarks and maybe in the follow-up Q&A talking about the PYD, the prior year development. Can you just revisit that and just walk us through what's the source? Is it lower severity? And maybe take the results that you reported, is there anything -- any read-through as we look forward on how the reserves are seasoning? Patrick McClymont: Sure. So the prior year is about $6.5 million reduction that we had in the first quarter. And you'll recall in the fourth quarter, we had about a $20.5 million reduction in reserves. So this is a continuation. The $6.5 million, it was predominantly the 2025 accident year. And we're starting to see that development in the fourth quarter, and that influenced what we did in the fourth quarter. But it just matured and continues to mature in a very attractive way for us. And so what we're seeing is a combination of from a severity standpoint, we're in a good spot, continue to be in a good spot. We talked about frequency before. We've talked about what we're doing in terms of claims outcomes. And so it's really just looking at the historical book of losses and as those are maturing and layering into that what we've done to make sure that we're delivering from a claim's standpoint, it's all adding up to that we end up in a better position. That's our market-to-market as of right now for prior years. We'll see how the balance of this year unfolds, but we think we're in a solid position right now. Operator: We take the next question from the line of Mark Hughes from Truist Securities. Mark Hughes: Patrick, you had mentioned that you probably see another year of mid-teens growth in written premium next year. Any early thoughts on EBITDA growth when we think about expenses that may be either ramping up or being leveraged? How should we think about EBITDA in 2027? Patrick McClymont: No, no early thoughts on that. We're going to stick to sort of the focus on the prompt year in terms of guidance. Hopefully, what came through in those comments, this is a business that continues to grow at that sort of very credible mid-teens type rate, so we feel good about that. And it's also a business that we have demonstrated that we've been able to expand margins over time. And then it's also a business that we're choosing to invest in to make sure that we deliver that growth, not just for the next year, the next 2 years, but for the long haul. And so that's the balance that we're constantly striking. Mark Hughes: And then, McKeel, you talked about the higher guaranteed value that, that is a benefit over time. Is there a specific number that you would throw at that? Is that kind of a low single-digit tailwind? Or how should we think about how much that helps year-to-year? McKeel Hagerty: Yes. Well, thank you. What's interesting when we go back -- what's interesting to compare it against is that when I think of the few times in my career where the market has taken some sort of dip. So for example, all the way back to, believe it or not, the dot-com crisis, the great financial crisis, we know COVID was -- had the exact opposite effect is that I was sort of looking at, okay, which cars kind of held steady and which cars kind of went up. And we certainly have seen for the last 15 or so years where sports cars, sports racing cars, Ferraris, Porsches, that sort of thing, of earlier generations were the ones that showed the greatest amount of increases year-over-year, while the rest of the book kind of held steady, which is still differentiated from a standard brand-new daily driver book of business that would be depreciating over time. But definitely, what we're seeing right now is this sort of more modern supercar, hypercar segment that we're seeing in the Broad Arrow business. Those are the cars that are most sought after. And they're lifting everything around them. So when we were seeing cars from -- so when I think modern supercars, I think cars from the '90s, even the 2000s. And these are Ferraris and similar types of cars that were that are just -- they're being purchased at a higher price point by new entrants into the market, but also by older well-heeled collectors. And so it's that double effect where you get maybe new money deciding to come in there and pay 10%, 15%, 30% more than the car was worth or in a few cases, just multiples of that. But it's also that well-heeled collector that had an earlier generation of cars who they step up and say, well, I don't want to be left without the new hot thing. So I'm actually willing to lighten up on my other parts of my collection, so I can go buy the latest and greatest or they're just continuing to add to their collection. So in general, it's sort of single-digit steady growth on those types of cars, but you get these just wild examples of like the 2003 Enzo that we sold for $15 million. I mean that was a $3 million to $5 million car a couple of years ago, and it's just astonishing. Patrick McClymont: Yes, Mark, we've looked at all that over the last 15 years, as McKeel described, on average, it ends up being low single digits. In those 15 years, there's only 2 years where it ticked down a little bit, and that can happen. And then some years, it's mid-single digits or even high single digits. But in the long run, it ends up being that low single-digit type number. Mark Hughes: Very good. Well, I'll tell my own story I parked in church next to Camaro Z28 and it looked sort of like a beer, but it was still in pretty good shape. And when he pulled out it had the license plate and peak auto is intriguing and also since I had that car when it was new, I felt a little antique as you drove away. So anyway. Patrick McClymont: We don't call that a beer. We say it has patina. McKeel Hagerty: It has patina. Yes. It's -- those are wisdom marks. As the 63 Corvette was, I must admit a little slow cranking when I was turning it over. And then I realized like, well, you're a couple of years older than I am, and I'm feeling a little slow cranking myself. So that's all right. Operator: We take the next question from the line of Mike Zaremski from BMO Capital Markets. Michael Zaremski: Maybe just back to the excellent PIF growth and revenue growth question. It sounds like if you agree that underlying seasonality did take place. So the kind of the overlay was the State Farm conversions. I'm just trying to kind of help dimension the impact State Farm's having. Is that a fair way to think about it? Patrick McClymont: Yes, that's accurate. McKeel Hagerty: Yes. Michael Zaremski: Okay. Great. And I can see there was a $50 million in proceeds from a loss portfolio transfer in the quarter. Any color on what happened there, any implications for capital return, et cetera? Patrick McClymont: So that's part of the overall transition evolution of our relationship with Markel. And so for the prior periods, we did a loss portfolio transfer. So they transferred to us $50 million. We've assumed all those liabilities. And keep in mind, this is the 20% or so because some of the prior years where we were taking a little bit less of the risk. But it really just represents that. So it's risk that we already had. We're just topping it up for those prior period. And so we received that cash. We put the liability on our balance sheet. As you go through the queue, you'll see that we're assuming that there's a gain associated with that. And then that gain amortizes into the income statement over the expected settlement of those claims, which in the aggregate will take, I don't know, call it, 4 years or so, but it's pretty front-end loaded. And so that will flow through. This is not a risk transfer transaction, so it's a financing. And so it hits down on the other income and expense line item. Operator: We take the last question from the line of Tommy McJoynt from KBW. Thomas Mcjoynt-Griffith: When we look at the mid-teens premium growth in the guide this year, is there a roughly even split between the core legacy Hagerty business, State Farm and Enthusiast Plus? Or is there one of those contributing more than the others? Patrick McClymont: Yes. We're not going to kind of break it down by the different lines that you just described. What I will say is this year, 2026 and then 2027 are going to be big years for State Farm conversion. I think between new and converted, we're already in excess of 100,000 policies. But in total, it's 500-plus thousand policies. And so we're kind of in the thick of it right now. So that is a meaningful driver this quarter and it will be this year and next year. And then the core business continues to grow at the kind of rates that it has been for the last handful of years. So very consistent there. And then E-Plus is still very, very small. So that's not much of a driver at all right now. Thomas Mcjoynt-Griffith: Got it. And then switching gears. As we track the large national carriers start to file for rate decreases in some instances, we understand that probably doesn't impact the core Hagerty business, but does that at all impact your outlook for Enthusiast Plus, just where there's a bit more overlap with the daily drivers? Patrick McClymont: You're right for the core business, when we look at what our rate increases have been over the long haul, it's again, low single digits, right? So we're not -- and that's continued over the last couple of years. We've done some things on the liability front and address that. But our rate increases are pretty modest. As we think about the E-Plus business, it's hard to say because that's the current environment right now. E-Plus, we're in one state in Colorado, right? And so we're rolling this out over time. And we're learning in Colorado, and we'll learn in the other states in terms of what the right approach is on pricing and what that means in terms of the liability of the product and the profitability, I should say. So it's hard to say that the current market is heavily influencing our plans there just because of where we are in the rollout plan. Operator: Ladies and gentlemen, with that, we conclude the question-and-answer session. I now hand the conference over to McKeel Hagerty for closing comments. McKeel Hagerty: Thank you, operator, and thanks to everyone on the call for your continued support. I want to close today by coming back to where we started this morning. Hagerty has never been better positioned to serve the community of auto enthusiasts who trust us to protect what they love. We have a fast-growing recurring revenue model built around specialty insurance that delivers combined ratios of 90% year after year. Our high-quality underwriting and rapidly scaling business allows us to price at a meaningful discount to traditional carriers. What we are building at Hagerty is incredibly unique in the insurance world, making us the partner of choice because there is no one else who can do what we do for their customers, helping the retention and protecting their bundled business. We also have a fast-growing auction and marketplace business that did not exist 4 years ago and is setting world records all over the world. And we have a membership community approaching 1 million paid members that love our member-centric products and services. Thank you, One Team Hagerty. The results we deliver are the product of your passion, excellence and hard work, and I cannot wait to see what this amazing team can accomplish over the coming years as we to double PIF count to 3 million by 2030. We look forward to seeing some of you at Villa d'Este in May, and we hope many of you will join us at our annual investor event in Greenwich, Connecticut on May 29, where we will share an update on our progress towards delivering compounding profit growth for our shareholders. Invites will follow, but please reach out to us for more details or to our SVP. Until then, never stop driving. Operator: Thank you. Ladies and gentlemen, the conference of Hagerty has now concluded. Thank you for your participation. You may now disconnect your lines.
Operator: Good morning, and welcome to the Icahn Enterprises L.P. First Quarter 2026 Earnings Call with Andrew Tino, President and CEO; Ted Papapostolou, Chief Financial Officer; Robert Flint, Chief Accounting Officer; and Joseph Passeri, Director of SEC Reporting. I would now like to hand the call over to Joseph Passeri, who will read the opening statement. Joseph Passeri: Thank you, operator. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements we make in this presentation, including statements regarding our future performance and plans for our businesses and potential acquisitions. Forward-looking statements may be identified by words such as expects, anticipates, intends, plans, believes, seeks, estimates, will or words of similar meaning and include, but are not limited to, statements about expected future business and financial performance of Icahn Enterprises L.P. and its subsidiaries. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors that are discussed in our filings with the Securities and Exchange Commission, including economic, competitive, legal and other factors. Accordingly, there is no assurance that our expectations will be realized. We assume no obligation to update or revise any forward-looking statements should circumstances change, except as otherwise required by law. This presentation also includes certain non-GAAP financial measures, including adjusted EBITDA. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the back of this presentation. We also present indicative net asset value. Indicative net asset value includes, among other things, changes in the fair value of certain subsidiaries, which are not included in our GAAP earnings. All net income and EBITDA amounts we will discuss are attributable to Icahn Enterprises unless otherwise specified. I'll now turn it over to Andrew Teno. Andrew Teno: Thank you, Joe, and good morning, everyone. I wanted to say thank you to everyone, who I've worked with over the past few years, both before becoming CEO and after. It is an honor and privilege to work with and learn from the living legend of activism in our Chairman, Carl Icahn. Over the past few years, we have worked hard to high-grade the Investment Fund portfolio and to get our controlled operations moving in the right direction. I leave the company knowing that it's in good hands with a significant war chest to take advantage of opportunities as they arise. It's been a pleasure and honor. And with that, I will hand it over to Ted, our new CEO. Congratulations, Ted. Ted Papapostolou: Thank you, Andrew. Before turning to the work ahead, I want to begin by thanking Andrew for his leadership and service to Icahn Enterprises and wish him continued success in his next chapter. I am honored to take on the role of CEO and excited by the opportunity ahead. Icahn Enterprises has a unique portfolio, a strong heritage of disciplined capital allocation and a culture of accountability and long-term thinking. I look forward to building on that foundation, working closely with Carl and our Board to continue strengthening the enterprise and executing on our priorities. I also look forward to working with Rob in his new role as CFO. With that, let's get into the results. First quarter NAV increased by $201 million compared to year-end. The increase was primarily driven by an increase of $605 million in our long position in CVI, which was offset in part by losses on refining hedges of $320 million in our Investment segment, also known as the funds. Regarding CVI, major geopolitical events drove volatility, which have set up attractive market opportunities for the balance of 2026. We believe CVI is well positioned to allow for potential future debt reductions and capital returns to shareholders. We are pleased with CVI's announcement of a $0.10 dividend. For Q1, the Investment segment was up approximately 4%, excluding the refining hedges. In terms of our top positions, AEP is an electric utility that benefits from the AI infrastructure build. In the first quarter, the company reaffirmed its 2026 operating EPS outlook and increased its long-term operating earnings CAGR to greater than 9%, supported by 63 gigawatt of incremental contracted load and 11% rate base growth through 2030. AEP stock was up approximately 14% for Q1. Centuri reported strong base revenue and gross profit growth of 28% and 50% in Q4. The company also guided to strong double-digit base revenue and gross profit growth for 2026 as it continues to capture the tremendous tailwinds from increased energy infrastructure investment. The stock was up approximately 16% for Q1. IFF continues to execute on its portfolio optimization, running a sale process for its food ingredients business and announcing the completion of its divestiture of the soy crush business. IFF stock was up approximately 8% for Q1. Caesars reported solid Q1 results with Vegas stabilizing regional sales growing in the low single digits and digital posting strong EBITDA growth of 61%. Caesars is expected to generate significant cash flow in 2026, which we hope to fund meaningful share repurchases and debt paydown. Caesars' stock was up approximately 13% for Q1. Echostar lowered its total expected tax and decommissioning costs related to its divested assets, which we believe meaningful upside remains for the position with the IPO of SpaceX potentially serving as a material positive catalyst. Echostar stock was up approximately 8% for Q1. As of quarter end, we had approximately $782 million in cash at the funds. Lastly, the Board declared an unchanged distribution at $0.50 per depositary unit. I will now pass it to Rob to discuss our financial results. Robert Flint: Thank you, Ted. For the first quarter of 2026, net loss attributable to IEP was $459 million, or a loss of $0.71 per unit. Our first quarter consolidated results include $425 million of losses on refining hedges in our Investment segment and $158 million of unrealized derivative losses in our Energy segment. Q1 '26 adjusted EBITDA loss attributable to IEP was $216 million compared to adjusted EBITDA loss attributable to IEP of $228 million for the prior year quarter. I will now provide more detail regarding the performance of our individual segments. The Investment Funds had a positive return of 4.4% for the quarter, excluding refining hedges. Including the refining hedges, the funds had a negative return of 8.2% for the quarter. Long and other positions had a net positive performance attribution of 4.1% and short positions had a negative performance attribution of 12.9%. The investment funds had a net short notional exposure of 29% at the end of the quarter compared to net short of 13% at year-end. Excluding our refining hedges, the funds had a net short notional exposure of 2% as of quarter end compared to net long of 19% at year-end. Our investment in the funds was approximately $2.2 billion as of quarter end. Moving to our Energy segment. Energy segment adjusted EBITDA attributable to IEP was negative $5 million for Q1 '26 compared to negative $6 million for Q1 '25. The first quarter refining operations were solid with crude utilization of 97%, although margins were weighed down by higher RFS obligation costs and unrealized derivative losses. The Fertilizer segment had strong results driven by robust demand for the spring planting season. We believe that CVI's assets are well positioned to benefit from the global tightness in refined product and nitrogen fertilizer. Now turning to our Automotive segment. Q1 '26 Automotive Services revenues decreased by $9 million compared to the prior year quarter, primarily driven by closure of stores during the balance of 2025, offset in part by increased price. Same-store sales paints a better picture having increased by approximately 2% as compared to the prior year quarter. We are pleased with this positive revenue trajectory, but there's still a lot more work to be done. We continue to focus our efforts on product, pricing, labor and distribution strategy. Now turning to all other operating segments. Real Estate's Q1 '26 adjusted EBITDA increased by $18 million compared to the prior year quarter. The increase is primarily driven by income from the assets that were transferred from the Automotive segment, of which $9 million is intercompany income from the auto segment and $2 million from third-party tenants. Food Packaging's adjusted EBITDA attributable to IEP decreased by $6 million for Q1 '26 as compared to the prior year quarter. The decrease is primarily due to lower volume and disruptive headwinds from the restructuring plan. Home Fashion's adjusted EBITDA decreased by $2 million when compared to the prior year quarter primarily due to softening demand in retail and hospitality business and supply chain disruptions in the Strait of Hormuz. Pharma's adjusted EBITDA decreased by $10 million when compared to the prior year quarter, primarily due to the reduced sales resulting from generic competition in the anti-obesity prescriptions and increased R&D expenses related to our ongoing pivotal drug trials. The Transocean trial preparation for our PAH drug is on schedule, and the first patient will be dosed in the next 60 to 90 days. The physician community remains excited by the potential for disease-modifying designation. Now, turning to our Liquidity. We maintain Liquidity at the holding company and at our operating subsidiaries to take advantage of attractive opportunities. As of quarter end, the holding company had cash and investment in the funds of $2.8 billion, and our subsidiaries had cash and revolver availability of $1.3 billion. We continue to focus on building asset value and maintaining liquidity to enable us to capitalize on opportunities within and outside our existing operating segments. Thank you. Operator, can you please open the call for questions? Operator: [Operator Instructions] As I see no questions in the queue, I will pass it back to Ted Papapostolou for closing comments. Ted Papapostolou: Thank you, everyone, and looking forward to our next update call. Operator: This concludes our conference. Thank you for participating, and you may now disconnect.
Operator: Good morning, and welcome to the Fubo Second Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Ameet Padte, SVP, FP&A, Corporate Development and Investor Relations. Thank you. Please go ahead. Ameet Padte: Thank you for joining us to discuss Fubo's Second Quarter Fiscal 2026 Results. With me today is David Gandler, Co-Founder and CEO of Fubo; and John Janedis, CFO of Fubo. Full details of our results and additional management commentary are available in our earnings release and letter to shareholders, which can be found on the Investor Relations section of our website at ir.fubo.tv. Before we begin, let me quickly review the format of today's call. David will start with some brief remarks on the quarter and our business, and John will cover the financials and guidance. Then we will turn the call over to the analysts for Q&A. I would like to remind everyone that the following discussion may contain forward-looking statements within the meaning of the federal securities laws, including, but not limited to, statements regarding our financial condition, our expected future financial performance, including our financial outlook, guidance and long-term targets, business strategy and plans, including our products, subscription packages and tech features, our partnerships and other arrangements, the benefits of the business combination, including expected synergies and integrations and expectations regarding growth and profitability. These forward-looking statements are subject to certain risks, uncertainties and assumptions. Important factors that could cause actual results to differ materially from forward-looking statements are discussed in our SEC filings. Except as otherwise noted, the results and guidance we are presenting today are on a continuing operations basis, excluding the historical results of our former gaming segment, which are accounted for as discontinued operations. During the call, we may also refer to certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are also available in our Q2 2026 earnings shareholder letter and press release, which are available on our website at ir.fubo.tv. With that, I'll turn the call over to David. David Gandler: Thank you, Ameet. We appreciate everyone joining us for today's call to discuss our Q2 2026 financial results. We delivered the strongest second quarter in our history on an adjusted EBITDA basis. More importantly, on a trailing 12-month basis, we have now exceeded $100 million in pro forma adjusted EBITDA, an important milestone that reinforces our confidence in delivering against our long-term target of at least $300 million in adjusted EBITDA by 2028. We also achieved record revenue for the quarter, driven by continued expansion of our Fubo and Hulu + Live TV offerings, differentiated content and product innovation. The migration of our advertising business to the Disney Ad Server began in February, and we are pleased with the early benefits to date with both fill rates and CPMs experiencing healthy increases. The business combination fundamentally expands our strategic position. Fubo is now built to scale as a preeminent video player driven by flexible content packaging. We can aggregate and deliver a range of content packages at different price points, allowing us to serve distinct consumer segments rather than forcing a single package across the entire bundle. That flexibility is a durable advantage and a key driver of both growth and margin over time. We are already executing on this strategy. We now offer our Spanish-speaking customers 2 clear options. Fubo Latino, a lighter bundle without Univision and Hulu + Live TV Espanol, a more comprehensive package launched this quarter, which includes Univision. Fubo is applying the same approach across our broader service portfolio. We offer the Fubo Sports service alongside our core Fubo bundle as well as a more comprehensive entertainment offering through Hulu Live, which includes NBC and Versant. This diversified product set is designed to expand choice while reducing churn. Importantly, we believe we have successfully navigated the loss of NBCU on Fubo, even during a period when NBC held a dominant portion of February sports programming. Customers continue to access that content through Hulu Live and incremental churn at the combined business during the quarter was minimal. This provides a clear example that we are not reliant on any one programming provider as we segment our content strategy across our portfolio. At the same time, we are beginning to unlock synergies following our business combination. Over the last 12 weeks, we have been hard at work to explore, define and execute against a series of initiatives we've identified to power future growth. Let me expand upon a few of these. First, Fubo's aggregated storefront now offers the full Fubo and Hulu + Live TV content portfolios. Consumers can select the content plan that's right for them, whether that's an English or Spanish package, our Fubo Sports service, the Fubo virtual MVPD or Hulu + Live TV's complete cable replacement package. Second, through our integration with ESPN, fans looking to watch a live game will soon be able to seamlessly access Fubo via linkouts on ESPN's Where to Watch pages, creating a new acquisition channel. Third, we previously announced that our Fubo Sports service will be integrated into ESPN's e-commerce flow through a reseller and marketing arrangement. I'm pleased to update you that launch is expected in the first half of calendar year 2027. As a reminder, the ESPN ecosystem reaches over 100 million users every month. Through our progress on various cross-selling initiatives, we are building a powerful growth flywheel to scale our business. But this is just the start. We believe the next phase of aggregation will be the conversational layer, where discovery becomes the product. As content libraries expand, simplifying how consumers find and engage with programming becomes critical. This fall, we intend to launch our first AI conversational feature within the Fubo app, starting with sports. With Fubo's AI Assistant, customers will be able to use natural conversational voice to search their DVR'd content for game highlights and ask for recommendations. They can ask precise questions, such as give me all of the scoring plays by the New England Patriots quarterback in the past 2 games, but I only want to see passing touchdowns, no rushing. Or I'm trying to figure out who to move on to my fantasy team. Show me all of the Kansas City Chiefs defensive highlights from last month. We believe our AI Assistant is a fundamentally more intuitive way to interact with live sports and video than scrolling up and down or being fed algorithmic carousels. We expect this to drive deeper engagement and stronger attention over time. We look forward to adding the AI Assistant to Fubo's Roku, Apple TV and mobile apps to start. We also plan to extend the AI Assistant to news and entertainment talk shows, enabling the Fubo app to instantly retrieve any clip our customers are looking for. In closing, we are more confident than ever in the Pay TV category and in Fubo's growing position within it. Based on these and other initiatives, we believe there will be opportunities to drive growth and scale as we focus on our long-term target of at least $300 million in adjusted EBITDA. I will now turn the call over to John Janedis, CFO, to discuss our financial results in greater detail. John? John Janedis: Thank you, David, and good morning, everyone. The second quarter of fiscal 2026 marked our first full quarter as a combined company following the close of our business combination with Hulu + Live TV. As a reminder, to facilitate comparability between periods, we will discuss our results on both an as-reported and a pro forma basis, which gives effect to the transaction as if it had been completed at the beginning of the first period presented. Turning to results for the quarter. In North America, our revenue for the second quarter was $1.566 billion compared to $1.125 billion in the prior year period. Pro forma revenue in the prior year period was $1.556 billion, representing 1% growth year-over-year. In terms of our user base, we ended the quarter with 5.7 million total subscribers in North America compared to 5.9 million in the prior year period. Turning to our profitability metrics. Our net loss for the second quarter was $6.2 million compared to a reported net loss of $40.9 million in the prior year period. Pro forma net income in the prior year period was $120.6 million, positively impacted by a $220 million net gain related to the settlement of litigation. Earnings per share for the quarter reflected a loss of $0.07. We delivered adjusted EBITDA of $37.7 million in the second quarter compared to pro forma adjusted EBITDA of $1.4 million in the prior year period. From a cash and liquidity perspective, Fubo ended the quarter with $244 million in cash, cash equivalents and restricted cash on hand, and we continue to expect to finish the year with more than $200 million of cash on our balance sheet. I would also like to provide some additional commentary around the near- and long-term financial targets we recently released. For fiscal 2026, we continue to expect pro forma adjusted EBITDA of $80 million to $100 million and at least $300 million in fiscal 2028. We also expect to deliver positive free cash flow in fiscal 2027 and fiscal 2028 under our current operating plan. Our outlook is supported by elements of our business combination in which we have a high degree of conviction. As a reminder, for our commercial agreement, Fubo received a wholesale fee relative to Hulu + Live TV's carriage costs, currently at 95% in calendar 2026 and scaling to 99% by 2028. This contractual step-up provides strong visibility into our expected earnings profile and adjusted EBITDA expansion. Furthermore, the company captures advertising revenue from both the Fubo and Hulu + Live TV businesses. Together, these elements reinforce our expectations regarding the long-term earnings power of our combined entity. In summary, Q2 was a healthy quarter for our business, and we believe we are just beginning to realize the full potential of the Fubo and Hulu + Live TV business combination. As David noted earlier, we are excited about our new initiatives and the opportunities ahead. As we move forward, we remain focused on establishing a sustainable foundation for growth. With that, I'll turn the call back to the operator for questions. Operator? Operator: [Operator Instructions] Our first question comes from Kutgun Maral from Evercore ISI. Kutgun Maral: There's a lot to talk about, but I wanted to actually focus on advertising. With Fubo's inventory having now moved over to Disney's ad platform, it seems like there's a lot of opportunity, but the broader streaming ad market has been choppy for some folks. So I'd be curious if you could talk about any of the early indicators you're seeing on whether the Disney relationship is creating real upside net of the 15% agency fee, perhaps, in terms of CPMs, filler rates or something else? And how much of the medium-term EBITDA plan that you laid out assumes a meaningful ad monetization improvement versus just stabilization? John Janedis: Kutgun, this is John. Let me answer this one. I would just say the short answer is yes, and we're already seeing that. It's been less than 90 days since we started the migration of the inventory to Disney's ad server. And we have seen improvement in both CPMs and fill rate. And as you know, those are the key components of that ARPU, and we think that can continue. The CPM improvement has come in faster than expected. I'd say in terms of timing, we expect the migration to be fully completed by the end of the year. And then at that point, the Fubo ad ARPU is expected to converge with Hulu Live. On the second part of the question, look, the largest component of the adjusted EBITDA improvement will come from the contractual increase in the wholesale fee from 95% to 99%. But I would say the ad monetization improvement is tracking in line to better as of now. And I'd say also the quarter came in ahead of expectations. Operator: Our next question comes from Matt Condon from Citizens Bank. Matthew Condon: I just want to ask, just given the combination with Hulu Live TV meaningfully expanding your subscriber base and with it sort of your content cost leverage, can you just help frame the timing of when that scale benefit really begin to show up in your content cost structure? John Janedis: Matt, this is John. I'll start with this, and David may want to chime in also. Look, I'd say cost broadly in terms of scale benefit to your question, first, on the content cost, we historically haven't spoken to the timing of specific deals. What I can tell you is that we've had a couple of small renewals come up since the close of the business combination. We're happy with that outcome or those outcomes. And I think what I've also said historically is that on the timing, but we've talked to medium, short and longer term in terms of seeing that benefit. On the content cost side, given that we typically have about 1 renewal per year, that will have a bit of a longer tail to show up in the numbers. Operator: Our next question comes from Drew Crum from B. Riley. Andrew Crum: So on your fiscal '26 adjusted EBITDA guidance, you've generated $79 million during the first half, which suggests a pretty meaningful step down in the second half, can you reconcile the 2 and address what's driving the deceleration? David Gandler: Yes. This is David. Why don't I start, and then I'll let John chime in. So just in terms of where we are, as you know, we are a sports-first cable replacement service and the seasonality of our business typically allows us to generate 40% to 50% of our gross ads in the last fiscal quarter. And therefore, we keep our powder dry until then. So we do expect to spend more in marketing. And also, given the initiatives that we just laid out for you in my opening comments, we want to make sure that we have the flexibility to not only focus on profitability, but also growth. So this really allows us to take a balanced approach. John Janedis: And I would just want to add one quick point in terms of a one-timer. We did have a $6.5 million above the line tax-related benefit during the quarter. David Gandler: Yes. And just one last thing I'll say is look, we provided guidance a few weeks ago. Our plan is really to focus on the at least $300 million of EBITDA in 2028. And so we're planning accordingly and working with Disney on a number of these initiatives that we -- again, of course, as we get traction, we'll look to double down on some of these efforts. Operator: Our next question comes from Tyler DiMatteo from BTIG. Tyler DiMatteo: I was hoping we could unpack some of the organic growth trends in the business, in particular, the subscriber trends. I was hoping we can kind of get a little bit more color about maybe the split between Hulu Live and Fubo and then also more importantly, kind of how you see that trending through the year? And maybe any comments on ARPU as well. David Gandler: Yes. Thank you. I'll start. So one, we don't separate our sub count going forward. This is one company, and we're focused on creating leverage for the business as a combined entity. In terms of where we are from an organic perspective, I laid out 3 initiatives that we're working on at the moment just to kind of reinforce those. The first is utilizing our storefront to drive sales for Hulu Live. I think you know the Fubo team has been very strong in driving growth organically and inorganically over the last few years. So we'll look to really attempt to drive growth on the Hulu side. Due to the array of products that we offer, it makes sense for us to be able to push people towards a bundle that includes a comprehensive portfolio of networks. And I think part of the opportunity here is we're the only company today that offers such an array of offers, everything from as low as $9.99 on the Fubo Latino package. Then there's the Hulu Español package, which starts at the $30 range, which is well below some of our competitors and really gives us an opportunity to drive growth across these packages. As you know, lower pricing typically yields greater subscriber growth and top-of-the-funnel conversion. So we're focused on that. From a product and technology perspective, we've built a pretty strong mousetrap, I would say. Today, we're really focused on continuing to enhance our product capabilities to drive engagement and to take advantage of what John was talking about earlier around the advertising. The more engagement that we can drive on the platform, the more Disney will be able to drive ad sales on behalf of Fubo Inc. John Janedis: And I would just add on seasonality given your question in terms of organic. Look, the Fubo service tends to have a bit more seasonality than Hulu Live. But when we look at the sequential change in subscribers from fiscal 1Q to 2Q over the past 2 years, the trends were nearly identical for both periods and for both services. Operator: Our next question comes from Brent Penter from Raymond James. Brent Penter: It's good to see some of the RSN deals ahead of MLB season. I just want to zoom out and get your broader view as that space evolves and some of those businesses face some headwinds. How do you maintain your advantage in local sports as that ecosystem changes? And then with Hulu Live now, any plans to push Hulu Live more into the RSN space? David Gandler: Yes. So obviously, we are working in an ever-evolving landscape. I think we've done a very good job navigating the different changes that the industry is dealing with. As you said, we've done a great job adding -- I think it was 14 local baseball teams in a very short period of time as well as the Dodgers, the Braves and the Mets before opening day, if I'm not mistaken. And that allowed us to really offset our losses from the subs that rolled off due to the NBCU drop. So we feel pretty good about where we are. Of course, we enjoy our position as a leader in local sports. But we'll be focused on football season next -- the World Cup and then football season after that at this juncture. So that's where our focus is, and we'll look to evaluate the situation as things change. But as you know, we've constantly been proactive about some of these decisions that we've made, and they've obviously worked out very well for us. Operator: Our next question comes from David Joyce from Seaport Research Partners. David Joyce: Could you just provide a little bit more color on what you said about the Olympics earlier and Super Bowl and NBCUniversal. What's your retention experience been like versus prior years? And then secondly, it seems like you're mostly integrated with Disney ad sales. Was there any technological work remaining on that front? David Gandler: Why don't I start with the first part of the question and let John touch on the technological side of the ads. Look, from a retention perspective, I think we've done very well. As I said, we've navigated the issues with the NBC loss in a particularly dominant month for NBCUniversal, which included the Super Bowl, the Olympics and let's not forget the All-Star game. So I think from January through March, we've experienced better retention across all plans, which is obviously very important, and we've seen growth on that front, which really translates into the, I would say, relatively flat sub base on a year-over-year basis, which I think is very impressive. In April, what we've already experienced is retention levels that are on par with 2024. Again, that's offset by local baseball. And the only year, I think where we may have experienced better retention was during the pandemic in 2021. Reactivations were also very strong, which really highlights the fact that people really enjoy the Fubo product during the baseball season. So again, we're very focused on continuing to drive growth across all of our plans and to ensure that we don't rely on any one provider of programming for our service. John Janedis: David, just on the tech front, look, I would just say that there was, as you'd expect, a fair amount of tech work that was done, and that's also largely complete. Operator: Our next question comes from Alicia Reese from Wedbush. Alicia Reese: And then moving back to onetime events or occasional events. I'd like to ask on the World Cup. And I have a couple of questions or a two-parter on that. If you could talk first about what level of subscription uplift is embedded in the guidance from the World Cup? And then also, if you could talk about any -- like how you're participating outside of subscriptions in terms of perhaps shoulder programming around the World Cup that you can advertise against, whether it's on Fubo or Hulu? John Janedis: Reese, this is John. Look, for World Cup, we do think there may be a good incremental opportunity for us, particularly on Fubo Sports, given the lower price point. I would say on previous World Cups, really haven't had a major impact on ad revenue. I'd say this time around, we do have several sponsorships that we haven't had in the past because we're now selling hubs. And so combined with that, given with the friendlier time zone, there could be more of an advertising opportunity this year. On subscribers, look, I'd say that we haven't shared a subscriber outlook specific in terms of our guidance, but I would say that our marketing team expects an uplift in trials. And so it could also be upside based on conversion. Operator: Our next question comes from Patrick Sholl from Barrington Research. Patrick Sholl: With your free cash flow expectations for 2027 or sooner, could you maybe outline some of your capital allocation priorities whether in terms of growth, investments, leverage targets and other areas of investment? John Janedis: Pat, it's John. Look, we're investing in several areas. David alluded to them in the letter. But I would just add again, we're investing in product and tech. I think we're seeing some of the fruits of that in terms of what we're seeing in retention and churn, content in terms of the RSNs, marketing, all in an effort to drive customer delight and customer growth. On the free cash flow front, look, I would say we are tracking in line to slightly better relative to our expectations. Look, on leverage, we don't have a leverage target, but more or less what we've said is that in terms of cash, we expect to have north of $200 million of cash on the balance sheet at the end of the fiscal year. Based on our debt outstanding, we have a very manageable net debt level, if you will. Operator: Our last question today comes from Laura Martin from Needham. Laura Martin: Okay. On AI, can you guys talk about how you're affecting -- AI is affecting cost and also whether it's accelerating revenue? And then on international, could you tell us sort of what's going on in the international subs and how those subs fit into your strategy now that you're a part of Hulu + Live TV? David Gandler: Yes. Thank you. Laura, this is David. I'll take both of those, I think. Let me start with the international question. I think post our business combination with Hulu + Live TV, we're very focused on driving domestic growth given the size of our subscriber base here. So we'll probably put that on the back burner given all the priorities we have, particularly with some of the initiatives that we are implementing in the relatively short term. As it relates to AI, I think you and I are sitting together on May 12 at your conference. I'm looking forward to it. This is a major topic. I think this is one of the most underrated topics within streaming video. On the back end, I would say, from a business perspective, about 35% of all of our code is now completed with AI. About 200 of our employees now use either ChatGPT or Claude to code to really drive more effectiveness and efficiency. Some of our top engineers actually don't code anymore. So there's still a learning curve here. We're still going through that. But I do think that there's opportunities for us to enhance across all of the various functions in the company. From an external-facing perspective, as I mentioned, on the technology front, we're going to start with our AI assistant. I actually think times are changing. Everyone has been so focused on the billing relationship. I think going forward, it's really the conversational layer that's going to really drive value for consumers and for companies. And our job really is to try and to compress the entire journey from discovery to purchase. And that means that there will be some level of graphic UI deconstruction where I think we're going to really start to experiment as we've done historically with 4K and MultiView and other capabilities that we brought to the forefront, which I think the industry has benefited from. So we're looking forward to implementing some of these features in the short term before the fall to start testing and looking forward to talking about these in the future. Operator: We have no further questions. This will conclude today's conference call. Thank you for your participation. You may now disconnect.
Operator: Welcome to Adient's Second Quarter Earnings. [Operator Instructions] I'd like to inform all participants that today's call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Linda Conrad. Thank you. You may begin. Linda Conrad: Thank you, Denise. Good morning, everyone, and thank you for joining us. The press release and presentation slides for the call today have been posted to the Investors section of our website at adient.com. This morning, I'm joined by Jerome Dorlack, Adient's President and Chief Executive Officer; and Mark Oswald, our Executive Vice President and Chief Financial Officer. On today's call, Jerome will provide an update on the business. Mark will then review our second quarter financial results and our outlook for the remainder of our fiscal year. After our prepared remarks, we will open the call to your questions. Before I turn the call over to Jerome and Mark, there are a few items I'd like to cover. First, today's conference call will include forward-looking statements. These statements are based on the environment as we see it today, and therefore, involve risks and uncertainties. I would caution you that our actual results could differ materially from these forward-looking statements made on the call. Please refer to Slide 2 of the presentation for our complete safe harbor statement. In addition to the financial results presented on a GAAP basis, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the appendix of our full earnings release. And with that, it is my pleasure to turn the call over to Jerome. Jerome Dorlack: Thanks, Linda. Good morning, everyone, and thank you for joining us to review our second quarter results. Today, we will focus on the quarter's solid performance and provide an update to our fiscal year 2026 outlook. Overall, Q2 results came in line with our expectations, reflecting typical seasonality in China and some temporary production inefficiencies on a few key programs. Despite that, revenue was up 7% year-over-year, driven largely by FX tailwinds with underlying growth in both the Americas and Asia. Adjusted EBITDA was down modestly year-over-year, reflecting temporary mix, launch costs and customer-driven inefficiencies, partially offset by favorable FX and SG&A. Free cash flow in Q2 reflected the normal seasonality of the second quarter, and we ended the quarter with a cash balance of $831 million and $1.6 billion of liquidity. Given normal cash flow seasonality and the increased geopolitical uncertainty, we paused stock repurchases during the quarter, consistent with our approach last year. Turning to growth. We continue to aggressively pursue new business in all regions. In the Americas, more OEMs are announcing their intention to onshore production in the United States. We are working with our customers to capitalize on these opportunities as their plans materialize. We have also won significant conquest programs in South America and China. And in China, our growth over market remained strong despite the overall production volume challenges in the region. Finally, as we look beyond the quarter to the full year, based on what we know today, we are increasing our guidance modestly for revenue, adjusted EBITDA and free cash flow. Favorable volumes and strong business performance are being muted by $35 million of expected input cost headwinds, which Mark will outline further in his remarks. Turning now to Slide 5. While I just noted that Adient is raising guidance slightly for fiscal year 2026, we acknowledge that the overall macro environment remains volatile. The ongoing geopolitical conflicts, elevated energy and commodity costs, trade policy uncertainty and shifting consumer sentiment continue to influence the industry. While nobody can predict what will happen for the remainder of the fiscal year, what differentiates Adient in this environment is our operating model. We combine strong commercial discipline and pricing mechanisms with exceptional operational execution, flexing labor, controlling costs and launching flawlessly, supported by a strong balance sheet with ample liquidity. That allows us to execute at a high level even amid production volatility and supply chain challenges. Despite these external headwinds, our year-to-date results reinforce our ability to execute. We continue to drive positive business performance despite temporary disruptions and customer-driven inefficiencies. We continue to outpace the market in China as expected. And we maintain margin discipline across regions, while preserving a strong and flexible capital structure. This is how we manage what's within our control and why we continue to deliver on our commitments and maximize long-term shareholder value. Before I get into the regional update, I want to recognize our global team's exceptional performance year-to-date. We have received over 60 awards in the last 2 quarters, comprised of recognition from our customers, industry organizations and independent quality assessors across the globe, a testament to our operational excellence and the trust our customers place in Adient. In addition to these noteworthy accomplishments, Adient continues to be recognized as an employer of choice in the regions we do business, validating our commitment to our people and enabling us to attract and retain top talent worldwide, which strengthens our ability to execute. These recognitions validate that our strategy is working. We are winning with customers, investing in our people and delivering the consistent quality that builds long-term partnerships and shareholder value. Now, let's talk a bit more about the regions on Slide 6. While our business is global, each of our regional businesses is impacted by unique market dynamics, and each is facing its own set of opportunities and challenges. In the Americas, we are navigating a complex and dynamic environment, driven in part by tariff policies, which are manageable at current rates but continue to be fluid. Onshoring and growth remain a key focal point for the Americas team, especially as onshoring momentum continues. In addition, the teams are driving margin improvements through our continuous improvement programs, automation and optimizing our manufacturing footprint. The team is also focused on launch execution for multiple programs, including the Kia Telluride, Rivian R2 and the Toyota RAV4. In EMEA, market uncertainty and overcapacity persist and continue to impact not just Adient, but the overall industry. Our team continues to rise to these challenges. We are pursuing and winning new and replacement business and continue to strengthen our supplier-of-choice status in the region. Operationally, the European team is driving favorable business performance through commercial execution, cost discipline and restructuring actions that more than offset the current volume headwinds, all while successfully executing more than 30 launches so far this year. Turning to Asia. The market dynamics with shorter vehicle development cycles and innovation are a key differentiator. As we will highlight in a few slides, our Asia team continues to commercialize innovation products, which our customers are excited to invest in. Despite industry pressures in China, we continue to outperform the market through launches with local OEMs, which now represent about 70% of our wins. Our world-class JV structure further strengthens our local presence and expands our market. Beyond China, Asia outside of China is also positioned for above-market growth in the second half of this year as new launches ramp. While we do expect some manageable margin compression, the region is expected to remain accretive to Adient's EBITDA and cash generation. While each region is distinct, what ultimately defines Adient is that we operate as one unified company. Across every region, our teams are aligned around the common purpose, serving our customers, supporting our employees and delivering value for our shareholders. We do that through disciplined execution, seamless collaboration across borders, a strong culture of integrity and the ability to adapt quickly as conditions change. Turning to Slide 7. This page highlights how our growth strategy has continued to gain momentum. In the Americas, onshoring and conquest wins continue to drive meaningful volume gains. This quarter, we secured roughly 200,000 incremental units from the Chevrolet Equinox U.S. onshoring and conquest win, along with approximately 180,000 units from Volkswagen conquest programs in South America. These wins reflect the strength of our footprint and our ability to execute reliably as customers regionalize production. That momentum is showing up in our forward book as well. FY '27 booked business has increased to about $400 million and FY '28 to roughly $630 million, representing close to 700,000 incremental vehicles and market share gain. Importantly, that figure reflects what we booked to date. Onshoring trends continue, and we remain in active discussion with global OEMs on additional opportunities that extend beyond what's captured here. We continue to see ourselves as a net beneficiary of customer onshoring. In Asia, our team has done an exceptional job of competing and winning in a highly dynamic market. As I mentioned in the last slide, approximately 70% of our new business wins in China are with local OEMs, reflecting strong customer relationships, faster development cycles and Adient's ability to localize engineering and execute at scale. That execution is translating into above-market growth with China up 10% in Q2 versus a declining industry. Taken together, this reinforces the momentum we're building across regions as onshoring, conquest and localized execution continues to expand our growth runway. Moving to the next slide. After the quarter-end, we announced the completion of a tuck-in acquisition that expands our foam manufacturing footprint in the Americas. We acquired a foam production plant in Romulus, Michigan, which supports multiple OEM seating programs, expanding our Americas foam network to 10 plants and 30 plants globally. This is a strategic core business move that strengthens our vertical integration capabilities and helps improve supply assurance and responsiveness for our customers. Our focus is on a smooth integration with uninterrupted service, and we see opportunities over time from logistics advantages, operational flexibility and productivity improvements. This targeted acquisition strengthens Adient's operational model by further improving control over critical inputs, lowering execution risk and supporting more resilient margins. We are thrilled to welcome the Romulus employees to Adient and are excited about the capabilities and commitment they bring to our organization. Moving on to Slide 9. I want to spend a moment and talk about our recent launches and the new business wins because these are important proof points on how Adient is growing. These wins aren't about volume alone. They reflect higher content, more complex seating systems and deeper integration with our customers across the regions. In the Americas, Adient continues to be a net beneficiary of customer onshoring trends. We are happy to announce the recent conquest win with the Chevrolet Equinox, highlighting once again our world-class footprint, consistent operational execution and strong customer partnerships reinforce our supplier-of-choice status. We also recently won conquest business on several Volkswagen platforms in South America. This is strategically important growth for Adient as it deepens our footprint with a major global OEM, strengthens our regional manufacturing relevance and positions us for sustained revenue growth and incremental opportunities in the market over the coming years. In EMEA, program wins such as the new Porsche SUV and recent launch of the Citroen C4 demonstrate continued momentum with leading global OEMs. Importantly, these wins reflect disciplined, selective growth, where we are prioritizing programs that align with our operational strengths, higher value content and improved earning resilience in the region. In Asia, growth is being driven by domestic OEMs and EV platforms, including Xpeng, Leapmotor and Changan, where we are delivering advanced comfort features, high adjustability and multivariant seating architectures, often with Adient-led engineering development in region. Importantly, many of these awards involve premium comfort content, higher complexity and greater value per vehicle. When you look at this slide, I think it's important to step back and look at the balance of our growth portfolio. On one hand, programs like the Chevrolet Equinox represent disciplined growth on high-volume onshore ICE platforms, where Adient is winning complete seat content, taking share through conquest and leveraging our market-leading North American footprint, delivering strong execution and solid cash generation. At the same time, launches like the Rivian R2 and Leapmotor D19 position us on next-generation EV platforms, where higher complexity, tighter integration and engineering-led execution support higher content per vehicle and stronger higher-quality earnings over time. Together, these programs demonstrate that we're not making an either/or choice between legacy and next-gen. We're deliberately building a portfolio that balances scale and cash flow today with complexity-driven higher-quality earnings tomorrow. That balance is exactly what underpins the sustainability of our results and our confidence in the long-term outlook. Overall, this slide reinforces why Adient continues to be the supplier of choice, winning across regions, technologies and vehicle segments, while executing complex launches at scale. Turning to Slide 10. I want to highlight 2 recent innovation milestones that underscore how Adient continues to turn technology leadership and realize commercial execution. Most recently, we achieved an industry-first launch of our StepJoy foot massage system on the NIO ES9. This is a key example of how we're expanding seating comfort beyond traditional lumbar and back applications, while maintaining compact packaging, cost efficiency and automotive-grade reliability. Importantly, this is not a concept. It is in production today, validating our ability to industrialize differentiated comfort solutions at scale. In parallel, we're advancing our mechanical massage portfolio with ProForce Massage Flow, which builds on our already validated ProForce platform. ProForce Massage significantly expands massage coverage and gives customers the ability to offer premium seating experience, providing differentiation over traditional highly commoditized massage offerings offered by our competitors. The modular design and production validation allows this technology to be deployed across multiple seat architectures and vehicle segments within an OEM, enhancing scalability, and is already scheduled for production on 2 C-OEM models. The ProForce system is differentiated from what our competitors offer. Together, these launches demonstrate how we're leveraging innovation to drive higher content per vehicle, deepen OEM relationships and support higher-quality earnings over time. This is how innovation plays into Adient's operating model, disciplined, scalable, differentiated and commercially focused to help our customers enhance their overall in-vehicle experience. Before turning this over to Mark, I want to pause here on Slide 11 because this slide really connects the dots between our operating model and what it delivered this quarter. We speak a good deal about operational excellence, profitable growth, innovation and being a supplier of choice, but these are not abstract concepts. They are the foundation that allows us to execute consistently, especially in an environment like this one. In the second quarter, that execution showed up in very tangible ways. We delivered multiple complex launches as planned, continued to convert supplier-of-choice recognition into conquest and onshoring wins, and advanced innovation programs that are already in production and generating value for our customers. We also strengthened our footprint and reduced execution risk through a targeted tuck-in acquisition. Our teams have received more than 60 customer and industry awards across the region over the past 2 quarters, reflecting Adient's day-to-day execution and quality, launch performance, responsiveness and employee satisfaction. This recognition is translating directly into outcomes, key talent retention, deeper customer trust, conquest and onshoring wins, and the ability to launch more complex, higher-content programs consistently. That external validation reinforces why our operating model continues to scale in a challenging environment. These proof points are the direct result of how we run the business every day, and they're what gives us the confidence in our ability to convert performance into cash flow generation and sustainable value creation going forward. Now, I'd like to turn it over to Mark to walk you through the financials. Mark Oswald: Thanks, Jerome. Let's turn to financials on Slide 13. Adhering to our typical format, the page shows our reported results on the left side and our adjusted results on the right side. As a reminder, the prior period included a onetime noncash goodwill impairment charge of $333 million related to the EMEA goodwill impairment, which impacted our GAAP reported results in Q2 of fiscal year '25 and affects the year-over-year comparability. My comments will focus on the adjusted results, which exclude special items that we view as either onetime in nature or otherwise not reflective of the underlying performance of the business. Full details of these adjustments are included in the appendix of the presentation for reference. Moving to the right side, high level for the quarter. Sales for the quarter were $3.9 billion, up 7% year-over-year, reflecting favorable FX, solid volumes and strong underlying business performance. Adjusted EBITDA was $223 million. While this was down year-over-year, the comparison reflects the impact of near-term customer-driven production inefficiencies and increased launch expense as we continue to invest in future growth. Equity income was lower year-on-year as a result of lower volumes with certain of our customers in China. Adjusted net income was $41 million or $0.52 per share. Let's dig a bit deeper into the quarter, beginning with revenue on Slide 14. I'll go through the next few slides relatively quickly as details for the results are included on the slides, allowing sufficient time for Q&A. We reported consolidated sales of $3.9 billion in the quarter, which was an increase of $254 million compared to the same period last year, primarily reflecting better FX tailwinds, along with favorable volume and pricing. On the right side of the page, we are presenting regional performance on a trailing 12-month basis. This view helps normalize seasonality and timing effects inherent to our operating model and provides a clear picture of the underlying trends. In the Americas, we are seeing growth of 5%, outperforming a flat market, primarily driven by Adient's customer profile, pricing and new vehicle launches. In EMEA, sales have trailed the market, reflecting customer volume and mix and deliberate portfolio actions such as the recent closure of our Saarlouis Ford plant. For China, while the trailing 12-month view is influenced by earlier-period softness, recent performance has notably been stronger. This quarter, sales in China grew at double digits, while the overall market declined, building on first quarter's significant outperformance. We expect this trend to continue over the next several quarters based on our book of business and launch schedule. Unconsolidated revenue declined year-over-year, reflecting planned program exits in Europe and lower volumes in China. Turning to Q2 EBITDA performance. Adjusted EBITDA of $223 million included approximately $8 million of temporary customer-driven production inefficiencies, which we expect to recover in future periods, and $11 million of launch expense, which supports future growth in our expanding program portfolio. Excluding these items, Adient's underlying business performance remains solid, reflecting the strength of our operating model and the continued focus our teams have on operational excellence and delivering on our full year commitments. As shown on the chart, volume and mix was an approximate $18 million headwind, mainly driven by the shift to China OEMs versus foreign manufacturers in China, which, as mentioned previously, will result in margin compression that we view as manageable, plus a variety of higher volumes on lower-margin platforms in North America in Q2. As in prior quarters, we've provided detailed segment-level performance slides in the appendix of the presentation for your review, but I'll briefly summarize each region at a high level. In the Americas, we had a solid underlying business performance, reflecting strong execution and program momentum. Results for the quarter were partially impacted by mix, temporary production inefficiencies and launch costs to support the region's future growth. In EMEA, the team continued to focus on driving positive business performance despite a challenging macro environment. And along with FX tailwinds, this helped mitigate the ongoing mix headwinds in the region. In Asia, results were impacted by equity income, the timing of commercial negotiations and planned increases in launch as the region invests in new programs and growth. Equity income was unfavorable year-on-year, primarily reflecting lower volumes in our China joint ventures. Moving on, let me flip to our cash, liquidity and capital structure on Slides 16 and 17. Starting with cash on Slide 16. For the quarter, the company generated $8 million of free cash flow, defined as operating cash flow less CapEx. In addition to the typical seasonality of our business, second quarter cash flow benefited from approximately $90 million of timing-related items, specifically related to a commercial agreement and a hedging transaction. Both items will reverse and become outflows in the third quarter. On a year-to-date basis, free cash flow totaled $23 million and included the benefit of the same $90 million timing effect just mentioned. Excluding this impact, year-on-year cash flow performance reflects favorable working capital fluctuations, driven by typical period-to-period swings, lower cash restructuring outflows in Europe, timing of dividend payments, and an increase in cash spending, supporting Adient's growth initiatives and automation spend. Important to point out, last quarter, we highlighted a nonrecurring tax settlement in a certain jurisdiction that increased our tax -- cash tax forecast for fiscal year '26. That settlement was paid out in our second quarter. Despite the expected $90 million outflow in the third quarter, we continue to expect strong free cash flow in the second half of the year, consistent with our historical seasonality, and remain confident in delivering on our free cash flow commitment. Turning to our balance sheet on Slide 17. Adient continues to maintain a strong and flexible capital structure. As of March 31, we had a total liquidity of approximately $1.8 billion, consisting of $831 million of cash on hand and $957 million of undrawn revolver capacity. Again, worth mentioning, the $90 million, which benefited second quarter free cash flow, was also included in the March 31 cash balance. I would also point out, Adient did draw on our ABL during the quarter due to typical seasonality and normal working capital fluctuations for our business. The ABL was fully repaid within the quarter. On a trailing 12-month basis, our net leverage was 1.8x, which remains comfortably within our targeted range of 1.5x to 2x, reflecting both disciplined capital management and the underlying earnings power of the business. Importantly, we have no near-term debt maturities, providing us with significant financial flexibility as we navigate a dynamic operating and macro environment. Overall, the capital structure remains strong and flexible. Turning now to our expectations as we move from the first half into the second half of fiscal year 2026. The first half of fiscal 2026 delivered solid business performance that was in line with our internal expectations despite a challenging operating environment. We remain focused on what was within our control, maintained discipline in execution and cost management, and exited the first half with a solid cash position and a healthy balance sheet. As we look to the second half of fiscal year '26, we currently anticipate approximately $35 million of input cost headwinds. Approximately $25 million is related to Middle East conflict through higher chemical and freight costs, and additional $10 million is driven by higher costs as a result of the LyondellBasell chemical supply disruption. This $35 million of higher input costs is expected to be more than offset with the benefits from volume and the acceleration of business performance. The team remains focused on driving business performance and generating cash. Turning to our updated outlook for fiscal 2026. Based on our performance year-to-date, improved customer production schedules, we are modestly increasing full year guidance for revenue, adjusted EBITDA and free cash flow. We now expect consolidated revenue of approximately $14.8 billion, up from our prior outlook of approximately $14.6 billion, reflecting solid first half performance, updated near-term customer production schedules and the latest S&P Global production assumptions. Adjusted EBITDA is expected to be approximately $885 million, up from our prior guidance of $880 million, reflecting the impact of higher revenues and increased business performance, which are helping to offset the $35 million of anticipated higher input costs. As a result of these updates, we now expect free cash flow of approximately $130 million, up from $125 million previously. This improvement reflects the pull-through of incremental adjusted EBITDA and continued focus on working capital discipline and cash generation. Cash taxes are still expected of approximately $125 million, no change from prior guidance. CapEx also remains unchanged at approximately $300 million. We have included a simple adjusted EBITDA bridge within the materials on Slide 20 that illustrates the components of our revised guidance. Before wrapping up, I want to spend a moment on Slide 21 because this page speaks to the durability and trajectory of our cash generation. As we've discussed, the $130 million of free cash flow expected this year reflects several elevated and transitional cash uses that are not structural to the business. As these items normalize, we expect materially stronger EBITDA to free cash flow conversion. Capital expenditures are expected to remain at about $300 million, supporting growth, innovation, operational excellence, while remaining aligned with our long-term capital allocation framework. Restructuring cash flows are expected to normalize as European actions progress. Similarly, interest expense is expected to ease with opportunistic repricings and voluntary debt paydown. And finally, cash taxes are expected to revert to a more normalized level following this year's nonrecurring settlement payment. Taken together, these actions clearly outline the path to a structurally higher free cash flow profile. Longer term, as business performance and volume continue to scale and calls for cash remain relatively stable, we believe Adient is well positioned to generate materially stronger free cash flow, supporting disciplined and balanced capital allocation, driving enhanced shareholder value. With that, let's move to the question-and-answer portion of the call. Operator, can we have our first question, please? Operator: [Operator Instructions] Our first question does come from Colin Langan with Wells Fargo. Colin Langan: Any color on why the revenue increase? I mean, we've seen S&P actually lowered numbers, at least on the calendar year. Anything in particular that's driving that? Is that just a geographic mix, certain platform mix? Mark Oswald: Yes. Colin, I'd say it's a combination of, one, you have to adjust that we're on the September 30 fiscal year, right? Obviously, we're 2 quarters through. Third quarter, we have pretty good visibility now based on production call-offs, right? And then, it's -- as you indicated, it's based on geographic mix, it's customer platforms that we're exposed to, et cetera. Colin Langan: Okay. And any color on the onshore bidding? I mean, you seem to have won a pretty large chunk of that so far. Has this been sort of a short-term action wave and then more actions will come in a few years? Or is this actually still even early days for some of the onshoring opportunities, and we'll see the larger numbers coming as more stuff gets bid and onshored? Jerome Dorlack: Yes. I think we're -- in terms of the discussions with the customers, I think they're still very active, still very dynamic. At the point where we're at now, I think a lot of them are waiting to see how the USMCA negotiations and discussions go. Once there is clarity on how that shapes up and what the rules in terms of content, how long that agreement will be, whether it will be an annual evergreen or another 7-year bilateral or trilateral, whatever that shapes up to be, I think that will then free up the next wave of onshoring discussions. I think what's important though and how you think about Adient and how we're positioned, and we've presented figures on this in the past, among seating suppliers, we have the best footprint to be able to capitalize on this. We have more JIT facilities than anyone -- than any other seating supplier in the U.S. From a geographic standpoint, we're best positioned to be able to capitalize on this. We have the capacity to be able to do it. And then, because of our leading modularity, ModuTec, and capabilities, and now with the foaming acquisition, we have the capital ready to be able to deploy the footprint to be able to deploy it and the customer relationships to be able to capitalize on this. And I think we still feel pretty strongly we'll be a net beneficiary of onshoring. Operator: Our next question comes from Nathan Jones with Stifel. Andres Loret de Mola: This is Andres Loret de Mola on for Nathan Jones. Just on margins, the decline of 70 bps, can you maybe give a little bit more color on the temporary customer-driven costs? And are they recoverable later on? Mark Oswald: Yes. So good question. So yes, if you look at that 70 bps, I'd say 60 bps is really related to mix. And as I indicated in my prepared remarks, a lot of that mix was -- obviously, we were very transparent that as we continue to shift and pivot to the Chinese local manufacturers there, there's going to be margin compression. That's the majority of that. There was also some, I'd say, higher-volume, lower-margin business in the Americas that we saw for the quarter. We do view the mix shift over in China to be very manageable. We've indicated that's going to be falling up somewhere around 100 basis points when we get through the year. So 1 quarter does not make a trend. We have a pretty good line of sight in terms of what launches are coming on, where production is heading over there. Same thing with the Americas just in terms of where we see the volumes heading over there in the next couple of quarters. Andres Loret de Mola: Got it. That's helpful. And then, just on the split domestic versus foreign OEMs in China, I mean, can you guys -- I know you said 70% launches with local OEMs. Can you provide a kind of breakdown of what that mix is now and sort of what you expect for 2026? Mark Oswald: Yes. So last year, we ended 2025, we were somewhere just north of 60-40 mix over there. And so, as we continue to win -- and we indicated last year, our 2025 wins was also skewed about 70% local Chinese to 30% foreign. So, as we continue to launch this year, that's going to be trending from, call it, that low-60% to that 70% mark over the course of the next 12 months or so. Jerome Dorlack: Yes. And I think as we indicated in the prepared remarks today, our bookings this year are mirroring that same bookings rate, so 70% domestic, 30% [ transplant ] for the win rate. So if you look at our forward roll-on, we would expect our roll-on to continue to drive mirroring that 70% domestic, 30% [ transplant ], so continuing a very aggressive roll-on business and rotation into the domestic OEM. And it really is leveraged by our world-class joint venture footprint that we have there, working with our joint venture partners and really the way we operate our business in China for China with local Chinese leadership, local Chinese management and leveraging our technology. And that's why we talked a lot today about technology, bringing technology to scale there, and it's not commoditized technology. It is leading-edge technology there that allows our customers to be able to price for value, price for the customer in that region through the products we deliver there. Operator: The next question comes from Joe Spak with UBS. Joseph Spak: Mark, I want to go back to your comments on normalized free cash flow. And I want to sort of bridge that a little bit to sort of next year as well. And I realize like you're not going to guide '27 now and a lot can happen between now and then. But you are talking about $400 million on the backlog. So even if we assume 10% incremental margin, that's like $40 million in EBITDA. The recoveries from the Middle East is another $25 million. The supply disruption is another $10 million. You have business performance. There's the $100 million in free cash flow timing items you mentioned in '26. So I guess what I'm getting at is, it seems like based on what we know now, and I know things can change, it seems like free cash flow could be up over $200 million next year. I'm just wondering if we're thinking about that correctly, if there's any other offsets we should be thinking about? And if we do see that, I know you said you paused the buyback activity for uncertainty, but why wouldn't you sort of try to maybe get ahead of what seems like a pretty good inflection of cash flow and buy back the stock when it's at relatively attractive valuations? Mark Oswald: Yes. Great questions, Joe. I think you're thinking about the buckets the right way. Clearly, there's going to be revenue growth that we've been very transparent in mentioning. So obviously, that will convert. If I look at my calls from cash, as I indicated, those will be relatively stable to improving, right, as my cash taxes trends back to its normalized level. Restructuring -- now, again, restructuring over time will trend back to its normal level in Europe. We obviously still have to look to see the European landscape over there. I don't think anybody is expecting that to get much better over there, right? So we have to see what our customers do with their programs, what that means for our restructuring. But all in all, that will trend back down to its normalized level. Interest expense, as I indicated, we're opportunistic with repricing like we've been doing with the Term Loan B as we basically do some voluntary debt paydown because we do recognize that the disciplined capital allocation policy includes not only share buybacks, but also debt paydown, right, inorganic growth opportunities as we demonstrated this past quarter with the Woodbridge business. Yes, I think you're right. I think the cash definitely trends higher. So I think you're thinking about that in the right way, Joe. In terms of why not get in front of it earlier and we hit the pause button this year on the share repurchases, as I indicated, we got into Q2 -- because of normal seasonality and working capital needs, we actually did draw on the ABL, right? So we drew $150 million that will be called out in our Q this afternoon when we release that. When we paid that back, clearly, the war in the Middle East, it started, it escalated. We started to see chemical prices increase. We had the supplier [indiscernible] right. So there was greater uncertainty. So it was prudent for us to do that as we went through Q2. As we go through the balance of the year and we go into next year, there's really been no change in our capital allocation policy. We still expect to be good stewards of capital. We'll still be balanced with our allocation policy right. So, no change from that perspective. Joseph Spak: I guess, the second question, just I want to go back to China. Again, on the one hand, you're talking about 70% of the wins in China is domestic. That's coinciding with margin degradation in the region, which I know you said you can expect, and I think the slides had a comment about how it's manageable. But can you just help us like level set like -- because it's sort of tied up within the -- what you show for APAC. I know some of the China business is unconsolidated. Like, where are we now? What level does that backlog really come on at from a margin perspective? And like where can we see margins going? I think you've been very clear, and we can appreciate that, that's going to be a margin headwind. But what's sort of the steady-state level for that business? Mark Oswald: I think as we go through the balance of this year, as I indicated, do I still expect us to be down about 100 bps in 2026? Absolutely. As we continue to win new business over in that region, the team has been working very hard just in terms of, again, using automation over there, right? They're basically being sourced, the whole seating, whether it's trim, foam, JIT, right, metals, right, which continues to help out the overall earnings profile of that business over there, right? So the team is working hard to continue to maintain it at 100 basis point degradation. We view that as manageable. As we get into 2027 and start to finalize 2027, and we'll be back out with that. But again, I think that 100 basis points is probably good for your modeling at this point. Operator: The next question comes from Mike Ward with Citigroup. Michael Ward: Mark, maybe just to follow up a little bit on what Joe was asking. On the excess cost, the $25 million, $35 million, does that -- if you're able to recover it by the end of this year, does that provide some upside to your current forecast? Mark Oswald: Yes. So again, Mike, if you think about chemicals in particular, right, we have pass-through agreements and escalators with our customers, right? Those typically come on at a 2-quarter lag, right? So third quarter, I'm not expecting any recoveries. Am I going to start getting some of those recoveries in the fourth quarter? Absolutely. Will some of that bleed into '27? Yes. Some of the, what I'd say, customer production inefficiencies, right, we called that out. Is the Americas team going to go back and work with our customers to try and recoup some of that in the back half of this year? Yes, there will be tough commercial negotiations. So could there be some upside, Mike? Possibly. But again, tell me when the war in the Middle East is going to end, tell me what oil prices are going to do, tell me how fast LyondellBasell can get their facility up and operating, right? So those -- we're trying to balance what I'd say is the risk for the balance of the year versus, as you indicate, some opportunities for the balance of the year. That's why we came out with the $885 million guide. That's our best 50-50 look right now in terms of where we think the year is going to end. Michael Ward: Makes sense. And maybe, Jerome, on more of a strategic standpoint, I mean, the trim acquisition, in North America, what type of level of vertical integration do you have for a typical seat? Jerome Dorlack: Yes. So the Woodbridge plant is a foaming plant for us. If you look at our business in North America, I mean, on an average contract, given our customer mix and our customer platform mix, especially when we talk about the large truck platform that we acquired, it would have been 2 quarters ago when we went from just having the JIT and foam, we acquired JIT, trim and foam on that, we will be well over 80%, probably 85% vertically integrated on our business in North America. It is a very, very healthy level now in our North America business. And when I say vertically integrated, I speak about JIT, trim and foam. We've talked a lot about the metals business and trying to look at the metals business and wind out some of our non-healthy metals business. So we've been, I think, very transparent on that. But on the JIT, trim and foam level, it's a very healthy level of vertical integration now in the Americas business. And it's one of the reasons why you've seen the Americas business really have a, I think, nice progression on the margin expansion and the cash flow progression as well. Operator: Up next is Emmanuel Rosner with Wolfe Research. Emmanuel Rosner: I was hoping to first follow up a little bit on the commodities outlook. I know obviously, a lot of moving parts between the disruption and the conflict. But at least in terms of the disruption piece, do you have good visibility in terms of the supply? Is it really just a question of higher pricing and basically recoveries coming with a lag? Or is there also -- I guess, what sort of visibility do you have in terms of essentially ensuring supply? And then, what does that look like into 2027? Jerome Dorlack: Yes, I think you have to -- I think, Emmanuel, you have to break it down into 2 pieces. I think you have to break down the LyondellBasell issue and then maybe break down the Middle East/Strait of Hormuz issue. So on LyondellBasell, I think our team in the Americas, with our customer group, has done a very good job of working through alternative means of supply and securing alternate supply chains. So I think we have good line of sight, alternative chemicals supplied, validation underway with our customers. I think we've been able to tie that off. On the Strait of Hormuz, at the moment, I think we have line of visibility as much as anyone in the industry can have when it comes to supply. I'll go back to Mark's comments. I don't think we can sit here today and be any better forecasters or prognosticators that would say, if it remains the way it is, I can't tell you what's going to happen in 3 months, 5 months, 6 months or anything along those lines. I don't know that I can give you a better answer than anyone else can on that topic, Emmanuel, nor should we really be doing that. So again, on LyondellBasell, I think we've done a very good job working with our teams. I think we're supplied. We have supply secured. On Strait of Hormuz, I don't think we're in any better condition or any worse of a condition than anyone else in the industry on that topic. Emmanuel Rosner: That's helpful. And then, one follow-up on the normalized free cash flow. So obviously, a decent piece of it would be normalization of restructuring spending. It doesn't seem like 2027 would necessarily be the year, first, with potential restructuring needs in Europe. I guess, what would need to happen to be able to sort of like lower this restructuring need? It just feels like in Europe, there's maybe some structural industry trends that would require ongoing restructuring for longer. Jerome Dorlack: I think it's too early to say, Emmanuel, whether 2027 is normalized or not normalized, whether there's a tail-off or not a tail-off. I think we're very much in active discussions with a couple of key customers around the key -- a couple of key JIT manufacturing sites right now and what the future of those sites will be. So it's just -- it's too early to say what '27 and even '28 look like at this point. In terms of what needs to happen in Europe, I think there needs to be stabilization within the European theater on industry volumes and capacity rationalization across not only the JIT landscape and the seating landscape, but also our customers' manufacturing landscape. And I think there's still announcements coming out at our customers, where they're trying to repurpose their manufacturing facilities. You've seen announcements around that. And with that, that opens up opportunities for us to be able to service them in different ways than maybe we would traditionally do. And it's some of those discussions that we're in with them. So I think it's too early to say what our '27 restructuring looks like, whether it tapers off or it doesn't, and the same would go for '28. Operator: The next question comes from Dan Levy with Barclays. Dan Levy: Your second half guidance, you're basically saying that you're offsetting the weaker half-over-half revenue and the onset of some of these commodity costs with better business performance, which you've done a really good job putting up. Maybe you could just remind us sort of like what's hitting now? And then, you've broadly talked about a number of different work streams in terms of restructuring, balance-in, balance-out, labor efficiency. Maybe just give us a sense where you are on your journey on business because it's been so good for so long. And what else is sort of the next front here on continuing to drive those benefits as opposed to sort of clearing out already the low-hanging fruit? Mark Oswald: Yes, Dan, maybe I'll start on what we see first half, second half, and Jerome can comment just in terms of certain of the automation, which is going to contribute to the efficiencies and business performance. But you're absolutely right. When I look at first half, second half, sales are going to be down slightly where we called out $35 million of higher input costs. But I've also got the benefit of lower launch costs in the second half of the year. I've got better business performance. As we indicated, business performance starts to accelerate, whether that's through the lower launch costs, my ops waste, my C&I efficiencies that the plant builds as I go through the second half of the year, right? Some of the, what I'd say, frictional costs that [ hit ] in Q2 with the customers, we'd expect that to subside as we go through Q3, Q4. So it's really the acceleration of business performance that really gives me comfort in terms of confidence in what I think I can do in second half versus first half despite the lower levels of [ buying ]. Jerome Dorlack: Yes. And then, to your -- second part of your question, what is the -- I'll use my words, the next frontier of driving business performance? We've talked a lot about automation starting to flow in. And even this year, if you look at the capital expenditures that we're putting into the business, that step-up year-over-year in automation, that will start to pay dividends as we get into '27 and '28. And we're really leading the industry in terms of some of the automation we're doing in our foaming business, some of the automation we're putting into our metals business, our trim business, and then, on the JIT side of it, what we've been able to do with our modularity. The feedback we get from our customers is your modularity offerings are leading edge. It's one of the reasons we've been able to conquest and expand our backlog in the JIT side is through our modularity offerings. With that, we're not only able to offer more competitive pricing to our customers, but it also leads to some of this margin expansion story, better roll-on, roll-off into the business. And so, when you look at the restructuring coming in, in Europe starting to pay dividends, but then also modularity, better roll-on, roll-off and then the automation piece of it, that's really where we see this then starting to fuel some of the additional margin expansion that we'll see in the Americas and in our European business going forward and that sustainability piece. And then, just coming back to some of the questions that we had earlier in the call around Asia and China in particular. I think it is worth continuing to highlight that even though there will be margin compression on the Asia side -- or the Asia Pacific business, as revenues grow there, even with that margin compression, it will still be cash-accretive, margin-accretive and still expanding cash flows for Adient overall. I think it's always important to keep that in mind. Dan Levy: Great. As a follow-up, I wanted to just -- I asked a similar question on the last earnings call, but I think it just gets to a broader theme on where we are on market share dynamics in the seating market and more specifically within North America because one of your competitors has talked about sort of a growing pipeline and traction on awards. So can you just give us a sense, broad strokes, what we are seeing on market share dynamics? Is there sort of a consolidation within yourselves and another one of your competitors away from the rest of the field? Jerome Dorlack: Yes. I think that that's a fair way to characterize it. I think if we look at where the wins are occurring, where some of the market share is coming from and how that pie is shaping up, I think based on the competitive offering that we're able to bring forward, our modularity solutions, the technology that we're able to put in place, I think the pie continues to shrink into those who are able to bring the most competitive offerings forward, who have the balance sheet to be able to do it, who are able to deploy the capital and who are the suppliers of choice into their customers. And I think Adient is certainly one of those, if not the preeminent one in the space. And I think with that, we're at the bottom of the -- or I guess, the midpoint of the hour. I just want to close the call by first thanking all of the 70,000 Adient employees around the world for your commitment to making the company what it is, and then thank all of our customers for your continued support to the business and to the company, and then thank all of our owners and shareholders for your ongoing support. Thank you very much, everybody. Mark Oswald: Thank you. Linda Conrad: Thank you. And in closing, I want to thank you once again for your interest in Adient. If you have any follow-up questions, please feel free to reach out to me. With that, operator, we can close the call. Operator: Thank you. That does conclude today's conference. We thank you for your participation. Have a wonderful day. And at this time, you may disconnect your lines.
Operator: Good morning, ladies and gentlemen, and welcome to the Flotek Industries, Inc. first quarter 2026 earnings conference call. At this time, all lines are in listen-only mode. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded on Wednesday, May 6, 2026. I would now like to turn the conference over to Mike Critelli. Please go ahead. Mike Critelli: Thank you, and good morning. We are thrilled to have you with us for Flotek Industries, Inc.’s first quarter 2026 earnings conference call. Today, I am joined by Ryan Ezell, chief executive officer, and Bond Clement, chief financial officer. We will begin with prepared remarks on our operations and financial performance followed by Q&A. Yesterday, we released our first quarter 2026 results, full-year 2026 guidance, and an updated investor presentation, all available on our investor relations website. This call is being webcast with a replay available shortly afterward. Please note that today’s comments may include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from our projections. For a full discussion of risk factors, please review our earnings release and most recent SEC filings. Please also refer to the reconciliations in our earnings release and investor presentation for non-GAAP measures. With that, I will turn the call over to our CEO, Ryan Ezell. Ryan Ezell: Thank you, Mike, and good morning to everyone. We appreciate your interest in Flotek Industries, Inc. and your participation today as we review our first quarter 2026 operational and financial results. In 2026, Flotek further positioned its industrialized pivot and transformational growth storyline through the continued execution of its corporate strategy. Driven by the power convergence of innovative real-time data and chemistry solutions, as shown on slide 3, Flotek has laid the foundation for a data-driven growth trajectory built on diverse recurring revenue, high-margin services, and proprietary technologies that create value for our customers and improve returns for our shareholders. The strategic transition of the company into a data-as-a-service business model continues to gain momentum while expanding the total addressable market for the company. As a result, Flotek’s data analytics segment grew exponentially while our differentiated chemistry segment outpaced the market in a challenging environment through an unwavering commitment to safety, service quality, innovation, and total value creation. Now, before I discuss the company’s vantage point on the evolving geopolitical and macroeconomic dynamics within the sector, I would like to touch on some key highlights for the first quarter referenced on slide 4 that Bond will discuss later in the call. Company total revenue grew 27% compared to 2025, highlighted by 295% growth in data analytics, which was the highest quarterly revenue for data analytics in the company’s history. Industry technologies revenue increased 13% despite three-year lows in completions activity in North America, which was also the highest quarterly revenue in over seven years. Company gross profit climbed 25% versus 2025. It is impactful to note that data analytics accounted for 50% of the company’s gross profit versus 8% in the prior-year quarter, marking a major milestone in Flotek’s transformation. Total company adjusted EBITDA grew 44% year over year. Flotek’s XSpec Analyzer was named Product of the Year at the 2026 Analyzer Technology Conference. Finally, 2026 guidance builds upon a multiyear trend of revenue and profitability growth as the company executes on its strategic initiatives to provide long-term resiliency and profitability as shown on slide 5. Most importantly, these results were achieved with zero lost-time incidents in the field operations. I want to thank all of our employees for their hard work and commitment to safety and service quality in achieving these outstanding results. Now turning to the larger picture for the energy and infrastructure sector, we share the viewpoint that the ongoing situation in Iran will have impactful and potentially long-term implications on global supply and energy security that will demand action. The structural disruption in the Middle East has catalyzed a fundamental shift in supply-side dynamics, establishing a higher baseline for energy security and recalibrating the risk profile for regional supply. As cumulative production deficits and reductions in strategic reserves are trending towards 1 billion barrels, we expect increased investment in localized oil and gas developments, while geographies that do not possess resources look to rapidly diversify energy security exposure. All of these factors point towards a fundamentally tighter energy market than what existed just 60 days ago and support a stronger commodity pricing environment for increased upstream activities. Layering in the expanding power demand driven by AI, data centers, and industrial reshoring, combined with the reliability issues of an aging transmission infrastructure, the expectations for tailwinds within the energy sector further strengthen. North America is already showing early indicators of recovery. Completions activity white space has all but disappeared for 2026, with spot work interest increasing throughout the remainder of the year. Our legacy pressure pumping customers continue to capitalize on the portfolio diversification opportunity provided by the demand for remote power generation. Flotek is poised to support emerging customers with products and services that help protect their assets while optimizing their operational performance and fuel efficiency. With multiyear waiting lists for turbines and reciprocating engines, protecting these capital-intensive investments is critical along with enabling reliability standards that exceed the greater than 99% uptime requirements. Transitioning from the macro view, let us dive into the details starting with slide 9. I want to spotlight the remarkable progress in our data analytics segment. We saw service revenues increase 785% in 2026 versus the first quarter of 2025, driving gross profit margin to 75% versus 38% in the prior-year period. This strong growth is powered by our flagship upstream applications Power Services and Digital Valuation, both of which are generating significant contracted wins and a robust recurring revenue backlog shown on slide 10. Highlighting these wins are: first, 21 Power Services measurement units added since closing our original PowerTech deal. These are in addition to the primary long-term PowerTech contract assets. There is a 27-unit order from a large OFS customer with an expanding distributed power fleet to monitor field gas for power generation and digital evaluation of fuel quality and consumption. A 15-unit order from a major midstream customer for real-time crude and condensate quality measurement. And also a deployment of a smart skid rental to a major IOC to optimize gas quality with real-time blending of field gas and CNG, which is one of the first applications of its kind. We also deployed rental assets to support our large utility recovery power contract in Montana. This momentum has accelerated with these new contracts, expanding our expected backlog for the remainder of 2026 to $34.1 million and our three-year expected backlog to more than $90 million. Power Services led this growth, further reinforcing our shift towards high-margin recurring revenue streams. Flotek’s Power Services has evolved from a novel analytical approach into a transformative platform for the energy infrastructure sector that we call PowerTech. What began as advanced analytics has grown into a comprehensive end-to-end fuel management platform, redefining performance standards and operations within the sector as shown on slide 11. Our expanding portfolio of patents and field-proven use cases position Flotek as a leader across the natural gas value chain. When considering the velocity of our measurement, we deliver unmatched real-time fuel monitoring, conditioning, blending, and engine control to optimize performance and safety for behind-the-meter distributed power operations. The success of Flotek’s Power Services applications is expanding rapidly as we expect to have proprietary real-time analyzers on more than 50% of the currently active North American e-frac and natural gas-powered fleets by year-end. Additionally, on March 3, 2026, Flotek announced its first contract within the utilities infrastructure sector, seen on slide 12. Leveraging our patented PowerTech platform, Flotek will partner with leading distributed power providers to coordinate installation of up to 50 megawatts of state-of-the-art power generation equipment, including advanced gas distribution and smart conditioning systems, to support critical federal disaster recovery initiatives. We are pleased to announce that we have initiated phase one of the project, which includes the mobilization of 12 megawatts of distributed power combined with our proprietary gas conditioning and distribution skids to the in-field staging area while the site prep work is completed. First power is expected in 2026. Now let us transition to slide 13 and dive into our second upstream application, digital valuation. This groundbreaking use case sets a new standard in the oil and gas industry, delivering unprecedented transparency and minimizing enterprise risk for producing wells like never before through real-time digital twinning of the custody transfer process. In 2025, Flotek reported a historic milestone in natural gas measurement. The XSpec spectrometer became the first optical instrument to achieve the stringent reproducibility and repeatability requirements of the oil and gas industry standard for custody transfer, GPA 2172, also known as API 14.5. We believe the XSpec’s speed, accuracy, durability, and qualification under the rigorous measurement standards outlined in GPA 2172 will provide a significant advantage in discussions with prospective customers as we aggressively expand its manufacture and field deployment. In March 2026, the XSpec Analyzer was named Product of the Year at the 2026 Analyzer Technology Conference, further exemplifying its differentiated capabilities. Since completing our digital valuation pilot program in 2025, we exited the year at 25 active units deployed. Furthermore, 2026 is off to a great start with that number more than doubling to 57 units currently deployed or contracted for delivery. It is clear that execution of our transformational strategy to grow the data analytics segment with upstream applications is gaining traction. What is most important is what it means for our stakeholders and investors. First, our DAS-driven strategy ensures predictable, recurring revenue and cash flow, delivering stability and long-term value. Secondly, our proprietary data technologies and superior measurement accuracy enable velocity and decision control that establish a high barrier to entry, secure client loyalty, and support our value-based service model. Finally, long-term, high-margin subscriptions position Flotek for sustained growth and margin expansion, driving significant shareholder value over time. Lastly, let us move to our chemistry technology segment, which continues to deliver robust performance driven by the differentiation of our Prescriptive Chemistry Management services and our expanding international presence. Slide 15 highlights the resilient performance of our 13% increase in total revenue for 2026 compared to 2025 despite a 21% decline in the average North American frac fleet count over the same period according to Primary Vision data. As mentioned earlier, we believe we have reached the trough of the cycle and see encouraging indicators for cautious optimism in the second quarter of 2026 and beyond. We continue to closely monitor operational and supply chain risks to our international operations amid the ongoing conflicts in the Eastern Hemisphere. It is evident that our chemistry team has executed our strategy flawlessly. As we move into the second quarter of 2026 and beyond, the opportunities leveraging the convergence of Prescriptive Chemistry Management and data services move to the forefront through high-margin services that improve operator ROI. These advanced services include smart chem-add units, real-time flowback monitoring, and implementation of prescriptive geological targeting. Looking ahead, I am more confident than ever in Flotek’s momentum and our ability to drive sustained, profitable growth as we execute our transformative corporate strategy. We are firmly positioning Flotek as a high-growth technology leader in the energy and infrastructure sectors, accelerating innovation through the powerful integration of real-time data analytics and advanced chemistry solutions that are tailored to precisely meet our customers’ evolving needs. Now I will turn the call over to Bond to provide key financial highlights. Thanks, everyone, and good morning. Bond Clement: Our first quarter results build upon a record-setting 2025. We issued our initial guidance for 2026 that points toward continued strong growth in revenue and adjusted EBITDA. Quarterly highlights included achieving our highest quarter of total revenue since 2017, driven by the largest quarterly contribution from ProFrac in the more than four-year history of our supply agreement, and the second consecutive quarter in which our data analytics segment surpassed $10 million in revenue. Total revenues for the quarter increased 27% year over year and 4% sequentially, driven by continued strength in related-party revenue, which increased $21 million, or approximately 70%, compared to the year-ago quarter. Of that increase, roughly $14 million was related to chemistry revenue, while approximately $97 million was attributable to the PowerTech lease agreement. External customer chemistry revenue declined 33% year over year but was flat on a sequential basis, which we view as an encouraging sign. As Ryan touched upon earlier, we expect external chemistry revenue to increase in the second quarter amid improving customer engagement, reinforcing our belief that completion activity levels are stabilizing and may be in the early stages of recovery as we move through the year. Data analytics delivered another strong quarter with service revenue increasing significantly compared to the prior-year period. As highlighted on slide 9, service revenue accounted for 82% of data analytics revenue this quarter, up sharply from the year-ago quarter, helping to drive first-quarter data analytics gross profit margin to 75%, a 200 basis point improvement sequentially. Data analytics segment revenue represented 15% of total company revenue in the first quarter, significantly up from 5% in the year-ago quarter. As highlighted in the earnings release, we began mobilizing equipment related to our disaster recovery Power Services contract. As a result of this incremental revenue, we are forecasting sequential growth in data analytics during the second quarter. As noted on slide 12, we currently expect 2026 revenues from this contract to total approximately $12 million before consideration of the contract extension. Gross profit increased 25% as compared to the year-ago quarter. First-quarter gross profit as a percentage of revenue totaled 22%, which equated with the year-ago quarter despite the nearly $5 million reduction in the order shortfall penalty as compared to the first quarter of last year. SG&A expenses increased 10% year over year, primarily driven by higher non-cash stock-based compensation related to the timing of our long-term incentive grants. For context, our 2026 grants were issued in the first quarter, whereas the 2025 grants were made in the fourth quarter. On a sequential basis, SG&A declined 9%, reflecting lower legal and professional fees. As revenue continued to scale this quarter, we saw meaningful leverage in our G&A expenses. Excluding stock compensation, G&A declined to 8.7% of revenue, down from 10.5% in the year-ago quarter. That nearly 200 basis point improvement below the gross profit line reflects the efficiency of our cost structure and was a key driver in the year-over-year expansion in adjusted EBITDA margin in the first quarter of this year. Net income for the quarter was $4.7 million, or $0.12 per share, compared to $5.4 million, or $0.17 per share, in the prior-year quarter. The year-over-year decline was primarily driven by higher depreciation and interest expense related to the PowerTech acquisition that closed during 2025, as well as a higher effective tax rate. For the first quarter, our effective tax rate was approximately 26% compared to only 1% in the year-ago period, reflecting adjustments that we previously discussed related to our valuation allowance on deferred tax assets. As an update to our prior expectations, we now anticipate our effective tax rate to be in the range of 23% to 26% going forward, the vast majority of which will be non-cash, and that incorporates estimated state taxes on top of the 21% federal rate. Per-share metrics for 2026 as compared to the year-ago quarter also included a higher share count as a result of the 6 million shares issued in conjunction with the PowerTech acquisition in the second quarter of last year. The earnings release yesterday included our guidance for 2026. As shown on slide 4, we are estimating total revenue in a range of $270 million to $290 million and adjusted EBITDA in a range of $36 million to $41 million. The midpoints of these metrics imply growth of 18% and 17%, respectively, as compared to 2025. As a reminder, our adjusted EBITDA numbers presented in the release and the presentation, including our guidance, do not add back non-cash amortization of contract assets, which totaled $2.2 million in the first quarter and are expected to total $6.2 million for the remainder of 2026. On the balance sheet, you may note a new line item called “equipment credit—related party.” As part of the settlement of the 2025 order shortfall penalty, we agreed to receive a $12.5 million allowance from which we can place orders for construction of Power Services equipment. We have already placed POs for approximately $10 million of additional distribution and conditioning assets that we expect to have in service throughout 2026. We expect to fully utilize the equipment credit in 2026, which will represent the bulk of our estimated capital expenditures budget. We believe 2026 is shaping up to be a significant year for Flotek. Importantly, we have been able to deliver consistent growth metrics while maintaining a disciplined balance sheet and low leverage. As shown on slide 16, using the midpoint of our 2026 adjusted EBITDA guidance, our leverage ratio is approximately 1.0x based on net debt outstanding as of March 31. When you factor in the estimated $8.4 million in 2026 non-cash amortization of contract assets, we are less than 1.0x levered. We believe that this ultimately positions us to continue investing in growth while maintaining financial flexibility. With that, I will turn it back to Ryan for closing prepared remarks. Ryan Ezell: Thanks, Bond. Our first quarter 2026 results extend our multiyear track record of consistent improvement as we continue transforming Flotek Industries, Inc. into a data-driven technology leader. The data analytics segment delivered strong growth, highlighted by triple-digit increases in service revenue, expanding recurring revenue streams, and a robust multiyear backlog. Together with our resilient Prescriptive Chemistry Management services, Flotek is well positioned to gain additional market share and drive further top- and bottom-line improvement with substantial upside opportunities in our data-driven services. We remain committed to shaping the industry’s digital and sustainable future by leveraging chemistry as our common value creation platform. With our proven execution, expanding high-margin capabilities, and clear pathway to scaled growth, Flotek is poised for the next phase of value creation for our investors. We will now open the call for questions. Operator: Thank you. Ladies and gentlemen, to ask a question, please press star then 1. [inaudible] One moment, please. We will begin the Q&A. Operator: Our first question comes from Jeffrey Scott Grampp. Your line is open. Jeffrey Scott Grampp: Hey, good morning, guys. Wanted to start first, Ryan. The data point to get to 50% of your units on e-frac is impressive. As I recall, that was how things initially started with the ProFrac relationship and the value you brought there and then obviously scaling that to a much larger deployment with them. Is that kind of the goal or outcome on some of these deployments, or where are we in terms of traction or state of conversations to potentially expand the market opportunity with some of these customers? Ryan Ezell: Yeah, Jeff, that is a great question. I will try to give you some tangible color on our approach. In our Power Services business, we have taken a very methodical approach. Our background in monitoring hydrocarbon flow through our data analytics group has over 15 years of experience. We evaluated all the different basins, hydrocarbon and gas quality, and geography to look at where frac fleets are going to be, where potential data center locations will be, and other power generation sites, and we built our equipment and measurement techniques for those specific locations. We executed a pursuit plan of proving out our measurement, then moving into control, and then finally the distribution piece. What you are seeing now is we targeted our primary experienced customer base around e-frac and natural gas power. Most of these customers are now aggressively moving to other behind-the-meter distributed power platforms. Looking at our original work that started back in 2022 with ProFrac and the continued growth of North America’s e-frac and natural gas fleets, the team has done a great job working with a multitude of clients to get our Varex or XSpec units on location to start measuring gas quality, whether for evaluation and volume or for potential conditioning. That is always the first step in our sales process. We are proud to announce that between currently awarded work and recent POs we have received, by the end of the year we will have an analyzer on location for over 50% of these higher-tech fleets, which is a phenomenal step. We hope that evolves into our ability to further advance their conditioning and optimization, whether reciprocating engines, turbines, or even their natural gas pumping fleets. That is part of our execution of the sales process. Jeffrey Scott Grampp: Got it. Thanks for those details. My follow-up on the utility infrastructure side, appreciate you putting some data on the impact in 2026. Where do you think it potentially builds beyond this phase one and the 12 megawatts you put out? Are there additional phases under consideration, or is that your best guess for steady-state work on that contract? Ryan Ezell: Right now, after our initial assessment, there are two primary sites, which are phase one and phase two. Phase one is moving forward. We have mobilized the first 12 megawatts to location with our proprietary conditioning and distribution equipment and plan to have that site active in the back half of the year. We believe with the success of that project we will initiate phase two, which will probably be an additional 15 to 20 megawatts. The timing on that at best would be the very end of the year, probably more into the 2027 timeframe, given site prep requirements. We do expect this work to continue past just our six-month measurement part of the contract, but we will be conservative until we officially lock that down. We expect this project in the end to be between 25 to 30 megawatts with all of our gas distribution equipment on location. Another point to note, while our primary goals are growing Power Services in oilfield power, we are now seeing our tentacles stretch into other areas around data center growth and other behind-the-meter power generation opportunities. We are seeing line of sight into 200-plus megawatts of power generation and conditioning opportunities coming into the pipeline that we are actively pursuing through the back half of the year and into 2027. The pipeline is continuing to grow. We also have Varex units on two different large turbine gas-fired power plants where we are monitoring fuel quality, ethane percentage in natural gas, and optimizing fuel. A lot of exciting things are happening in Power Services for Flotek, which offer potential upside to our numbers in the back half of the year, particularly rolling into 2027. Operator: Thank you. Our next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead. Rob Brown: Good morning. Congratulations on all the progress. Following up on the 200 megawatt pipeline you discussed, how does the cadence of quotes in that market work, and how does revenue flow through for you as those come into the mix? Ryan Ezell: Our primary goal is around gas conditioning and fuel optimization services. They come in different ways. Traditionally, we are the primary gas conditioning equipment for emergency power startups or peak power support because they are using very raw field gas that could be wet or otherwise out of spec. Often there are power shortages, so we can leverage relationships with current customers to help pass through or greenlight some of those power generation assets. Moving into data centers, those are longer-term plays where we improve fuel efficiency and, depending on geographical location and gas or pipeline quality, we come in heavily. Those tend to be on the longer end of our sales pursuit cycle due to engineering, proving out, gas testing, and sampling. Given we are already into May, those are more likely 2027 revenue-generating opportunities. However, there are opportunities to pull some forward, particularly where power assets are already on location and having gas quality issues. We are being pulled in to fix those problems. Rob Brown: Great. On the 57 units you have deployed or on order, how is the order book pipeline looking for that product? How do you see that building? Ryan Ezell: When we talked a few weeks ago, those numbers have more than doubled on issued POs, contracted deliveries, and field installations. It is not linear. We are seeing double-digit orders of units, we get them installed, and then amplified opportunities follow. We are having a lot of conversations with midstream providers, our main target audience. Once we get solid acceptance, we have two major midstream customers right now who, on any scale purchases, could triple the current active number with a couple of POs. We expect growth in a nonlinear fashion. Our target is roughly 150 units by year-end, which is within striking distance for custody transfer, with potential upside. Operator: Thank you. The next question comes from Gerard J. Sweeney with ROTH Capital. Please go ahead. Gerard J. Sweeney: Thanks for taking my call. On digital analytics, lots of opportunities are starting to emerge. As you look at the playing field, what do you need to solidify some of these orders and get the product out there further? Any choke points? Do you need more investment in sales, or is it more time-oriented and more testing? Ryan Ezell: Breaking down Power Services into phases—measurement, conditioning, then control and distribution—we are making great headway. The majority of measurement POs are already received, and we are manufacturing and deploying analyzers. The next revenue growth step is conditioning. We mentioned our first modified smart blending skid that monitors volumes of CNG to field gas for a flat BTU quality every five seconds—the first of its kind. Once analyzers are on location, adding equipment like that is the next step. As Bond mentioned, we have already issued POs to build out $10 million dedicated to the next generation of conditioning and distribution assets. We expect a big majority online by midyear, then you will see impact and uptake. We are investing at least $12 million into capital assets for conditioning, with potential for more as business cases arise. We have amplified our sales force and have open positions to put more salespeople on the ground. We picked up a couple of large-scale engineering firms involved in data center design-builds that are getting comfortable with our equipment. Lastly, we are in in-depth conversations with OEM engine providers—most are sold out for the next three years and are doubling or tripling capacity. We are far along on the ability to control engines by methane number and Wobbe index. Look for exciting things on that front, which could provide additional upside depending on distribution schedules in the back part of the year. Gerard J. Sweeney: Are those conditioning skids that you are building and expect to be available at midyear all factored into your guidance, or are they layered in as you go through the year into next year? Ryan Ezell: They are layered in conservatively. As they come online, we have objective utilization rates, with room for higher utilization and earlier in-service dates. This is a new frontier for us, and we are getting a better understanding. We lean conservative with opportunities to push asset utilization and returns. We have a positive outlook for the back part of the year. Operator: Thank you. Our next question comes from Donald Crist. Please go ahead. Donald Crist: Hope you all are doing well. Ryan, I wanted to ask about your comment on the U.S. pressure pumping business, either on the third-party side or with ProFrac. What are you seeing out there? We are hearing that a lot more pressure pumping is going to work. Thoughts around that and chemical sales, domestically or through ProFrac? Ryan Ezell: We break the year into first half and second half. A lot of potential items in the first half have now solidified. The majority of the spot-call white space is gone, particularly with our target customers using Tier 4 dual-fuel, direct-drive natural gas, or e-fleets. We are starting to see an uptick. Our expectation is external chemistry customers will continue to strengthen from Q2 onward. Visibility is improving for the back half, with spot work increasing. Availability of upper-tier equipment is almost gone now, which is good for the market. In chemistry, you have seen that play out with our related-party revenues with ProFrac. These fleets have moved into a lot of gas basins where they have strong positioning, and we picked up a lot of chemistry. We expect that to translate to other customers. Our external business was slightly impacted by weather in early Q1 and some normal repair and maintenance cycles, and now businesses are picking up. Importantly, there is a lot of optimism for our frac business in the Middle East. We got through trial stages and expect large deployments of our chemistry to hit the ground this quarter. We are now on two operating fleets and looking to pick up one to two more by the end of the year. You will see a lot of stage work coming from the Middle East, which will bolster our external chemistry revenue mix. Bond Clement: Don, to give you some numbers, when you look at first-quarter external chemistry revenue in 2025 of $22 million, we are obviously down this quarter. We believe by the end of the year we could see those kinds of numbers again on a quarterly basis—getting back to where we were last year—which would be a big growth driver from here. Donald Crist: That was my next question—whether the Middle East impacted the $14 million you generated this year or not. Any comments around that and getting chemicals into the Middle East, including logistics? Ryan Ezell: International business was extremely light in Q1 due to logistics delays. I have been very pleased with our team’s logistics plan. In Q2, we are seeing chemicals get on the ground a few weeks earlier than expected. Our biggest customer there is pleased, and we are seeing a pickup in total stages. Domestically, our chemistry team has done a phenomenal job finding opportunities and growing the business. We are seeing the convergence of our data and chemistry businesses play out, with opportunities to utilize our XSpec units and dual-channel Varex units for flowback control, crude, and gas quality, as well as our advanced real-time chem-add units that use micro-dosing on concentrates. These drive differentiation and significant growth opportunities for chemistry and high-margin data services. Operator: Thank you. Our next question comes from Gaushi Sriharan with Singular Research. Please go ahead. Gaushi Sriharan: Good morning, and thank you for taking my call. On gross margins coming in at about 22%, with data analytics already at 50% of gross profit, as the shortfall penalty mechanism resets through 2026 and data analytics share continues to grow, how should we think about the pace of gross margin expansion? Is a 25% to 27% range realistic by 2026, or are there other offsets we should model? Ryan Ezell: We have continued to see overall gross margin improvement even with reductions in the order shortfall penalty, which is now minimal. The factor that will play the biggest role is how much distributed power revenue runs through the P&L. When we pass through distributed power with one of our big customers, we typically have a minimal markup, which can dilute profitability, for example on our Montana contract. By contrast, our conditioning skids alone can come in at roughly 80% gross margin. Depending on how many additional megawatts move into the back half, it could dilute the consolidated margin. Bond Clement: In the back half, we expect margin expansion, but it is hard to forecast precisely because we also expect a sizable increase in external chemistry revenue, which carries lower margins, while data analytics grows at higher margins. We think 25% by the end of the year is possible, and we are forecasting gross margins to continue to move up. Gaushi Sriharan: Thanks. One more. On the Q1 deck, you flagged EPA flare monitoring enforcement being rolled back. Given that Veracal was generating around $2 million to $2.5 million at around 60% gross margin in 2025, how much of that demand has deteriorated versus what you originally expected? Is that business pivoting toward voluntary or international regulatory frameworks to offset that headwind? Ryan Ezell: There has been some softness domestically. We still have a fleet staying relatively busy, but as a rapid growth mechanism in the U.S., it has slowed. International deployments are picking up. In the U.S., New Mexico and Colorado are advancing utilization even as Texas softens. We are seeing customers move from mobile 14-day test pad use to ongoing operational efficiency and real-time tuning of flares to achieve lower emitter status and operational efficiency targets. That trend is occurring domestically and internationally. Operator: There are no further questions at this time. I will now turn the call back over to Mike Critelli for closing remarks. Mike Critelli: Thank you. Join us at our upcoming investor events. In May, you can catch us at the Louisiana Energy Conference for meetings and an investor presentation. In June, we will be at the Planet MicroCap 2026 conference at the Bellagio in Las Vegas. In August, we will be at EnerCom Denver at the Westin, featuring an investor presentation and one-on-one meetings. For all other events and the latest information, please see the events section of our website. Ryan Ezell: Thanks, everyone, for your time today and your questions. We will speak to you soon. Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and welcome to InMode's First Quarter 2026 Earnings Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Miri Segal, CEO of MS-IR. Please go ahead. Miri Segal-Scharia: Thank you, operator, and everyone, for joining us today. Welcome to InMode's conference call. Before we begin, I would like to remind our listeners that certain information provided on this call may contain forward-looking statements, and the safe harbor statements outlined in today's earnings release also pertains to this call. If you have not received a copy of the release, please go to the Investor Relations section of the company's website. Changes in business, competitive, technological, regulatory and other factors could cause actual results to differ materially from those expressed by the forward-looking statements made today. Our historical results are not necessarily indicative of future performance. As such, we can give no assurance as to the accuracy of our forward-looking statements and assume no obligation to update them, except as required by law. With that, I'd like to pass the call over to Moshe Mizrahy, CEO. Moshe, please go ahead. Moshe Mizrahy: Thank you, Miri, and to everyone for joining us. With me today are Dr. Michael Kreindel, our Co-Founder and Chief Technology Officer; Yair Malca, our Chief Financial Officer; and Mr. Moshe Itskovitz, our Senior VP of Finance. Following our prepared remarks, we will be available to answer your questions. We executed in line with our expectations in Q1 2026. In addition, we are seeing early sign of stabilization, particularly in the U.S. and believe that this quarter reinforce our confidence that 2026 is moving in the right direction. I would like to start by reviewing InMode's progress in North America. As you know, we brought in new leadership at the end of Q3 2025, including new North American President and Vice President. While it's still early, the energy and cultural shift are already having a positive impact. We have transitioned from our long-standing East-West structure to unified North American model, bringing Canada and Gulf Coast under the same organization. This is driving better coordination and clearer accountability. We also implemented a key structure change in January 1, 2026. The Envision team, our ophthalmology and optometry sales force now operate independently. This creates more focused model that we believe will support stronger execution over time. March delivered particularly strong progress, reinforcing our confidence that this change are beginning to bear fruit. That said, we are looking for sustained consistency before calling it a long-term trend. On the international market, we continued to operate in over 100 countries with most of our businesses driven by our direct sales to local offices and supported by distributor partnerships. Europe remains a strong region for us with solid performance and meaningful room for continued growth. In Asia, performance is more mixed, consistent with what we saw last year, though we are making progress in key markets, including China, where we see significant long-term potential. Onto laser, the Pico and the CO2 laser performed well, recently introduced were meaningful contribution to our Q1 revenue performance and are strategically important for our long-term growth. They extended the range of procedures our physicians can offer and to enable combination of treatment, which are increasingly in demand. Physicians are looking for comprehensive solutions from a single partner, and these platforms support a one-stop shop office. They may put pressure on our gross margin, but they play a critical role in strengthening our competitive position and deepening our customers' relationship. on the broader market environment, we are seeing sign of stabilization. Demand for aesthetic procedures was again pressured in the first quarter of 2026 by macroeconomic headwinds. But as we have said many times before, we believe that the demand for aesthetic procedure will not go away. It may be deferred, but it will return. Now let me turn the call over to Yair, the Chief Financial Officer, who will talk you -- walk you through financial numbers. Yair? Yair Malca: Thanks, Moshe, and hello, everyone. Thank you for joining us. As announced earlier this morning, I will step down as CFO and remain with the company as a consultant for the next 6 months to support a smooth transition. After 9 years with the company, I am proud to have been part of its journey from driving growth and supporting our expansion to helping lead our transition to the public markets. It's been a privilege to work closely with our dedicated employees and build a foundation of financial discipline and transparency. Even during recent macroeconomic headwinds, the company's strong financial position and resilience have enabled us to navigate challenges, including the global pandemic, while consistently prioritizing stability and our people. As I look ahead to new endeavors, I am confident that this discipline and long-term approach will continue to guide the company's success. With that said, let's get to the Q1 results. Starting with total revenue, InMode generated $82 million in the first quarter of 2026, up 5% from $77.9 million in the same quarter last year. Growth in Q1 was led by strong performance in the U.S. market. Moving to our international operations. Sales outside the U.S. totaled $38.7 million in Q1, representing 48% of total sales and an increase of 2.65% compared to Q1 of last year. Gross margin in the first quarter of 2026 was 75% on a GAAP basis compared to 78% in the first quarter of 2025. Non-GAAP gross margins were 75% in the first quarter of 2026 compared to 79% in the first quarter of 2025. In Q1 2026, our minimally invasive technology platform accounted for 77% of total revenues. To support our operations and growth, we currently have a sales team of more than 298 direct reps and 73 distributors worldwide. GAAP operating expenses in the first quarter were $51.5 million, a 13.7% increase year-over-year. GAAP sales and marketing expenses increased to $42.9 million in the first quarter compared to $39.7 million in the same period last year. The year-over-year increase was primarily driven by increased sales expenses tied to the restructuring of the North America sales organization and headcount expansion from 2025 subsidiary build-outs, along with higher commission expense in line with a stronger sales performance. Next, we look at share-based compensation, which increased to $2.7 million in the first quarter of 2026. On a non-GAAP basis, operating expenses were $47.8 million in the first quarter compared to a total of $43.1 million in the same quarter of 2025, representing an 11.1% increase. GAAP operating margin for Q1 was 12%. Non-GAAP operating margin for the first quarter of 2026 was 17% compared to 23% for the same -- for the first quarter of 2025. This decrease was primarily attributable to the increase in cost of goods and, as mentioned before, the new structure of the North America sales team implemented towards the end of 2025 and subsidiary establishments in the later part of 2025. GAAP diluted earnings per share for the first quarter were $0.18 compared to $0.26 per diluted share in Q1 of 2025. Non-GAAP diluted earnings per share for this quarter were $0.25 compared to $0.31 per diluted share in the first quarter of 2025. As of March 31, 2026, the company had cash and cash equivalents, marketable securities and deposits of $537.2 million. We also returned meaningful capital to shareholders, repurchasing shares in the amount of $127.4 million during 2025 and $52.7 million year-to-date under our new 2026 repurchase program, representing 3.86 million shares this year. With this flexibility, we remain well positioned to pursue a full range of capital allocation opportunities. This quarter, InMode generated $15.4 million from operating activities. Before I turn the call back to Moshe, I'd like to reiterate our guidance for 2026. Revenues between $365 million to $375 million; non-GAAP gross margin between 74% and 76%; non-GAAP income from operations between $73 million and $78 million; non-GAAP earnings per diluted share between $1.33 to $1.38. I will now turn over the call back to Moshe. Moshe Mizrahy: Thank you, Yair. Thank you very much. Operator, we're ready for Q&A. Operator: [Operator Instructions] The first question comes from Mike Matson with Needham. Joseph Conway: This is Joseph on for Mike. And Yair, I wish you the best in your next ventures. Maybe just a question on the next laser launch, I believe the Erbium laser. Can you remind us of the time line of that? Was that end of the year? And just comparing to the Pico and the CO2 laser, is this product more just filling a gap that can do a different procedure versus the Pico or CO2? Or is it -- maybe it's much more differentiated? Just wondering how we should think about that. And then, under the assumption that this launches at the end of the year, should we expect further impact to gross margin in 2027 from this increased mix of laser platforms? Moshe Mizrahy: Okay. You asked 3 questions about 3 different lasers. First, the laser that we introduced to the market in the beginning of this year, sometime in February was not Erbium, it was Pico laser. The Erbium laser is still under development. And we hope to finalize the development of the Erbium, which is developed in Israel and get into the FDA clearance sometime in the next month or 2. So basically, we hope that by the end of this year, we will have it cleared by the FDA, and we can introduce it to the market. Now the third laser that you mentioned, the CO2, the one that we're having today and selling today, which called the Solaria, it's a CO2 laser that we buy from U.S. manufacturer with several modifications that we made it to be -- looks like and with the software of InMode. And we sell it quite nicely throughout U.S., not in Canada because they don't have Health Canada clearance to sell it [ in the U.S. ]. So this product is being sold only in the U.S. At the same time, we are developing our own CO2, which will enable us to expand the market and the territories to almost everywhere, but that will take time because regulation today, it's a long process, mainly in Europe when you have to clear it through the MDR and not the MDD process that recently changed. Anything else about those lasers? Joseph Conway: No, I think that's all good and clear. Appreciate that. Maybe just one more follow-up question. Just wondering how your newer direct subsidiaries, I think Thailand and Argentina were established in 2025. How have those been growing? And then could you also remind us on the time line for China? I believe that was maybe one of the next targets for this year. So maybe just what products you're targeting to get into China and then the time line of when that could happen? Moshe Mizrahy: Okay, let's start with Argentina. Argentina was established late 2025. It took us some time, 2 months to get all the clearances from the regulatory body in Argentina under our name in our subsidiary. Now everything is almost ready. We have an office. We have 1 or 2 salespeople. We have a clinical trainer. We have a manager. And hopefully, Q2 in 2026, we will see some results. Until now, it was more like a setup organizing all the regulatory clearances. Hopefully, Q2 in this year, they will start delivering sales as well. Argentina is not very big country compared to Brazil and others, but we believe that there is a market there. There are major changes in the macroeconomics in Argentina recently. And we felt that this is the best time to establish a subsidiary there and go direct. Regarding China. In China, we continue to work on the medical field with our distributors. But we have decided -- I don't know if everybody knows, but during the COVID, we have established a company in Guangzhou, which was a sleeping company for all the time until today. And we decided right now to use this company, which is fully owned by us to become the spa and aesthetic arm of InMode in China. We hired a manager and -- who is well acquainted with the spa and the aesthetic -- not aesthetic, I would say the cosmetic more or less in China, and we're developing right now special products to distinguish the product line from the medical in order to penetrate this segment of the market in China. But it's not in full operation yet. Operator: [Operator Instructions] Our next question comes from Matt Miksic with Barclays. Matthew Miksic: So, on ophthalmology, I was wondering if you could -- and I've been hopping around a few call, so apologies if it's already been covered, but maybe an update on how the U.S. sales reorg and management structure is driving that growth, what your plans are there? Maybe what some of the early results you've seen there and some of the upcoming milestones? And I have one quick follow-up. Moshe Mizrahy: Yes. Well, I'm sure everybody knows that we have a platform, which is called the Envision for the ophthalmology and optometry. By the way, 95% of the customers are not ophthalmologists, they are more optometrists, which are doing treatment to relieve dry eye. We're working on the study for the FDA to get clearance. And therefore, right now, we don't market it under dry eye treatment, but rather on what we have the clearance. And this is increased blood circulation and build some collagen, which we know that also help for dry eye. The team is 30 salespeople and a manager. The manager is a director level. He reports to the President of North America. It's part of the North American team. It's not totally separate company. It's not even a division. And they cover the entire U.S. They are not territory based. They cover the entire U.S. and also supporting sales of Envision in Canada. This is the first time that we separate the product and the first quarter that we have a special team selling one product from our portfolio. We hope that this model will be successful because if -- yes, we might do it on other products as well in the future. But I believe it's very early to judge. It's only 3 months. So far, it seems like there are -- it seems like that the concept is working. And although to be responsible for the entire U.S. and Canada with 30 people, it's a little bit big territory, but we did it. And we'll see. Let's see the results throughout the year, and then we'll decide if that's successful or not. Matthew Miksic: That's great. And just a question on -- and again, I'll make the same apology if you'd covered this. The plans to repurchase shares, use of cash. You've done a good job of putting that cash back to work, giving back to shareholders as volumes were slowing and the market was kind of troughing here. How does that strategy play out this year? How are you thinking about capital allocation at this point? Yair Malca: So this is Yair. We started -- as you know, we announced a buyback plan earlier this year, and we started executing on that. So far, we purchased over $3.8 million under that plan. Moshe Mizrahy: 8 million shares. Yair Malca: And 8 million shares, sorry -- 3.8 million shares under the plan, and we continue to -- we plan to continue to execute on the plan. Other than that, Moshe, do you want to elaborate about capital allocations? I think all the options are on the table. Moshe Mizrahy: Well, we always say the same thing, all the options on the table. We will -- we are allowed to do 10% of the outstanding shares every year without paying dividend tax, and we're doing it year-over-year. So far, I would say once we completed this 6.5 million shares, I believe it's another 2.5 million that we have to buy. We already did that 6 years, 6x, and we returned $600 million to the shareholders. If you ask me if that helped the share price, so far not. And therefore, it's always a question mark, whether to continue or not to return capital to the shareholders with this type of operation only by buyback. Hopefully, now when the company continue to be a public company, I'm sure everybody knows that the last year, 2025 was a very tough year for InMode because of the failed project that tried to sell the company without success. And we remain public. I believe it's important also to the team and to the people who felt unsecured during a very long time. And now maybe we will consider other ways to allocate capital to the shareholders; M&A, dividends and others. Everything is on the table and everything is open. Operator: The next question comes from Sam Eiber with BTIG. Sam Eiber: Yair, I just want to say thank you for all the access over the years. It was really nice getting to work together. Hopping between a few calls this morning, so apologies if this question already got asked. But maybe just following back up on capital allocation and maybe diving a bit deeper in terms of appetite for M&A. I know it's something that you guys have always been considering, but haven't seen any kind of deals over the last several years. I guess is that something that considering where markets are at this moment, willing to reevaluate? Or is it really more focused on still buybacks here? Moshe Mizrahy: Well, I cannot say more than what I did. Yes, M&A opportunities are being explored. We have nothing that are in any stage, but we're always checking because we believe that we did a lot of buyback. And if we have a candidate or a company to acquire in order to synergize either on the product level or the technology level or the customer level, we will explore. The only problem is right now, private company prices are very high and unfortunately, we were unable to acquire. We did 2 attempts, as you know, to buy an injectable company and to buy a toxin company, but we gave price which was probably not the best for this company's shareholders. Therefore, it was not accepted, but we will continue to try. Operator: The next question comes from Michael Toomey with Jefferies. Michael Toomey: This is Michael Toomey jumping on for Matt at Jefferies. I just had a question on what you're seeing on the broader aesthetics market, not just the energy-based side, but you mentioned the interest in injectables, but how is the broader aesthetic market growing today? And any difference there between broad aesthetics injectables and kind of energy-based devices? Moshe Mizrahy: Well, I believe that there are a few injectable companies which are public companies. And if you look at them, you will realize that in the last -- in 2025, they didn't do that good, but they see some sign of momentum in 2026. One thing I want to say, I mean, the energy-based device companies are competing on the same marginal dollar that people has for aesthetic. And on the other side, other than energy-based devices, GLP-1 took a lot of money from this industry, a lot of money. And all the new product, boosters, biosimulator, exosomes are also competing very toughly with energy-based devices, and some of them are doing very well. Now that means that in the future, and that's what we thought when we gave an offer to injectable companies, energy-based devices will need either strategically cooperation or M&A or mergers with other type of aesthetic solution in order to be a one-stop shop. As of now, we know that several companies like Alma signed a distribution agreement with fillers. I know that there was another Spanish company, Sinclair that actually closed all the EBD operation and stayed only with the injectables. But I didn't see yet a major company that actually offer both energy-based device treatment and all the other, I would say, injectables, exosome, biosimulator and other stuff that also compete on the same dollar on -- which are the same -- what I call aesthetic dollar. And the reason for that, the main reason for that is that it's 2 different operations. You don't have an engineer that knows how to develop EBD or a pharma product, and you don't have a salesman who knows how to sell energy-based device for $100,000 and at the same time, to sell fillers or toxin for $100. Should need to be 2 separate operations. And in the future, I do believe that it will come. Michael Toomey: Okay. That's great. And just a follow-up as well. With the gross margin new guides, anything you can comment on the phasing through the year? Moshe Mizrahy: On the what, phasing? Phasing throughout the quarter. Michael Toomey: For the gross margin? Moshe Mizrahy: We believe it will stay the same, like 74%, 75%. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Moshe Mizrahy, InMode's CEO, for any closing remarks. Moshe Mizrahy: Okay. Thank you, everybody. Thank you for being with us today. Before I close the call, I want to thank to our Chairman, Dr. Michael Anghel, who worked with us for, I would say, 8 years as a Director and as a Chairman. We enjoyed him very much. He is leaving, and I want to wish him success in the future. He was very helpful and very -- he contributed a lot to InMode. And the second guy that I want to thank personally and on behalf of the company is Yair Malca, our Chief Financial Officer for 9 years now, even before the IPO, correct, isn't it? Even before the IPO, we hired him. He did a great job taking this company into an IPO and then maintaining everything that we need to do as a public company with all the reporting, talking with investors, talking with analysts. So thank you, Yair, for everything you did for us and all the contributions that you brought to this company. And I wish you success in your new career. Yair Malca: Thank you very much. Moshe Mizrahy: Hopefully, the war in Israel will end and everybody will go back to a normal life, including us, and we will continue to do our best. Operator: The conference has now concluded. Thank you for attending today's presentation. 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.