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Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to ACADIA Pharmaceuticals First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Albert Kildani, Senior Vice President, Investor Relations and Corporate Development. Please go ahead. Albert Kildani: Good afternoon, and thank you for joining us on today's call to discuss ACADIA's first quarter 2026 financial results. Joining me on the call today from ACADIA are Catherine Owen Adams, our Chief Executive Officer, who will provide some opening remarks; followed by Tom Garner, our Chief Commercial Officer, who will discuss our commercial brands, DAYBUE and NUPLAZID. Also joining us today are Elizabeth Thompson, Ph.D, Executive Vice President, Head of Research and Development, who will provide an update on our pipeline programs; and Mark Schneyer, our Chief Financial Officer, who will review the financial highlights. Catherine will then provide some closing remarks before we open up the call for your questions. We are using supplemental slides, which are available on our website in the Events and Presentations section. On today's call, both GAAP and non-GAAP financial measures will be discussed, including non-GAAP NUPLAZID net sales and non-GAAP total revenues. The non-GAAP financial measures that are also referred to as adjusted financial measures pertain only to NUPLAZID sales in 2025 and their impact on total revenues. All references to non-GAAP are reconciled with the most directly comparable GAAP financial measures in our earnings press release and slide presentation, which has been posted on the Investors page of the company's website. Before proceeding, I would like to remind you that during our call today, we will be making several forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, including goals, expectations, plans, prospects, growth potential, timing of events, future results and financial guidance are based on current information, assumptions and expectations that are inherently subject to change and involve several risks and uncertainties that may cause results to differ materially. These factors and other risks associated with our business can be found in our filings made with the SEC. You are cautioned not to place undue reliance on these forward-looking statements, which are made only as of today's date, and we assume no obligation to update or revise these forward-looking statements as circumstances change, except as required by law. I'll now turn the call over to Catherine for opening remarks. Catherine Owen Adams: Thank you, Al. Good afternoon, everyone, and thank you for joining us today to discuss our first quarter 2026 results. ACADIA delivered a solid start to the year with total revenue of $268 million in the first quarter, representing 11% year-over-year growth on an adjusted basis. DAYBUE had an especially strong quarter with sales of $101 million, up an impressive 20%, our highest year-over-year growth since the third quarter of 2024, marking an excellent start to the year. We are excited about the successful launch of DAYBUE STIX with strong feedback from both caregivers and health care providers. As announced last month, DAYBUE STIX is now broadly available across the United States, and we're seeing strong early uptake from both new and previously discontinued patients that gives us confidence in our growth outlook. NUPLAZID sales were $167 million in the first quarter, up 6% year-over-year on an adjusted basis. The first quarter performance reflects that some patients were slower to refill than in prior years. We are pleased to report that these refill dynamics have since normalized. Importantly, we saw double-digit referral growth in the first quarter and robust demand growth at 8%, even prior to the expected impact of the recent sales force expansion. I'm pleased to share that we are reaffirming our 2026 net sales guidance for both DAYBUE and NUPLAZID. Looking at our pipeline, we have several significant catalysts on the horizon. Most notably, we are approaching the highly anticipated Phase II readout for remlifanserin in Alzheimer's disease psychosis, which we continue to expect to share results from in the August to October time frame. This represents a key inflection point for our company and could unlock substantial value given the significant unmet medical need in this indication. Additionally, the timing of our Phase III study in Japan for trofinetide has accelerated, and we now expect results in the September to November time frame of this year. I want to remind everyone of the tremendous opportunity we have across our pipeline. We have 4 molecules targeting large markets with a combined full peak sales potential of $11 billion, with approximately $4 billion of that specifically attributable to remlifanserin across the ADP and Lewy body dementia psychosis indications. This underscores the transformative potential of our research and development efforts. With that, I'll now turn the call over to Tom to provide a more detailed insight into our commercial performance. Thomas Garner: Thank you, Catherine. Let me dive into the details of our first quarter performance. Starting with DAYBUE. I'm pleased to report another excellent quarter with revenue of $101 million, representing 20% year-over-year growth. This was another record quarter for unique patients receiving shipments, highlighting the continued momentum and durability of the DAYBUE franchise. Growth was fueled by robust referral volumes driven by new patient starts, alongside meaningful reengagement of previously discontinued patients following the recent approval and launch of the new powder for oral solution formulation of trofinetide, DAYBUE STIX. During the first quarter, we launched DAYBUE STIX with a focus on centers of excellence to ensure optimal launch execution while gathering valuable real-world feedback. We've been extremely pleased with both the initial uptake and positive experiences we've received from both caregivers and health care providers. Through Q1, we received DAYBUE STIX prescriptions for more than 250 individual patients, demonstrating strong early demand for the new formulation. Notably, nearly 30% of these patients were either treatment naive or restarting therapy, aligning with our expectations and further supporting DAYBUE's growth outlook. In addition, we're also seeing strong interest from existing patients in switching to the STIX formulation. Collectively, this early experience demonstrates how DAYBUE STIX can help retain current patients, bring discontinued patients back into therapy and grow the treated patient population, aligning closely with our long-term growth strategy for DAYBUE. From a patient and caregiver perspective, DAYBUE STIX offers meaningful advantages, including flexible dosing volume, potentially shorter dosing time, a preservative-free formulation, no requirement for refrigeration and enhanced portability. These attributes are resonating strongly with early feedback reinforcing the value of the new formulation, as you can see on this slide. Caregiver response has been particularly positive with more than 80% of those who have tried STIX reporting high satisfaction, complemented by strong endorsement from health care providers across Rett centers of excellence where the product was available through the first quarter. Following the focus launch, we announced in early April that DAYBUE STIX is now fully available in the U.S. We look forward to seeing the continued impact of this broader rollout for patients and caregivers. Outside of the U.S., our global named patient supply programs continue to contribute meaningfully to our growth through the first quarter. The number of patients receiving product through our NPS programs continues to increase over time, providing important access to patients. The recent Delphi expert consensus reinforces DAYBUE's position as the standard of care for Rett syndrome, reflecting broad adoption across centers of excellence and accelerating uptake among clinicians treating Rett patients. This important publication demonstrates that Rett syndrome experts agree that DAYBUE plays a crucial role in patient care, including the importance of initiating treatment early and dosing individualized to the patient's needs. The Delphi publication adds to the growing body of real-world experience supporting DAYBUE, complementing our robust clinical trial programs that support the meaningful impact that trofinetide can make for patients living with Rett syndrome. Taken together, the successful launch of DAYBUE STIX, combined with sustained referral strength and durable patient persistence positions DAYBUE for continued growth through 2026 and beyond. Now turning to NUPLAZID, which delivered sales of $167 million in the first quarter, representing 6% growth year-over-year on an adjusted basis. I'd like to walk through the dynamics behind the quarter and explain why our confidence in full year performance remains strong. Starting at the top of the funnel, physician referral growth was strong at approximately 11% year-over-year, even ahead of the anticipated impact of our sales force expansion, which was completed in the quarter. This level of referral growth reflects continued physician confidence in NUPLAZID, driving strong underlying demand. However, as Catherine noted, first quarter performance was impacted by a temporary increase in patients taking longer than expected to refill their prescriptions. This dynamic emerged in January and extended into early February as refill timing lagged historical first quarter patterns. Importantly, these delays proved temporary. Patients who are late to fill returned in the latter part of the quarter, and we have now returned to normal patterns. Despite the short-term timing impact, NUPLAZID delivered 8% year-over-year demand growth in the quarter, reinforcing our confidence in the full year outlook. As a reminder, our commercial strategy is focused on driving earlier awareness and use of NUPLAZID in the Parkinson's disease psychosis journey through smart, disciplined execution. We're sharpening prescriber reach, improving call quality and maintaining tight segmentation while strengthening field and digital engagement in order to engage physicians earlier and convert strong referral momentum into improved pull-through. Building on this foundation, we expect to realize the full impact of the recent 30% expansion of our customer-facing teams by late 2026 and into next year as we extend these capabilities across a broader target universe. In addition, we anticipate further benefits from our direct-to-consumer efforts. We've recently renewed our partnership with Ryan Reynolds for the unbranded More to Parkinson's campaign, reflecting its strong resonance with patients and caregivers, enabling us to introduce new content and creative to further raise awareness of Parkinson's disease psychosis. Since launching the campaign, awareness of hallucinations and delusions amongst the Parkinson's disease community has increased from 8% to over 30%, underscoring the campaign's significant impact. We're complementing this with refreshed branding creative on nuplazid.com to engage patients earlier in their journey and clearly reinforce NUPLAZID as the only FDA-approved treatment for Parkinson's disease psychosis. I'd also like to highlight a significant milestone for NUPLAZID. This year marks the 10-year anniversary of its FDA approval. Over the past decade, nearly 100,000 patients, along with their families and caregivers have benefited from this therapy. This milestone underscores both the durability of the NUPLAZID franchise and its meaningful impact on the Parkinson's disease community. In summary, NUPLAZID remains firmly on track for another strong year with continued referral momentum, the scaling impact of our expanded sales force and ongoing market development supporting our path towards approximately $1 billion in annual sales by 2028. And with that, I'll now turn the call over to Liz to provide an update on our pipeline developments. Elizabeth Thompson: Thank you, Tom. Before turning to pipeline updates, I want to briefly address the retirement announcement we shared last week. For personal reasons, I've decided to retire by year-end. But while we seek the right next head of R&D, I remain fully engaged in driving our pipeline forward. We will ensure continuity through this transition, including supporting the upcoming Phase II readouts and early Phase III planning for remlifanserin. With that context, I'll now walk through the key R&D progress for the quarter. I'm pleased to share updates on our pipeline, which continues to offer meaningful opportunity with real momentum building across multiple programs. Across our 8 disclosed programs, we continue to anticipate initiating 5 additional Phase II or Phase III studies by the end of 2027, demonstrating the breadth and depth of our development portfolio. Most recently, we successfully initiated our first-in-human study of ACP-271 in healthy volunteers, and I'm pleased to report that the study is going well to date. We continue to advance enrollment across several key studies. Our Phase II study of ACP-211 in major depressive disorder is progressing as is our Phase II study of remlifanserin in Lewy body dementia psychosis. And of course, both of these programs represent significant opportunities to address substantial unmet medical needs. Looking ahead, we currently anticipate reporting 4 Phase II or Phase III study readouts by the end of 2027. And of course, the closest to these is the top line results from our Phase II study of remlifanserin in Alzheimer's disease psychosis. The Alzheimer's study is still enrolling, and the enrollment dynamics continue to support our expectation for top line results in the August through October 2026 time frame. As a reminder, throughout the study, we focused on ensuring our patient population has biomarker-confirmed Alzheimer's disease, which we think could be an important component of both technical and regulatory success. We're excited for this readout and what it could mean for the future of the company if successful. But most importantly, as a step towards relief for the patients and families affected by this challenging condition. Turning to regulatory and international developments. The trofinetide reexamination process in Europe remains ongoing, and we continue to expect that process to conclude by late June. We remain focused on working closely with European regulators to address their questions and support the positive benefit-risk profile of trofinetide for patients with Rett syndrome. In Japan, enrollment in our Phase III trial with trofinetide has been progressing exceptionally well, and I'm pleased to share that we now anticipate completing enrollment this quarter. This accelerated time line positions us for top line results in the September through November time frame this year, which represents an earlier completion than we previously anticipated. Now as a reminder, this is a small study that was designed with regulators to provide descriptive information on Japanese patients receiving trofinetide. We expect this study to provide the remaining new data needed for our Japanese filing package, which will rely largely on the LAVENDER trial to establish trofinetide's efficacy and safety with an expected regulatory submission in 2027. These pipeline developments underscore our commitment to advancing innovative treatments across neurological and rare diseases, and we look forward to sharing more updates as these programs continue to progress. And with that, I'll turn the call over to Mark. Mark Schneyer: Thank you, Liz. I'll now walk you through our first quarter 2026 financial results. Starting with our revenue performance. Total revenue for the quarter was $268 million, up 11% compared to adjusted total revenue in the first quarter of 2025. NUPLAZID generated $167 million of net product sales in the first quarter, representing 6% growth year-over-year on an adjusted basis. As Tom discussed, we are very encouraged by the strong demand growth and referral growth in the quarter, which we saw even before the anticipated impact from the field force expansion that was completed in the quarter. The gross to net adjustment for NUPLAZID in the quarter was 22.1%. As stated in our press release, NUPLAZID year-over-year growth metrics are derived by comparing our Q1 2026 GAAP NUPLAZID net sales to our Q1 2025 non-GAAP NUPLAZID adjusted net sales. DAYBUE delivered strong performance with $101 million in net sales, up 20% year-over-year. Our DAYBUE results reflect the robust momentum Tom described in both the U.S. market and through our international programs. The gross to net adjustment for DAYBUE in the quarter was 25.8%. Turning to our operating expenses. Research and development expenses were $76.9 million compared to $78.3 million in the first quarter of 2025. Our SG&A expenses were $171 million compared to $126.4 million in the first quarter of 2025, reflecting our continued investments in our commercial franchises with increased marketing investments for NUPLAZID and the expanded field footprint for both NUPLAZID and DAYBUE, which both took place after the first quarter of 2025, which is an important consideration in any year-over-year comparison. Our cash position remains exceptionally strong with $851 million at the end of the first quarter as compared to $820 million at the end of the fourth quarter. This increase reflects our positive operating cash flow generation and positions us well to execute on our strategic priorities. Moving to guidance. I'm pleased to reaffirm our full year 2026 guidance for net sales and expenses. In terms of quarterly progression, we expect total revenue to be back-end loaded as the year progresses with a greater sales contribution from both brands in the second half of the year, driven by the expected productivity ramp from our expanded NUPLAZID field force, coupled with broader availability and adoption of DAYBUE STIX. With that financial overview, I'll turn the call back to Catherine for her closing remarks. Catherine Owen Adams: Thank you, Mark. As we wrap up today's call, I want to highlight the key milestones and catalysts that make 2026 such an exciting and potentially transformative year for ACADIA. First and foremost, we're approaching our highly anticipated top line results for remlifanserin in Alzheimer's disease psychosis, which we expect to report in the August to October time frame. This represents the most significant near-term catalyst for our company with the potential to unlock tremendous value and address a massive unmet medical need affecting millions of patients and their families. The ADP market represents a substantial opportunity with no currently approved therapies and successful results could position remlifanserin as a cornerstone therapy in this underserved patient population. We also anticipate top line results from our Japan Phase III trial with trofinetide later this year, which could establish an important new market for DAYBUE. This accelerated time line reflects strong international engagement and our commitment to bringing innovative treatments to patients worldwide. Importantly, as we head into these upcoming data readouts, while Liz has announced her intention to retire at the end of the year, we are grateful that she will continue to lead R&D to provide continuity and leadership while we look to find a strong replacement. Beyond these clinical and regulatory milestones, we have a strong commercial foundation. And we're pleased to reaffirm our 2026 financial guidance for total revenues of $1.22 billion to $1.28 billion. Furthermore, our cash balance of $851 million provides us with significant strategic flexibility, enabling us to pursue business development opportunities, including potential acquisitions, licenses and partnerships that could complement our existing portfolio and further accelerate our growth trajectory. We remain actively engaged in evaluating opportunities that align with our strategic focus on neurological and rare diseases with significant unmet need. Throughout all of these initiatives, we remain steadfast in our mission to turn scientific promise into meaningful innovation for underserved communities. Every program in our pipeline, every commercial initiative we undertake and every strategic decision we make is guided by our commitment to bring life-changing treatments to patients and families who need them most. The combination of our strong commercial performance, robust pipeline and solid financial foundation positions ACADIA exceptionally well for both near-term catalysts and long-term sustainable growth. We're excited about the opportunities ahead and look forward to sharing our progress with you throughout the year. And with that, we're happy to take your questions. Operator? Operator: [Operator Instructions] Your first question comes from Tessa Romero with JPMorgan. Tessa Romero: So I wanted to ask a pipeline one here. So where are you more precisely in terms of enrollment of the Phase II RADIANT study of remlifanserin in Alzheimer's disease psychosis? And how confident are you in your time line from August to October of this year? When might you see the last patient in? And then second question is just how is enrollment going in your Phase II ILLUMERA study in Lewy body dementia psychosis? And what is the right way to think about the potential time line to data there as well? Catherine Owen Adams: Thanks. I'm going to ask Liz to take us through the time lines for remlifanserin. Elizabeth Thompson: Sure. So Tessa, thanks for the question. So first off, for the ADP program, we continue to feel very good about that August to October time frame. And the study is still enrolling, but we are getting to the last phases of enrollment. So we feel confident about that time line. That said, I'm not yet able to narrow that any further than what we have right now. As we look at Lewy body, I'm pleased with the enrollment progress that we have there. I don't think we've yet shared publicly what our expectations around the end are. We want to get a ways into enrollment. So I do look forward to sharing more about that in the future. But so far, pleased and on track with what I was hoping for. Operator: Your next question comes from the line of Ash Verma with UBS. Ashwani Verma: So maybe just on this upcoming Phase II study, I know you mentioned the biomarker-based selection for confirmation of the Alzheimer's patients as opposed to just looking at the clinical presentation. Can you help us explain a little bit why is that critical for clinical trial execution? And just in the real-world setting, I know patients are typically not diagnosed based on the clinical presentation and imaging -- sorry, they are diagnosed based on clinical presentation and imaging and not necessarily biomarker confirmation. So how does that inform the applicability of the results to real world? And then secondly, just on ACP-204. So I mean, NUPLAZID has a black box warning for this increased mortality in elderly patients. Given that this is kind of a connection of that, would the molecule still put the black box warning if it comes to the market? Catherine Owen Adams: All right. Thanks, Ash. Some comprehensive questions to get to. So let's start at the top and go down. Elizabeth Thompson: There was a lot in there. I was madly writing down. So hopefully, I captured everything. So in terms of the biomarker basis, I think this has been a really interesting thing to watch in the Alzheimer's field with a number of years back, there was the idea of biomarkers being part of a clinical trial basis way of thinking about diagnosis. And at this point, it actually is considered part of the diagnostic pathway for Alzheimer's. I fully anticipate by the time we would make it to FDA with our potential package for remlifanserin that there would be an expectation that Alzheimer's disease is a biologically confirmed disease. And so we've been -- we put this in place to try to future-proof the program that we have. And I think that probably touches a little bit on your point about real world. I think that the real world is starting to move that way as well. So we think that this has an important component of regulatory success. I should note, it may also have a potential opportunity for improving technical success. There is a possibility that this helps you be more confident that the patient population you have is truly Alzheimer's and that there's less heterogeneity in that patient population from a response perspective. So we think it's important on both aspects. Finally, to your point about the black box warning it's a really great question. There was an FDA workshop probably about 1.5 years ago at this point. And one of the discussion points was about the black box warning and for future agents, what kind of data might be necessary to help FDA make data-based decisions on individual agents. So we attended that eagerly, learned from it and have taken into account feedback that we got both through there and through other discussions about the kind of information we need to collect to be able to let FDA make a specific decision on remlifanserin and whether it does or does not warrant such a box warning. So right now, I don't know. But we know the data we need to collect, and we do think that there is good reason to think that this could be a path forward without a black box, but it's going to depend on the data at the end of the day. Operator: Your next question comes from the line of Ritu Baral with TD Cowen. Ritu Baral: I've got some more remlifanserin questions as well, extending from clinical into commercial. One, as we think about that Phase II data that's coming, what should our expectations around either effect size or delta on the SAPS-H+D? Is there an accepted minimal clinically important difference here? And what frames success on a statistical level? And then as we look at our market model, just given the recent competitive approval Alzheimer's agitation drug, how should we be thinking about differential diagnosis between the two indications, accurate diagnosis and sort of decision -- treatment decisions between the two? Catherine Owen Adams: With all the interest in remlifanserin. So I'll ask Liz to kick that off and then maybe Liz and Tom can both talk to the market a little bit as well. Elizabeth Thompson: Yes, absolutely. So in general terms of what we should all be looking for and what defines Phase II success for us as we are walking into this readout, there are a few things that I'm looking for. I mean the main thing really with any Phase II is what you're looking for is Phase III enabling data. You're looking for information that helps you know what to do in a Phase III, any modifications you may need to make, et cetera. Beyond that, I'll be looking for continued information that suggests that remlifanserin is delivering results that are consistent with our TPP. We're not going to know all of those definitively coming out of Phase II, and there will be some things that we already feel pretty good about, but I'll be looking -- we want to make sure that we've got something that can be dosed once a day that can be done easily with respect to conmeds, with respect to food, anything that makes it easy for patients to take their drug. We are, of course, looking for efficacy. We'll be pleased with an effect size that's in line with what we're powered for, which is a 0.4 or moderate effect size. We'd be pleased with safety that looks similar to the pimavanserin profile. And this part, of course, we definitely won't be able to definitively answer out of Phase II, but continued data that suggests that there's no deleterious impact on movement, on cognition, which from the overall pimavanserin data set, we do feel good about. And hopefully, we'll get some directional sense there. To the question about MCID on SAPS-H+D, that's not a well-established one at this point. Part of what we would be doing for a dossier that would go into FDA eventually is establishing that MCID based in part on the Phase II data that we have. We are, however, also looking at, in addition to just the delta, some responder levels those who have improved by at least 30%, those who have improved by at least 50%, which we think help contextualize the meaningfulness of those results. And then I think there was also a question about the recent Otsuka approval in agitation. I'll just briefly say we're always happy to see more options for patients. Alzheimer's disease is a complex disease with many manifestations that are really profoundly impactful for patients and their families. What I think is important to keep in mind is that we always did envision as we looked at our business opportunity for remlifanserin that there is a potential competition, particularly including agents that would be approved for agitation and that there are distinctions between agitation and psychosis. Agitation is complex. There are a lot of things that can play into it. It can stem from pain. It can stem from cognitive challenges, and it can stem from psychosis. For remlifanserin, we are optimistic. There is some pimavanserin data suggesting that in those patients who have significant agitation and significant psychosis, if their psychosis improved, it did seem to suggest that their agitation improved as well. So there may be an aspect of agitation, but I wouldn't expect that we would have impact on pain-induced agitation, et cetera. And sort of on the flip side, if you look at molecules that are effective in agitation, there's not necessarily a good reason to believe that they can be impactful on any of the things that are actually driving that agitation like psychosis. I mean, actually, if you look at de -- goodness, if you look at various components, they actually can be associated with an increase in psychosis. So taken together, I think we think that there's ample room for multiple players in this space and that effective players in agitation are going to be meaningfully impactful for the opportunity we see with remlifanserin. Operator: Your next question comes from the line of Yigal Nochomovitz with Citigroup. Unknown Analyst: This is Caroline DePaul on for Yigal. So switching gears to DAYBUE STIX, you disclosed that 30% of patients are either treatment-naive or returning after previously discontinuing the liquid formulation. Just wondering how this compares to your expectations for the launch? And do you still expect to capture 400 or over 400 incremental patients with STIX? And if so, what is the anticipated cadence for capturing those patients? Thomas Garner: Perfect. Thanks for the question, Caroline. So let me provide some additional color on your question just regarding kind of our expectations and performance through the first quarter. So just as a reminder, our launch strategy was very focused on COEs through the first quarter. So we've not yet gone broadly into the community. However, we have been very, very pleased with the initial uptake that we've seen. So the 250 patients that -- or the 250 prescriptions that we had, we actually shipped 220 of those in the quarter, which, again, I think just talks to the fact that we're able to get this drug into patients' hands quickly. In terms of how it's doing versus expectations, we would actually say that the ramp in terms of speed that we're seeing here is actually going quicker than we anticipated. I mean I think the 450 that you referenced is what we had spoken about at JPM, we still think that, that holds true. And we had modeled that over a 3-year period, which would basically get us to STIX being the dominant SKU by the end of that time. I think we may end up in a situation where it goes slightly quicker than that. But again, I think the 30% that we're seeing is broadly in line with our expectations. And we're encouraged by the fact that it's not only returning patients but naive patients as well, supplemented by the fact that we're also seeing significant interest from patients already receiving the liquid formulation. So I think taken together, it gives us real optimism for the future of DAUBUE more broadly and the role that STIX can really play in fueling that growth. Operator: Your next question comes from the line of Brian Abrahams with RBC Capital Markets. Brian Abrahams: Maybe going back to remli. As we think about remli and what could generate success in the upcoming study, I guess, can you -- what exactly are the key differences on potency, saturation and receptor binding properties that you might expect from 60 milligrams of remli as compared to the marketed and current and previously tested dose of pimavanserin? Or should we think about this more as being just having a more homogenous population in a study design that leverages prior learnings and uses a more sensitive endpoint? Elizabeth Thompson: It's a great question, and I think we can think of it as potentially a little bit of both. What we do know from our prior pimavanserin work is that if you look over the exposure response range, there does seem to be a suggestion that at exposures that are higher than what you can get to with the currently marketed dose of pimavanserin, you are able to get greater efficacy. So there is at least a good reason to think that we're able to push to higher exposures as we are with the 60-milligram dose, we may be able to get further up on that exposure response curve. That said, even if that doesn't play out exactly the way that we're expecting it to, I do think that having a study design that is really specifically focused in on the Alzheimer's population. I think that's first and foremost, our learning from regulatory in times past is that they're going to need data that are specific to that population, which as I mentioned before on this call, we're going the extra step in biomarker confirming. That's going to be important. And we think that it's going to be -- we've done other modifications of things like trying to make sure that we have a slightly more severe baseline population in terms of their psychosis based on pim data that suggested you get better responses there as well as the fact that we're looking at endpoints that we think SAPS-H+D as well as other things that we have in our study like the NPIC that we think may be better suited to being able to distinguish differences than the NPI-NH that we used way back in the day in our Phase II trial. So I think it's a little bit of all of the above. Operator: Your next question comes from the line of Tazeen Ahmad with Bank of America. Tazeen Ahmad: How are you thinking about the read-through from the Phase II study for Alzheimer's onto the Lewy body study itself? Going back to a few years ago when a similar study was done, pima did seem to show a pretty strong signal there. So regardless of how it turns out for Phase II for Alzheimer's, how should we be thinking about the derisking for Lewy body for next year? Elizabeth Thompson: Love that question, and I love what's baked into it. I agree that while it's in small numbers of patients, I've always found the data in pimavanserin in Lewy body to be fairly striking. In the HARMONY study, just for people who are a little less familiar than you are, the withdrawal study, there were about 20 patients per arm with Lewy body. And of those who had their treatment withdrawn about 55% of them relapsed and those who continued on only about 5% did. So striking while in a small number of patients. So that actually, to your point, regardless of how the ADP study turns out, and we do have high hopes for that based on all the things that I just talked through in the last few answers. But regardless, I think we remain very optimistic about the Lewy body study. I think the one thing that could be a read-through would be something significant from a safety perspective. I'm not currently anticipating that. But obviously, we only know that when we get the data at the end of it. Thus far, though, we're optimistic about Alzheimer's. But regardless of that, I think we're very optimistic about Lewy body. Catherine Owen Adams: Can you talk a little bit about how we think the formulation of remli might suit the Lewy body patient as well in terms of the fragility in the dose set? Elizabeth Thompson: So we do think that, obviously, the Lewy body patient population, both of these patient populations, obviously, are complex and with significant needs. Lewy body, generally speaking, is, I think, accepted to be a little bit more frail, and we think it is even more important to have something that is very safe and something that is very easy to take, which again has been something we've really prioritized with remlifanserin. Catherine Owen Adams: We look forward to seeing you next week. Operator: Your next question comes from the line of Marc Goodman with Leerink. Marc Goodman: Yes. My question is on NUPLAZID. And if we had a delay in patients that you know are kind of getting on therapy, but they were delayed from January and part of February, why would we not have a great second quarter that kind of makes up for that low first quarter because your guidance is kind of all this back-end loaded discussion. So I think you understand the question. Catherine Owen Adams: Yes. So let me kind of address that initially. I think we are expecting a strong second quarter, Marc. The dynamics that Tom referred to are definitely showing that from the current sales force. When we talk about the back end of the year, it's really the impact of the additional expansion. But let me just hand it over to Tom to sort of talk you through those specifically. Thomas Garner: Absolutely. So thanks for the question, Marc. So as a reminder, we executed the 30% expansion of our sales team in Q1. That team has been in the field for now around kind of 6 weeks by the time we got to the end of the quarter. So we're really not seeing the full quarter impact of the productivity ramp that we anticipate seeing. You are correct. We saw a very nice increase in referral volumes, 11% year-over-year. We saw good demand growth. But we did have this issue just in terms of late returning patients through the quarter, which was kind of further impacted by the normal Q1 dynamics you would expect to see for Medicare population. So moving forward, we anticipate that the productivity ramp will continue to impact us moving into the second quarter and beyond. We're continuing to push on the DTC efforts that I mentioned, both in terms of our unbranded, more Parkinson's and branded efforts. And in addition to that, all of the additional work that we're putting into place just around the expanded target universe that we're now going after. As a reminder, we've now increased to a target universe of just over 10,000 HCPs. We believe that tackling that is going to lead to significant uptick for the brand more broadly because we still have plenty of share growth that we can continue to drive over the coming quarters. In terms of the question just guidance, I don't know if Mark wants to add. Mark Schneyer: The one thing I'd add -- thanks for that comment. Just from a financial perspective, it's more late to refill of existing patients, not new patients. So those patients that were late to refill essentially missed the script in the year. So it's kind of a lost revenue. The good thing, though, is it's not a lost patient. Those patients have come back based upon our historical numbers and have refilled in the quarter. So it positions us strong going forward, but not necessarily just a rebound of recouping what was missed in January and early February. Operator: Your next question comes from the line of Jack Allen with Baird. Jack Allen: Just two quick ones from us. On remli, in the ADP study, this is a placebo-controlled study, and the FDA has started to put out a lot of guidance around potentially allowing for filings on single trials. I just wanted to hear any thoughts you had on the potential to file on positive results in a placebo-controlled setting for remli. And then briefly on DAYBUE, it seems like you're making a lot of progress with the STIX formulation, and you have thrown out the $700 million kind of aspirational sales number for 2027 longer-term guidance there. I'm curious to what extent you factor in gene therapy in Rett into that longer-term guidance as well? Catherine Owen Adams: Do you want to take this? Elizabeth Thompson: Sure. So great question about the single trial. And obviously, we've had lots of discussions about this. What I'd say is, thus far, I think we're all still waiting for a guidance document around this to have a better understanding of the thought process. It's not clear some of the things which I anticipate will likely still apply things like the size of the safety database. And those are the types of considerations that make it such that my current expectation is that our base case assumption, which is that we need our Phase II and we need Phase III is going to be what we're going to need at the end of the day. I do want to note that, obviously, if we were to see really striking results in this trial, we certainly would go have a conversation with FDA to explore what possibilities exist. But right now, again, our base case assumption is that we are going to need more than the single study just purely based on the size of exposure that we would have. Catherine Owen Adams: Just a top line basis, I think we continue to be very confident in our $700 million guidance for 2028. We have, of course, thought about competitive dynamics through that period, including gene therapy. Tom, do you want to add anything else that the team has been thinking through? Thomas Garner: Yes, absolutely. So again, very pleased with the initial progress that we've seen with STIX. Obviously, this is complementing what we've already been driving over the last year with liquid as well as we continue to expand into the community. I think it's worth reminding everyone that our penetration for DAYBUE across both COEs and community physicians is still in like the 40% mark. So we still got significant headroom for growth for this brand, and we believe with STIX, we can capture both naive and restart patients who may have stopped. And as a reminder, we have around 1,000 patients who have tried DAYBUE, but are no longer continuing treatment. We believe that we're going to be able to reengage those, and we've already seen that through the first quarter. As it relates to gene therapy, as we mentioned on the call, we've also been very pleased to see the Delphi consensus published, which clearly positions DAYBUE as standard of care for patients living with Rett syndrome. Our view is that I think it will be good news to have more treatments available for the Rett disease for the Rett syndrome population. I think we have to wait and see what the data actually tells us as the gene therapies come to the fore, and we're going to be interested to see how that plays out. But irrespective, we believe that DAYBUE will have a role to play across all of these patients moving forward, whether gene therapies exist or not. So again, as Catherine said, we feel really good about the $700 million that we stated by 2028. Operator: Your next question comes from the line of Ami Fadia with Needham. Ami Fadia: My question is on remlifanserin. With regards to the powering of the study, I think you mentioned that you're looking for a 0.4 point change. What is the minimum effect size that you need to see for the study to be statistically significant? And then as we also are expecting data from Cobenfy study, where they'll be looking at the endpoint of NPIC, when you give us the top line data readout, would you be providing NPIC data? And at what time point is that being measured? Just trying to get a sense of how will we compare data across trials just to sort of understand the competitive profile for this product when the data reads out? Elizabeth Thompson: Well, I always feel like I need to start with saying, you need to be careful in cross-study comparison. in this case. I think an important thing that I should note is that NPIC was an addition to our study after it had gotten started. It was actually one of the earlier things that I did in my tenure here. And accordingly, we don't -- we will not have NPIC data on all patients who are participating in the Alzheimer's study. So we think that this is going to be important in the Phase II Alzheimer's study, sorry, I should be clear there. We think this is going to be important information, but I don't know that I would anticipate it would be, for example, part of a top line result. It is an exploratory endpoint with a subset of patients. In terms of powering expectations, so we are powered at 80% for an effect size of 0.4. So you can imagine there's a little bit of flex around that with scenarios that could still be statistically significant, but that's generally what we're looking for. Operator: Your next question comes from the line of Sean Laaman with Morgan Stanley. Katherine Delahunt: This is Katherine on for Sean. We had another one on DAYBUE STIX. As adoption scales, can you just provide some color if you expect any meaningful change in persistency versus the liquid formulation? Or is the primary benefit improved front-end initiation and reduce early friction? And then just as a quick follow-up. I think you mentioned about 1,000 patients have previously tried DAYBUE. Can you share more about your strategy to reengage these patients? Thomas Garner: Absolutely. So let me take that for you, Katherine. So starting with persistency. What I would say is we are monitoring this very, very closely because as you would imagine, if we can improve persistency further over and above what we're seeing with liquid, obviously, that would be very advantageous for us. Just as a reminder in terms of the latest data that we have, just regarding persistency with the liquid formulation, at 12 months, we are now north of 55% remaining on treatment through 12 months, and we're retaining about 50% of patients through 18 months. So persistency for liquid actually continues to improve over time. And the latest data that we have is that 74% of our active patients have actually been on treatment for 12 months or longer. So we continue to be pleased with just the growing group of like persistence -- persistent patients who are continuing to see benefit with DAYBUE. STIX, to your question, we believe it can help in terms of initial friction. Obviously, there is some significant advantages that we believe exist that go beyond the liquid formulation. But as it stands at the moment, it's probably too early to be definitive as to how STIX will perform in the real world in comparison to liquid, but we will be sharing more detail in due course. Catherine Owen Adams: Do you want to talk to the 1,000 patients then how many of those we think might be up for grabs? Thomas Garner: Yes, absolutely. So as you think about the 450 patients that we spoke about earlier on in the year and you kind of break that down, we think that roughly 3/4 of those would be naive to treatment and the remaining quarter would be restarts. If you look at what we're seeing so far, through Q1, it's roughly a 50-50 split of that 30%. So we're seeing both naive. We're also seeing returning patients. But as I mentioned on the call, we're also seeing significant interest from existing patients receiving the liquid formulation in switching to STIX. So taken together, that's where we are. And just to close this one, the momentum that we saw in Q1 actually has continued into Q2 as we've gone broader into the community. So again, excited to share more details in due course, but we're very pleased with the initial uptake of STIX. Catherine Owen Adams: I think Q2 will be a much more descriptive story about STIX and the types of patients we're seeing, but we look forward to sharing more then, Katherine. Operator: Your next question comes from the line of Evan Seigerman with BMO. Malcolm Hoffman: Malcolm Hoffman on for Evan. Asking about STIX again. I just wanted to see if there was any specific stocking for the STIX formulation this quarter. And then also, I want to get a sense of how you can ensure patients proceed with refills for the STIX formulation to kind of continue the strong momentum we've seen in this quarter. Appreciate it. Thomas Garner: Perfect. Yes, happy to take that,. So first question in terms of stocking, what I would say is very similarly to what we see with liquid. We supply everything through a single specialty pharmacy, and it really is on a patient-by-patient basis. So there is very limited stocking that we are anticipating or have seen. And then in terms of refills, as I mentioned, of the 250 prescriptions that we actually had in the quarter, over 220 were actually filled. So we're not seeing any issues as it relates to payers or formulary issues on the whole. We're actually seeing it seems to be very smooth and in line with our expectations, which again is a nice proof point that the strategy that we've employed here in terms of a limited launch has worked well for us. Operator: Your next question comes from the line of Rudy Li with Wolfe Research. Guofang Li: Just a quick follow-up for LBDP trial. So how will these two endpoints being measured in the ADP trial help inform the benefits in LBDP, which is measuring a different endpoint of SAPS-LBDP? And to what extent their components overlap? Catherine Owen Adams: I think it was a little bit difficult to hear some of that Rudy, but I think it was to do with the different measurements of endpoints in ADP and LBD and tau versus maybe the alpha-synuclein view of biomarkers. Okay. Elizabeth Thompson: Thank you. I missed a bit of it appreciate it. So first off, I guess, a couple of important things with respect to the biomarker considerations. There are a number of more established biomarkers at this point that are considered to support the Alzheimer's diagnosis. And so we are actually requiring a biomarker confirmation for -- of the diagnosis for entry into Alzheimer's. The Lewy body field is in a much more exploratory phase. And so we are including an assessment of alpha-synuclein, but it's not a requirement to get into the trial. It's a thing that we think is going to help inform us in terms of potential future trial design and also hopefully contributing to the science. In terms of the endpoint, there is a fair amount of overlap between the SAPS-H+D and the SAPS lewy body. They are both derived from the overall SAPS scale and are a similar but not exactly the same subset of attributes. The SAPS Lewy body, in particular, was based on those aspects that we saw in the PDP and the pimavanserin PDP trial that seem to be most impacted. So that was the driver behind that, but a lot of overlap between those two endpoints. Operator: Your next question comes from the line of David Hoang with Deutsche Bank. Samuel Beck: This is Sam on for David. Back to DAYBUE, is there anything else that you're able to share on the prescribing penetration dynamics in the quarter as it relates to the community setting versus centers of excellence? And as a follow-up, noting that the STIX formulation was initially launched in centers of excellence. How should we be thinking about the impact of that formulation in terms of how you think it would resonate prescribing in the community through the rest of the year in the future? Thomas Garner: Absolutely. So happy to take that question, Sam. So as you would imagine, given our strategy for DAYBUE STIX is really focused on COEs at launch, we did actually see an increase in terms of the number of prescriptions or the overall volume of prescriptions that was coming from COEs in the quarter. So I think we were at roughly 79% was coming from the community in the quarter. -- from the COE versus a lower number from the community. And I think that, again, that's just reflective of the fact that there's been this significant excitement amongst the community around STIX. As you think about kind of the penetration that we have, which again, we've spoken about in the past, we still have significant opportunity. So our penetration within COEs, even with STIX is around 60%, our penetration in the community currently sits at around 28% before the launch of STIX. Of note, both of those have grown significantly over the last year. Most importantly, though, our penetration within the community, which, as a reminder, is about 65% of the overall available volume has grown by about 7% on an actual basis over the last year. So again, I think a nice proof point that the strategy that we've employed to kind of focus on COEs, but expand our reach into the community and STIX is very much going to be a part of our strategic road map there is working for us, and that's what's giving us real confidence in the outlook for DAYBUE for this year and moving forward. Operator: Your next question comes from the line of Yatin Suneja with Guggenheim. Yatin Suneja: Just a quick one on the reexamination process happening in Europe. Could you just talk about where you are? What do you expect to learn from the process there on trofinetide? Elizabeth Thompson: So the reexamination process, there are a few points along the way. There is the original intent to request reexamination. We did that very shortly upon receiving the original negative opinion. There's submission for -- there's assignment of new rapporteurs, which has occurred. There is -- my voice is going today. There is submission of the ground for reexamination, which we have completed. We anticipate an upcoming SAG meeting, and then there may or may not be an oral examination meeting. So we are just past the submission of our ground for reexamination. Operator: Your next question comes from the line of Paul Matteis with Stifel. Julian Hung: This is Julian on for Paul. Really quickly on BD, just curious if anything has changed and how you may be prioritizing external innovation versus internal, especially with the announcement disclosed last week elsewhere. Also just curious on -- do you plan on disclosing total number of shipments at all moving forward? I know it's something that you disclosed in 4Q. And I know you said there was a record number this year, but I just want a clarification on that. Catherine Owen Adams: I'll get the team a rest from answer and give Liz the rest and tackle both of those. So in terms of BD, as we've stated, we remain very active and focused on our BD strategy. As you pointed out, we do have a very rich internal pipeline and our late stage is certainly looking great in the next 2 years. But obviously, we're managing this for the longer term, and we're really focused on kind of two areas really right now. One is later-stage assets that we could bolt on to our current commercial franchise, which Tom is leading with such great success. And so we're looking there. But we're also looking at continuing to refresh our early-stage pipeline, which Liz and her team are managing. So those kind of our two main areas of focus right now. We have a lot of ability to flex with our balance sheet, and we know that it's a very competitive process. We are actively involved in processes, and we continue to look for the right fit for ACADIA. We're not under any particular pressure right now, but we are looking for strong fits for our business moving forward to drive that long-term value and growth for our shareholders, but also more importantly, the patients that we aim to serve. In terms of the shipping, we did commit to kind of moving now towards financial dollar top line. We feel after 3 years of launch that sort of specific patient level metrics on shipping to DAYBUE is probably not the right way to assess the brand. We will continue to give clarity like Tom has to say on the STIX dynamics, you can see that playing forward. But in terms of patients shipped, we're not going to be sharing that anymore, but it just does continue to grow, and we're very confident again in our full year forecast for both brands, and thank you for the question. Operator: Ladies and gentlemen, that does conclude our question-and-answer session. And I would now like to turn the conference back over to Catherine Owen Adams for closing comments. Catherine Owen Adams: I just like to thank everybody for the great questions today and the team here for answering them and specifically Liz for all the great answers on remlifanserin. We're very excited about the next few quarters for ACADIA, both with our commercial brands, but also obviously, the top line results of remlifanserin. And we look forward to continuing to discussing with you and to our conferences in the next coming weeks. Thanks again for your interest in ACADIA today. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good morning. I would like to welcome everyone to Kennametal's Q3 Fiscal 2026 Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded. I would now like to turn the conference over to Michael Pici, Vice President of Investor Relations. Please go ahead. Michael Pici: Thank you, operator. Welcome, everyone, and thank you for joining us to review Kennametal's Third Quarter Fiscal 2026 results. This morning, we issued our earnings press release and posted our presentation slides on our website. We will be referring to that slide deck throughout today's call. I'm Michael Pici, Vice President of Investor Relations. Joining me on the call today are Sanjay Chowbey, President and Chief Executive Officer; and Pat Watson, Vice President and Chief Financial Officer. After Sanjay and Pat's prepared remarks, we will open the line for questions. At this time, I'd like to direct your attention to our forward-looking disclosure statement. Today's discussion contains comments that constitute forward-looking statements and as such, involve a number of assumptions, risks and uncertainties that could cause the company's actual results, performance or achievements to differ materially from those expressed in or implied by such statements. These risk factors and uncertainties are detailed in Kennametal's SEC filings. In addition, we will be discussing non-GAAP financial measures on the call today. Reconciliations to GAAP financial measures that we believe are most directly comparable can be found at the back of the slide deck and on our Form 8-K on our website. And with that, I'll turn the call over to Sanjay. Sanjay Chowbey: Thank you, Mike. Good morning, and thank you for joining us. I will begin with an overview of the quarter, including end market commentary followed by a discussion on unit volume trends. From there, Pat will cover the quarterly financial results and the fiscal year '26 outlook, along with an early look at fiscal '27. Finally, I'll make some summary comments, and then we'll open the line for questions. Turning to Slide 3. Let me begin by addressing some of the highlights from our strong third quarter. Our global commercial teams continued to advance our strategic growth initiatives. The infrastructure team delivered solid growth. In construction, we saw volume growth from strong product performance and the advantage we have as a secure source of tungsten in a tight supply environment. Additionally, we received large orders in our defense business, further securing ongoing growth in this market as we head into fiscal '27. In metal cutting, we continue to increase our share of wallet with key accounts, especially in aerospace and defense and build upon our momentum in energy from AI power generation initiatives. In general engineering, we have been winning new customers through targeted promotional campaigns and improvements to our digital customer experience, especially for our small- to medium-sized customers. As you know, we continue to prioritize above-market growth as a strategic imperative, and these wins position us well in our key end markets. Turning now to the broader tungsten environment. Prices continued their unprecedented increase throughout the quarter, rising from approximately $900 per metric ton to $3,000 as the supply of material continued to be constrained. This tungsten price and supply environment have created both challenges and opportunities. On the challenges front, we have seen a highly competitive market for material, but our supply chain has held up relatively well. We have and will continue to implement pricing actions in response to these rising tungsten costs and remain confident in our ability to secure that price. We are also focused on managing the working capital and balance sheet implications of higher tungsten costs. In terms of opportunities, our vertical integration has been a real strength in this market, providing us better supply chain control and flexibility compared to some competitors. For example, as competitors are turning away orders or extending lead times, we are well positioned to capture business that is aligned with our strategic priorities. During the quarter, we capitalized on these opportunities in each of our business segments, specifically earthworks within infrastructure and aerospace and defense in metal cutting. These new opportunities also facilitate shaping our product portfolio away from lower margin to higher-margin solutions. As such, we are seeing a unique combination of three factors that are opening the door to sales opportunities. First, continued market recovery; second, solid execution on our strategic growth initiatives; and third, a window of opportunity from the current tungsten market, which is likely to persist in the near term. Given those dynamics, we are prioritizing our time and attention on growth opportunities over restructuring initiatives in the near term. And we are shifting the time line for facility closure actions we had previously planned to complete in fiscal '27. We will provide additional detail on the restructuring time line as appropriate. Even with that shift, we are still targeting approximately $110 million in savings from cost takeout actions by the end of fiscal '27, which is $10 million above what we outlined at Investor Day. Now let's move to our quarterly results, which once again exceeded our sales and EPS outlook. Compared to outlook, sales were mostly driven by increased price realization and better-than-expected volume in both segments. EPS benefited from the additional price raw timing of $0.09, positive volume and lower-than-anticipated tax rate. Year-over-year, sales increased 19% organically. Please note, this was our third consecutive quarter of organic growth, driven by additional price realization, strategic growth initiatives and continued recovery in several end markets. Adjusted EPS increased to $0.77 compared to $0.47 in the prior year quarter. And adjusted EBITDA margin was 20.8% compared to 17.9% in the prior year quarter. Cash from operating activities year-to-date was $70 million compared to $130 million in the prior year period. Free operating cash flow year-to-date was $18 million compared to $63 million in the prior year. Free cash flow was adversely impacted by increased working capital requirements related to tungsten prices. Finally, we returned $15 million to shareholders through dividends. As it relates to our outlook, today, we are raising our sales and EPS outlook for fiscal '26. This update reflects the additional price due to the continued rise in tungsten and additional volume. Pat will provide more details on our updated outlook shortly. In summary, we are pleased with this quarter's results and how the team is navigating these unique business conditions. As I mentioned, there are opportunities and challenges in this market, and we remain focused on delivering on our commitments throughout fiscal '26 and setting ourselves up for a successful fiscal '27. Now let's turn to Slide 4 for an end market update. As a reminder, our full year outlook reflects forecast of specific market drivers and general market conditions. The top half of this slide reflects our sales outlook at the midpoint and includes price, volume and market factors. My comments will focus on the bottom half of the slide and address transportation and energy, which are the only end markets that changed since our last call. IHS estimates for transportation slightly improved from the previous estimate, up in the low single-digit range, mostly driven by improvements in Asia Pacific market. Energy improved slightly relative to our prior outlook as customer sentiment improved. The tone is now cautiously optimistic, which is an improved stance compared to what customers were previously signaling. Turning to Slide 5. As we have talked about over the last several years, customer activity rates and our sales volumes have been below the pre-COVID peak. I want to take some time to provide insight into unit volume and how those trends have improved over the last few quarters. This chart uses units sold volume and excludes the impact of price and foreign exchange. It also excludes infrastructure defense sales as these are lumpy and not tied to industrial production metrics. Now let me spend a moment on what is driving the volume recovery and just as importantly, why we believe it's sustainable. As the call-out indicates, we are now experiencing the second consecutive quarter of year-over-year trailing 12-month unit volume growth despite a macro backdrop that has been uneven. Volumes are strengthening in the Americas and Asia Pacific, but EMEA continues to lag, and that is consistent with what we are seeing in PMI and industrial production data. A key driver continues to be aerospace and defense, which remains strong across both metal cutting and infrastructure. Importantly, this strength isn't simply tied to OEM build rates, which are still roughly 20% below pre-COVID levels, but rather to share gains and deeper penetration with tier suppliers. That gives us confidence there is still additional runway as production rates normalize over time. We are also starting to see early signs of stabilization in general engineering and energy, even while headline indicators remain soft. In Energy, power generation continues to see meaningful momentum. And while U.S. land rig counts are still about 30% below pre-COVID levels, we are seeing enough stabilization to suggest we are past the trough. In infrastructure, earthworks has delivered volume gains for 2 consecutive quarters, driven by share gains. Stepping back, if you look at the chart, global volumes are now up approximately 3% from the Q1 fiscal '26 trough following 36 months of stagnant industrial production. Our performance is not just the result of a market recovery. It's shaped by where we compete, how we allocate resources and where we are winning share. We know we operate in cyclical end markets, but we are quite confident in the long-term growth potential of these markets and our ability to capture share within them. Now let me turn the call over to Pat, who will review the third quarter financial performance and the outlook. Patrick Watson: Thank you, Sanjay, and good morning, everyone. I will begin on Slide 6 with a review of our Q3 operating results. Sales were up 22% year-over-year with an organic increase of 19% and favorable foreign currency exchange of 5%, which was slightly offset when adjusting for the divestiture we concluded last year. Sales volume in the quarter was up low single digits. At the segment level, organic sales increased 30% in Infrastructure and 12% in Metal Cutting. On a constant currency basis, Americas sales increased 27%, Asia Pacific sales increased 25% and EMEA was up 2%. The sales performance this quarter exceeded the expectations we provided last quarter on higher sales volumes from better market conditions and share capture. We also had higher-than-expected price, primarily in infrastructure from the continued rapid increase in tungsten prices. By end market, on a constant currency basis, Earthworks grew 43%, Energy increased 28%, Aerospace and defense grew 23%, General engineering grew 14% and Transportation increased 1%. I will provide more color when reviewing the segment performance in a moment. Adjusted EBITDA and operating margins were 20.8% and 13.8%, respectively, versus 17.9% and 10.3% in the prior year quarter. The margin increase was driven by favorable price raw of $39 million within the Infrastructure segment, pricing and tariff surcharges in Metal Cutting, increased sales and production volumes and year-over-year restructuring benefits of $7 million. These are partially offset by higher compensation costs, which are mostly performance-based, tariffs and general inflation and a prior year benefit from an advanced manufacturing tax credit of approximately $8 million that did not repeat in the current year. Adjusted earnings per share was $0.77 in the quarter versus $0.47 in the prior year period. The main drivers of our EPS performance are highlighted on the bridge on Slide 7. The year-over-year effect of operations this quarter was positive $0.36. This reflects approximately $39 million of favorable timing of price raw material costs, price and tariff surcharges in Metal Cutting, higher sales and production volume and incremental restructuring benefits of $7 million. These are partially offset by higher compensation costs, tariffs, general inflation and higher raw material costs in Metal Cutting. There was a headwind of $0.08 related to the net prior year manufacturing tax credit. You can also see the $0.02 of transaction gains related to preferential Bolivia exchange rates. Currency, other and pension impacts offset each other. Slides 8 and 9 detail the performance of our segments this quarter. Reported Metal Cutting sales were up 18% compared to the prior year quarter with 12% organic growth and favorable foreign currency exchange of 6% Regionally, excluding currency exchange, Asia Pacific increased 18%, the Americas increased 17% and EMEA increased 3%. Looking at sales by end market on a constant currency basis, Aerospace and defense increased 27% year-over-year due to improved build rates in Americas and easing supply chain pressures in EMEA, combined with our global focus on deeper market penetration. Energy grew 17% this quarter from data center power generation wins. General engineering increased 13% year-over-year due to price, volume gains in Asia Pacific and stronger distribution sales in the Americas. And lastly, transportation increased 1% year-over-year due to price and market softness, primarily in EMEA. Metal Cutting adjusted operating margin of 11.2% increased 160 basis points year-over-year, primarily due to higher price and tariff surcharges, higher sales and production volumes and incremental year-over-year restructuring savings of approximately $5 million. These factors were partially offset by higher compensation, tariffs and general inflation and higher raw material costs. Turning to Slide 9 for Infrastructure. Reported Infrastructure sales increased 29% year-over-year with organic growth of 30% and favorable foreign currency exchange of 4%, partially offset by a divestiture effect of negative 5%. Regionally, on a constant currency basis, Americas sales increased 42%, Asia Pacific increased 35% and EMEA sales were flat. Looking at sales by end market on a constant currency basis, Earthworks increased 43% from higher demand in construction as we were able to provide product to customers who are unable to source product from other players and share gain in underground mining. Energy increased 34%, mainly driven by price. General engineering increased 18% due to price and higher powder demand in Asia Pacific, partially offset by lower demand in EMEA. And lastly, Aerospace and Defense increased 17% due to defense orders, driven by continued focus on growth initiatives and timing in the Americas. Adjusted operating margin increased 680 basis points year-over-year to 18.3%, primarily from the favorable timing of pricing compared to raw material costs of $39 million and year-over-year restructuring savings of $2 million. These items were partially offset by higher compensation costs and a prior year manufacturing tax credit of $8 million that did not repeat in the current year. Now turning to Slide 10 to review our free operating cash flow and balance sheet. Our third quarter year-to-date net cash flow from operating activities was $70 million compared to $130 million in the prior year period. This change was driven primarily by higher working capital from higher tungsten prices and increased volumes of tungsten to secure our supply chain. Our third quarter year-to-date free operating cash flow decreased to $18 million from $63 million in the prior year, primarily due to the increased primary working capital changes I just referenced, partially offset by lower capital expenditures. On a dollar basis, year-over-year, primary working capital increased to $819 million from $654 million. On a percentage of sales basis, primary working capital increased to 32.4%. It's important to note that from both an earnings and cash flow perspective, the business is operating as it normally would when the price of tungsten rises. In periods of rising tungsten prices, we always experienced favorable price raw timing effects in sales and earnings, while we experienced headwinds to cash flow as primary working capital grows based on tungsten valuation. What is unique about the current circumstance is the magnitude of the rise in tungsten prices. In no recent time have we experienced a ninefold increase. Due to the uncertain nature of tungsten pricing and the corresponding pressure it has placed on working capital, we once again made the decision not to repurchase shares. Net capital expenditures decreased to $52 million compared to $67 million in the prior year quarter. In total, we returned $15 million to shareholders through dividends. Inception to date, we have repurchased $70 million or 3 million shares under our $200 million authorization. We remain committed to returning cash to shareholders while executing our strategy to drive growth and margin improvement. We continue to maintain a healthy balance sheet and debt maturity profile. At quarter end, we had ample liquidity to support the business with combined cash and revolver availability of approximately $742 million. And as always, we remain well within our financial covenants. The full balance sheet can be found on Slide 16 in the appendix. Now on Slide 11, regarding our full year outlook. We now expect FY '26 sales to be between $2.33 billion and $2.35 billion, with volume ranging from 2% to 3%, net price and tariff surcharge combined of approximately 16%, and we anticipate an approximate 2% tailwind from foreign exchange. The increased outlook reflects additional pricing actions related to the increase in cost of tungsten since our February call. Specifically, within the fourth quarter, we expect net price and tariff surcharges combined of approximately 35% compared to the prior year quarter. We now expect adjusted EPS in the range of $3.75 to $4. This outlook includes approximately $2.45 related to the timing of price raw benefit due to the rise in tungsten prices, the significant majority of which affects the Infrastructure segment. This effect increased $1.50 from the prior outlook. On the cash side, the full year outlook for capital expenditures is now anticipated to be approximately $85 million. And free operating cash flow is expected to be approximately negative 30% of adjusted net income, reflecting the working capital pressure from the rising cost of tungsten as discussed earlier. It's important to note our outlook does not include any effects from the conflict in the Middle East. The other assumptions in our outlook are noted on the slide. While it is earlier than normal, I would like to take a moment to provide a bit of a framework to help you think about FY '27. First off, our current assumption is that tungsten prices will remain elevated for some period of time going forward. That implies there will be significant carryover pricing given the 35% price expectation for the fourth quarter. This carryover pricing will diminish as FY '27 progresses since we would fully lap it in the fourth quarter. Keep in mind that this assumption holds price at the fourth quarter level. Also, we would expect price raw timing benefits in a flat tungsten environment will continue through the first half of FY '27 with the bulk of the benefit occurring in the first quarter. Outside of tungsten, we would expect normal cost inflation going into FY '27. However, we would see performance-based compensation reset the target, providing a $20 million tailwind. We will also see additional savings from restructuring and continuous improvement of $10 million. We will provide the rest of the details, including market expectations for FY '27 on our call in August. Back to you, Sanjay. Sanjay Chowbey: Thank you, Pat. Turning to Slide 12. Let me take a few minutes to summarize. We have delivered 3 strong quarters so far in fiscal '26, driven by price and modest improvements in various end markets, project wins on the commercial side and productivity and cost improvement actions. Going forward, we will remain focused on the strategic growth initiatives and lean transformation we have underway while also exploring ways to strengthen our portfolio over time. Additionally, we will continue to actively manage our tungsten supply chain. And in summary, we remain confident in our plan for long-term value creation for shareholders. With that, operator, please open the line for questions. Operator: [Operator Instructions] And today's first question comes from Steve Volkmann with Jefferies. Stephen Volkmann: Can we just start with what do you think -- what was the incremental margin on the volume in the quarter? Patrick Watson: Yes. I think the volume incremental margin was pretty normal for us, Steve. I think there's a couple of things, obviously, in the quarter that are kind of masking that because we've got some big numbers being thrown around there. Obviously, you've got the $39 million worth of price raw timing benefit coming through. In the prior year, we had that $8 million advanced manufacturing tax credit. And then I'd say the third component there that's just unusual for us is variable compensation. So last year, we would have been on the low side of accruing for variable compensation. This year, given performance, we're a bit on the high side. In the quarter, that's like an $18 million number there in and of itself. And then, of course, you have some benefits coming through for restructuring. But when you pull all that back, volume leverage is pretty normal for the business. Stephen Volkmann: Okay. And then it sounds like you've adjusted price. You obviously have a big forecast for the fiscal fourth quarter. Are we like where we need to be today in terms of price? Or will there be more price that sort of flows through in the fourth quarter and maybe even later into the summer? Sanjay Chowbey: Yes. Steve, this is Sanjay. As you know, this is a very dynamic situation that we are managing, and we'll continue to monitor how that moves. As even the last call, you talked about that how it was moving on a daily basis, hourly basis. So that's why we will just tell you that we are looking at different market variables. And our -- definitely, our goal here is to fully offset the cost implication of tungsten. Patrick Watson: I would just add to that, we did put price in here in the market, various states by region, but effectively in the April, May time frame. Stephen Volkmann: April, May... Operator: And the next question comes from Steven Fisher with UBS. Steven Fisher: Congrats on managing all the complexities here. Just a follow-up on that last question. Just curious about the differences between metal cutting and infrastructure. I know with infrastructure, it does tend to be fairly quick to capture that pricing. I'm just curious -- confidence that you can really fully pass on the price increases within the metal cutting and what the frequency of timing you can put that through? Essentially, are the customers that are going to these distributors, are they really seeing a 35% increase on the shelf there from these products? Just curious if there's any real differences there in dynamics between metal cutting and infrastructure. Sanjay Chowbey: Yes, sure, Steve. I think, first of all, like in the past, we have talked about the metal cutting is a list price business. And also when you look at the material flow, even there is more lag in that, but infrastructure sees that first. And based on the different product, we also have like different content of how much tungsten is used. So that will reflect -- when you look at the growth numbers, sales growth numbers by different end markets within the different segments, you will see, in some cases, very, very high number. Many cases, those are driven by the higher content of tungsten. So we have in infrastructure, many customers who are on the index price basis, but many others are not. And we do move relatively quicker on infrastructure pricing. In metal cutting, there's a 3- to 6-month lag generally. And then based on the list price change, we implement that. Steven Fisher: Okay. And then maybe just a little more color on what you're seeing in energy and how you see that evolving for the next few months. Just curious what you are hearing from your customers there? And is that something you're preparing for kind of a bit more of a ramp-up? Sanjay Chowbey: Yes. On the energy, I'll divide the equation into two pieces here. First is the AI power generation-related energy demands, which we see more so in the metal cutting side. Definitely, as you know, there's a lot of industrial activities driven around the world, but a lot in the U.S. also. And we are very well positioned with our innovative solutions, application support and custom solutions for our customers, and we are doing a pretty good job in winning share there. And I do believe that, that will continue. And as you have seen in even this quarter report, we talked about that quite a bit. When it comes to the other side of energy, which is more or less, let's say, oil and gas, it will definitely touch a little bit metal cutting, but a lot more in the infrastructure side. As we talked about it, that there is a little bit of optimistic view, but it's cautiously optimistic view. The rig count projection right now has gone from 527 to 532. But if you look at the market, there are 2 camps. There are people who are saying that there will be a lot more investment coming up here. And there are people who are saying that this is temporary and things like that. But our overall conclusion based on what we see, the trough is behind us, and we should see some steady improvement going forward. Operator: And our next question is from Julian Mitchell with Barclays. Julian Mitchell: Just maybe a first question, just to try and clarify the tungsten related sort of tailwind to EPS, I think you said $2.45 for fiscal '26 in aggregate. In the fourth quarter, is it around $1.75? Is that roughly the right math? Just wanted to check that. Patrick Watson: Yes. I think if you kind of back into that, Julian, we had about an EPS terms of about $0.16, I think, in Q2, $0.39 here in Q3. And so we just forced the rest out of Q4. Julian Mitchell: That's great. And then maybe, Pat, help us understand those moving parts around the sort of cash flow, year-ending leverage, when you might look to resume the share repurchase program? Help us understand what that free cash flow in the fourth fiscal quarter is looking like? And how quickly does it sort of reverse following that based on where tungsten is today? Patrick Watson: Yes. So I would think about it this way, and we talk about this from a -- how does the cost structure lag from an income statement perspective, that obviously, the balance sheet is following that, too. So as tungsten has ramped, we're going to continue to see inventory build on a valuation basis here in the fourth quarter. That's really what's driving that negative free operating cash flow for the full year. And so as that kind of builds up, we would anticipate you get about a quarter or two out. Again, from a change in tungsten, we would kind of get flatlined. The business would then move back to its normal pattern in terms of its cash generation ability. Obviously, as I said kind of in the scripted remarks here, the magnitude of what we're dealing with here is just significantly larger than what we've seen in the past, right? Think about that from a share repurchase perspective. Look, we've been very committed to returning cash to shareholders through the dividend program as well as through our repurchase program. Our desires have been at a minimum to offset dilution from equity compensation programs. We just fundamentally think that's good housekeeping. In the current environment, what would we want to see to really resume that? We really want to see some stabilization and clarity about where tungsten is headed. Our obvious thesis here at the moment is that tungsten should be relatively stable. That being said, it's a very dynamic marketplace today. Operator: The next question is from Steve Barger with KeyBanc Capital Markets. Steve, you may be muted on your side. Steve Barger: You talked about good activity in aerospace and defense and some share gains in infrastructure and earthworks. But at the same time, I think you said some competitors are turning away orders, presumably on price cost. So can you talk about what you think is happening with prebuy and just people scrambling to get product due to inflation? And then how does that map to the longer-term durability of share gains? Sanjay Chowbey: Yes. Steve, this is Sanjay. I'll take that first. First of all, we did see some prebuy, but it was mostly in the infrastructures earthwork construction business. Beyond that, there was not much material impact on prebuys in the rest of the business. We did see opportunities also in the earthworks business within infrastructure and also in aerospace and defense in metal cutting, where we did see some evidence, where we were able to capture, where competitors were not able to either provide proper lead time or even just meet the demand. So that's how we saw that. Does that answer your question? Steve Barger: I think so. Just so I'm clear, why do you think the competitors are not able to meet demand right now? Sanjay Chowbey: Yes. What we have seen some competitors are definitely having problem in getting raw material. And even if they're getting raw materials, they're also pretty booked and they're putting longer lead times. So in some cases, we are able to provide a better lead time, and that's how we got it. Patrick Watson: I would say that, I mean, the opportunity, obviously there, Steve, is that there is short-term disruption in the marketplace. That gives us an opportunity to quote and win business that maybe we wouldn't normally have seen the same opportunities on. The opportunity for us and the challenge to our sales organization, quite frankly, is to convert that to permanent long-term share capture. Sanjay Chowbey: Yes. One more thing, Steve, I will add to that. I think for investors who may be listening to us first time, I do want to mention that this situation that we have with tungsten is not driven by higher demand. It is driven by supply constraints. As in past, you have seen some of the times, tungsten went up. At the same time, oil and gas and some of the other industry, which consumes a lot of tungsten went up. This time, it is because of supply constraints and also export controls. So just simply, in a big portion of market, there is less supply right now. Steve Barger: Yes. Understood. That actually is a good segue to my next question. If I heard you right, you're slowing facility closures. And last quarter, you expected restructuring savings of $125 million. Now that's $110 million. Are those 2 things related? And if so, why -- maybe I missed it, why are you slowing facility closure? Sanjay Chowbey: Yes, very good question. As we said in the prepared remarks, and I will clarify that a little bit more. Obviously, we are seeing right now more growth opportunities, which is driven by all 3 factors: market improving, then also share gain through our routine strategic growth initiatives that we have talked about it in the past. And on top of that, a window of opportunity from the tungsten situation. So we look at how we can create the best value for all our stakeholders. And we feel right now that allocating more resources on growth opportunities and driving our routine business leverage will create more shareholder value for now. And that's how we are making the shift. However, we are not stopping the work on footprint optimization. We'll continue to work on it. Time line will shift a little bit. We'll come back and give you more information on that at appropriate time. Operator: Our next question is from Tami Zakaria with JPMorgan. Tami Zakaria: First question is on tariffs. I think IEEPA got struck down. Do you expect to file any refunds? And if so, what kind of -- what amount of refund would you expect to collect? Sanjay Chowbey: Yes, Tami, First of all, as you know, this is also one of the very dynamic situation. We still have tariffs in place. And so we are not taking any hasty action on this yet. I think we'll continue to monitor. And based on that, we'll make decisions. So nothing more to share at this point in today's call. Tami Zakaria: Understood. That's fair. And my second question is, for the fourth quarter, I just wanted to clarify, do you expect volume growth to be in that 2% to 3% full year range or it could come in above that? Patrick Watson: Yes. It's the full year range. I would say it's depending on where you're at in that range, Tami, it's going to be low to at the high end, maybe up into the mid-single digits. You obviously factor in 35% price we talked about from a script perspective. Don't forget, we had a divestiture in the prior year, and you got a little bit of FX in there as well. So that kind of is the math there in terms of you think about the top line. I would emphasize, as we just think about the profitability that obviously, we're going to see sequentially profitability step up pretty significantly here based on that price raw. And given the circumstances that we're in today, it is unusual, we're going to have some of that price raw realization in Metal Cutting, too. So when you think about, again, the margin performance of the business as a whole in the two segments, pretty big ramp-up for both of them. Operator: And the next question comes from Angel Castillo with Morgan Stanley. Angel Castillo Malpica: Just maybe first, I wanted to start out on the market share gains. That's been a meaningful driver, I guess, of the organic growth that you've been seeing. Just curious if you could unpack that a little bit more. I guess I'm trying to understand if it's possible to, I guess, separate how much of the share gains you think was maybe driven by value proposition or project wins that tend to be a little bit stickier versus where it's maybe related to kind of competitor supply constraints. And in particular, I guess, to the latter bucket, curious if you kind of expect that over time as kind of supply perhaps normalizes, if you would expect to kind of get that back or if there's any kind of stickiness to some of those shifts that we might be seeing on the kind of supply-driven angle? And also if you could comment on the promotional campaigns you talked about as well, that would be helpful. Sanjay Chowbey: Yes. Sure, Angel. First of all, again, it is a combination of all 3 factors: market improving, and we think that, that should continue. Then second will be in our strategic growth initiatives, and we have talked about in the past, those will include, for example, what we have done in aerospace and defense and energy and general engineering, earthworks and so on and so forth, how we have gone about winning bigger share of wallet with existing customers, but also going out and winning business at different tiers of the supply chain or our customer value chain. And those I will tell you that are very sustainable because we're winning those using our core competencies from product and innovation and our commercial excellence and our operational capabilities. Now the third piece of the volume that we have also talked about, the window of opportunity we have from tungsten Dynamics. We also think that those are sustainable, at least in the near term that we see that. In the long term, we'll see how that plays out. But we are being very strategic about which opportunities that we go and capitalize. We are selective on what opportunities we think are going to be longer-term sustainable for us. So all in all, of course, it's a mix of 3 things, and I won't be able to quantify break down or don't want to disclose it in public domain on that. But I can tell you that as we have talked about in past, that driving growth above market has been one of our strategic imperatives, and it will continue to be. In last 2 years, 3 years, actually, I will go a little bit beyond that, we have shown our ability to outperform or at least hold our own in our metal cutting business where we have in public peer data. And this is going to continue to be one of the focus. So in short, I will just say that it is going to be a meaningful piece of our overall volume story. Angel Castillo Malpica: Very helpful. And then if you could bear with me, I guess, a 3-part question here just on tungsten. Hoping to better understand, I guess, a couple of things. One, any more color you can add in terms of the sourcing that you're doing and how that differs versus competitors that allows you in a market that you described as very competitive in terms of sourcing to make sure that you're able to have the right amount of supply. So just any color you can add on that? And then maybe a little bit more longer term or medium to longer term, on the tungsten side, I think your preliminary fiscal year '27 outlook talked about that as being kind of stable at current levels. Just anything you can add in terms of the supply-demand that you're seeing progressing from here in terms of -- I think there might be some capacity that's coming online in 2027. So just to the extent that, I guess, any implications from that or the recently kind of lower prices of tungsten in China as to what -- where that commodity heads in 2027? And then just kind of lastly, implications of that to the price and the market share gains that you talked about on the supply basis. Patrick Watson: Yes, certainly. So I'll try to take each one of those in terms. When I think about the advantages we have, I want to go beyond, quite frankly, just the sourcing aspect. And from a sourcing perspective, -- as we've talked about in the past, we do not use significant amounts of Chinese material outside of our Chinese operation. Outside of China, we've got a diversified supply base and partners we've been with for a long period of time in getting material from Bolivia, other East Asian sources and as well as a nice slug of recycled material. But a lot of the strength that we have as a company vis-a-vis some of the competition that's out there is also the integrated nature of our supply chain, right? So we are -- we have the ability basically to take in tungsten materials at various stages and turn them ultimately into a final product. You think about that from our ability to take raw materials, which is virgin ore in and process that, there is only a handful of companies in the industry that can do that as well. And so that provides us, I think, a durable strategic advantage here in this set of circumstances. As you think about where it is from an overall pricing perspective, yes, our assumption at the moment is the tungsten prices are stable. I think the last couple of quarters that we've gone through in terms of the magnitude of this price change, I don't think that many market participants would have envisioned us going from a couple of hundred dollars a ton to over $3,000 a ton, excuse me, as we have over the last 12 months. Certainly, there has been some softening in China the last week or so in terms of the prices, unclear at the moment in time, whether or not that's indicative of a larger trend that will be more durable. We'll obviously continue to monitor and watch that. And then your last question in terms of what supply is coming online, yes, there's a variety of new mine projects that are out there that will come online. We would anticipate in the fullness of time, that would help moderate the tungsten prices here a little bit on a global basis. I think the other reality of the situation here is, in particular, we've got the export controls in China that are in place, number one. And then number two, we've got lower Chinese mine production over the last 2 years as it relates to -- based on some information in the public domain, lower quality ore potentially out there as well as I would emphasize lower mining permits provided by the Chinese government. So the market has been in a period of shortage, additional supply obviously would help alleviate some of that. And as that market continues to unfold, obviously, that will inform our pricing decisions and how we set, I'll say, our inventory objectives here in terms of holding inventory as well. Operator: And the next question is a follow-up from Steve Barger with KeyBanc Capital Markets. Steve Barger: Pat, just to level set expectations for the models. You said price raw timing benefit from tungsten flows through into the first half, mostly in 1Q. Is the right way to think about FY '27 kind of reverse order from this year, high point by far in 1Q trailing back down to your quarterly average of like $0.40 towards the end of FY '27. Patrick Watson: Yes. A couple of ways that I think about that. Steve, first off, just let me give you some like the basic walk, and I'll start from the midpoint, right? Midpoint of the outlook this year is $3.88. We said we've got $2.45 of price raw in there, probably have about 0.20 worth of variable compensation that would reset. So let's think of like a clean FY '26, removing those items, about $1.63 in EPS terms, right? And then kind of moving forward next year, you're going to add $0.10 in for the additional restructuring that we talked about. That gets you down to like about $1.73 before you get to, what I'll call is additional price raw, which again should exist in that first half, right? And then whatever the volume assumption is that you guys make at this point in time, obviously, we'll give some clarity about that in August. The second thing I would say about that in terms of now taking that cadence and thinking about the year, yes, I think the right way to think about this, again, this is assuming a relatively stable tungsten environment would be first half, we're going to see the benefits of price raw. Back half of that year, we'll get back to what I would call it is a normal level of profitability, right, absent the price raw tailwinds. Operator: The next question is a follow-up from Julian Mitchell with Barclays. Julian Mitchell: This will be a quick one. Maybe just flesh out a bit more the cadence of kind of volume demand. You had that very interesting chart on cumulative volumes going back several years. So that was interesting. And you've clearly seen a pickup, as you said a couple of times. There's some prebuy, I suppose, in that. So maybe give us any color you can on sort of how base volumes are performing, if you can really get to that level of detail from your channel partners and so forth? And have you seen an improvement in base demand in the last couple of months? Or it's difficult to disentangle that from prebuy movement? Patrick Watson: So I'll take that first, and then Sanjay will hit most of it. But just to clarify that chart to make sure we're all talking about the same way, right? That chart is based on a 12 trailing months basis. Julian. So based on that, you can think about it as an annualized chart, it's going to kind of flatten out any sort of short-term prebuying issues, right? Because again, we're talking about an annual type number. And with that, I'll turn it over to Sanjay. Sanjay Chowbey: Yes, Julian, with regards to rest of the drivers at this point, Q4, we are confident in what we are saying that we do see impact from improving market condition, which is again moderate. And then on top of that, our share gain opportunities that we have, those will definitely play out. I think with respect to fiscal '27, we'll come back and talk about that in August, but the initial signs are -- seems like things are definitely stabilizing. Operator: And this concludes today's question-and-answer session. At this time, I would like to turn the conference back over to Sanjay Chowbey for any closing remarks. Sanjay Chowbey: Thank you, operator, and thank you, everyone, for joining the call today. As always, we appreciate your interest and support. Please don't hesitate to reach out to Mike if you have any questions. Have a great day. Operator: Thank you. And as a reminder, a replay of this event will be available approximately one hour after its conclusion. [Operator Instructions] And today's conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.
Operator: Good afternoon, and welcome to Ibotta, Inc.'s Q1 2026 Earnings Conference Call. With us today are Bryan Leach, founder and CEO, and Matt Puckett, CFO. Today's press release and this call may contain forward-looking statements. Forward-looking statements include statements about our future operating results, our guidance for Q2 2026, our ability to grow our revenue, factors contributing to our potential revenue growth, our key initiatives, our partnerships, and the capabilities of our offerings and technology, all of which are subject to inherent risks, uncertainties, and changes. These statements reflect our current expectations and are based on the information currently available to us, and our actual results could differ materially. For more information, please refer to the risk factors in our recent SEC filings. In addition, our discussion today will include references to certain supplemental non-GAAP financial measures and should be considered in addition to and not as a substitute for our GAAP results. Reconciliations to the most comparable GAAP measures are available in today's earnings press release, our 10-Q, and our Q1 2026 earnings presentation, which are all available on our Investor Relations website at investors.ibotta.com. Unless otherwise noted, revenue and adjusted EBITDA comparisons to prior periods are provided on a year-over-year basis. With that, I will turn it over to Bryan. Good afternoon, everyone. Bryan Leach: Thank you for joining our discussion of first quarter results. We are pleased to report first quarter revenue and adjusted EBITDA that are both above the top end of the guidance range we provided on our fourth quarter earnings call. We continue to anticipate that our year-over-year revenue trends will improve sequentially, returning us to overall revenue growth in 2026, which is consistent with the outlook we provided in February. The improved trajectory of our business is mostly the result of our sales team's success in deepening and broadening the supply of offers available to us. Our core promotions product is demonstrating strong market fit, while our more recent offering, LiveLift, continues to receive positive early feedback. On the publisher front, we have added two new partners in quick succession, both of which have entered into multi-year exclusive partnerships with us. In late March, we announced the addition of Uber, meaning that later this year, Ibotta, Inc.'s digital promotions will appear within the Uber, Uber Eats, and Postmates apps. And today, we announced that Giant Eagle is also joining the Ibotta Performance Network. I will say more about the significance of these new publisher wins later on, but first I would like to provide a bit more context on our recent financial performance, and share additional details about the from-to pathway we see ourselves on. On a year-over-year basis, our redemption revenue performance has almost fully recovered. In the first quarter, it was down 1% year over year, compared to being down 15% in the third quarter of last year and down 5% in the fourth quarter. This gradual recovery has been partly driven by Redeemer growth, with 15% more Redeemers in Q1 than in the same quarter last year. That said, increased demand for offers alone does not move the needle unless we also source enough offers to take advantage of it. This is all about having the right team in place spending more time in market, multithreading our outreach to stakeholders at different levels within an organization, and being more immediately responsive to our clients' needs. Building trust in these ways is allowing our team to continue moving further upstream in our clients' strategic planning processes. We are also doing a better job of supporting our sellers and account managers with B2B marketing, training and enablement, and client-specific insights. Our product team is working hard to deliver new tools that make each step in the quote-to-cash process easier, faster, and more efficient. Encouragingly, our success has been broad based, which continues to increase our conviction in the path we are on. Our sales team is adding new clients, securing new—often larger—commitments from existing clients, and retaining the overwhelming majority of our clients. Our strategic partnership with measurement leader Surcana continues to generate sales and marketing momentum. We recently published a case study available on our website that independently validates Ibotta, Inc.'s ability to deliver successful results for our clients. Chomps, the fastest-growing meat snack brand in the United States, ran a campaign earlier this year to drive trial and household penetration. The results were outstanding and were independently verified through a sales study conducted by Surcana. Households exposed to the Ibotta, Inc. campaign spent an average of 15% more on Chomps than their unexposed counterparts. Even more impressively, the campaign outperformed Surcana's snack category benchmarks for sales lift by more than 4.5x and surpassed household penetration benchmarks by a staggering 9x. Stacy Hartnett, the SVP of Marketing at Chomps, summarized the impact well. She noted that achieving strong on-shelf presence was only their first milestone. Their strategy has now shifted toward winning new buyers through smarter promotional strategies. She stated that our partnership has become a key lever in that effort, and that the study reinforces that the IPN delivers impact well beyond a discount, helping them reach the incremental shoppers critical to their long-term growth. Turning to LiveLift, we continue to see positive signs of product-market fit even though it is still early days. We continue to limit access to those clients willing to spend a certain amount and run their campaigns for a certain duration. For this reason, the revenue contribution from LiveLift remains modest for now; we are not forecasting a significant ramp in revenue until we loosen those eligibility requirements. I will have more to say on what that will require in a moment. Actual re-up rates among clients that have completed a LiveLift campaign remain consistent with the approximately 80% level we have discussed in prior quarters. Those clients who have not yet re-upped are primarily smaller CPGs, which we believe reflects our eligibility criteria rather than any dissatisfaction with the product, consistent with what we have said previously. Repeat users represented approximately 60% of LiveLift in the quarter, with the remainder being first-time users running pilots. The average campaign size for LiveLift campaigns remains meaningfully larger than for our core product. The most common question I received after our last earnings call was, can you help me better understand what the pathway to greater adoption of LiveLift will look like? So let me try to shed some light on what that entails and why I believe we are making solid progress. Of course, as with any innovative product development process, it is impossible to know in advance everything we will learn along the way or exactly how long that will take. Our goal is to make it as easy as possible for our CPG clients to buy campaigns on the Ibotta Performance Network. Some will prefer to stick with managed service, while others may take advantage of our self-service tools, which we will continue to refine and improve. In the future, our clients may also rely on agents to make more autonomous media buying decisions. Whichever interface they choose, clients will start by identifying the goals of their campaign. Our LiveLift platform then takes this information and evaluates a wide range of possible campaigns and chooses the best fit for their goals, projects the amount of redemptions, incremental sales, and cost per incremental dollar we think they will achieve, tracks these metrics on an ongoing basis—providing profitability readouts at various points during the campaign—and optimizes the campaign as necessary along the way. Scaling LiveLift to our wider client base will require greater automation of these processes. With that in mind, we are focused on a few key initiatives. First, we are building a more sophisticated programmatic API layer so that our software, as well as any agents we create, interface with the various models and systems that power LiveLift, allowing our system to fully harness the power of AI to programmatically design, build, launch, optimize, and report on a campaign. This includes considering different scenarios and making the best possible projections and recommendations more quickly and at lower cost. Second, we are refining the underlying models that power LiveLift. These models become more robust as we train them on the data generated by running these early LiveLift campaigns, as we receive additional data from existing publishers, and as we expand the publisher network, gaining access to new sources of data. Widening the availability of LiveLift requires continued model training through repeated experiments, and those take time. We are building a novel capability in this industry, and that necessitates a disciplined phased approach to scaling. Third, we are working on what I would broadly call AI enablement. That means documenting processes to create additional context for AI, defining standard operating procedures, and simplifying our product catalog to reduce complexity. Creating this scaffolding takes time, but once we have a simpler set of products with the appropriate context, more reliable agentic AI flows become possible. We believe that the progress we are making along all these fronts will ultimately allow us to more meaningfully inflect the level of CPG offer supply. Switching to the demand side of the equation, we continued to see strong results this quarter, with healthy Redeemer growth driven by organic growth at our existing publishers and the 2025 launch of DoorDash. One of our top priorities has been diversifying our publisher base, and we have begun doing that with the recent additions of Uber and Giant Eagle, both of which entered into multi-year exclusive partnerships with Ibotta, Inc. Adding Uber to the IPN allows us to intercept consumers in high-intent commerce moments and solidifies our leadership position in the fast-growing and important e-commerce delivery space. Our partnership with Giant Eagle further validates the strength of our model and enhances our presence in the traditional grocery channel. As one of the nation's largest multi-format food and pharmacy retailers and a recognized industry thought leader, Giant Eagle chose to transition to Ibotta, Inc. in order to access a more robust and relevant offer gallery that moves the needle for their customers. We are pleased with the terms and the economic profile of both of these new partners. These partnerships demonstrate the extensive work of our business development and technology teams behind the scenes to enable these milestones. I will now turn the call over to our Chief Financial Officer, Matt Puckett, to walk through our financial results and guidance in more detail. Matt Puckett: Thank you, Bryan, and good afternoon, everyone. We are pleased to have delivered another quarter that was ahead of our initial outlook, further validating that we are very much on the right track. With that, let me jump into the Q1 results. We delivered revenue and adjusted EBITDA that were, respectively, 325% above the midpoint of the guidance range that we provided on our fourth quarter earnings call. Now to unpack our top line results for the quarter. Revenue was $82.5 million, a decline of 2% versus last year. Within that, redemption revenue was $73 million, down approximately $0.4 million or 1% year over year. Both redemption revenue and ad and other revenue trends improved on a year-over-year basis as compared to the fourth quarter. We continue to be pleased with the results our sales organization is driving and how both our core product offerings and LiveLift are resonating with our clients. As Bryan noted, the LiveLift re-up rate remains healthy, underscoring that clients are realizing the measurable benefits that these next-generation capabilities deliver. Third-party publisher redemption revenue was $54 million, up 12% versus last year and accelerating sequentially versus the prior quarter's increase of 8%. Direct-to-consumer redemption revenue was $19 million, down 25% year over year and similar to Q4's result, where, as anticipated, we have continued to see redemption activity shift to our third-party publishers. Ad and other revenues, which represented 11% of our revenue in the quarter, were $9.5 million, down 15% versus last year due primarily to continued pressure on ad revenue as a result of lower direct-to-consumer Redeemers. This reduction was partially offset by growth in data revenue. Turning now to the key performance metrics supporting redemption revenue. Total Redeemers were 19.7 million in the quarter, up 15% year over year. We saw another quarter of significant growth in third-party Redeemers across the IPN, including strong growth with our largest publisher partner, highlighting the continued health of the demand side of our network. In addition to organic growth with existing publishers, the quarter also benefited from the launch of DoorDash in 2025. Redemptions per Redeemer were 4.5, down 6% versus last year, a meaningful improvement in trend versus the second half of last year when redemptions per Redeemer were down 22%, but where the decline continues to be driven by both the quantity and quality of offers available to each Redeemer, as well as the growth in third-party Redeemers, which have a lower redemption frequency as compared to our direct-to-consumer Redeemers. Redemption revenue per redemption was $0.83, which was flat versus Q4 and down 7% versus last year, driven primarily by the mix of redemption activity. Summing it all up, total redemptions were 88 million, up 6% versus last year, driven by 15% redemption growth on our third-party publishers. This represents a more measurable return to year-over-year growth in redemptions for the first time since 2025 after being flattish in the fourth quarter. Now switching to the cost side of our business. As anticipated, non-GAAP cost of revenue was up $2 million versus a year ago, largely driven by an increase in technology-related costs along with a more modest increase in publisher costs. This resulted in a Q1 non-GAAP gross margin of 78%, down approximately 300 basis points versus last year. As we discussed last quarter, much of the increase in technology-related costs is a function of increased investment in product development, as well as a higher allocation of certain costs from R&D expense to cost of revenue. Before I review non-GAAP operating expenses, let me point out that we have made a change in how non-GAAP operating expenses are defined and shown on page 12 of the presentation that accompanies our earnings materials. You will notice we are now including depreciation and amortization in non-GAAP operating expenses. Now turning back to the results. Non-GAAP operating expenses were up 5% versus last year, and were 71% of revenue, an increase of approximately 470 basis points year over year. Within that, non-GAAP sales and marketing expenses were up 17%, driven by higher sales labor, the cost of third-party lift studies, and B2B marketing expenses. Non-GAAP research and development expenses decreased by 21%, primarily a result of higher capitalization of software development costs and a higher allocation of labor expense to cost of revenue. This is due to more of our investment in R&D being directly focused on product development. Lastly, non-GAAP general and administrative expenses increased by 5%, while depreciation and amortization increased by approximately $0.6 million or 60%. Similar to the last couple of quarters, while overall non-GAAP operating expenses grew year over year, our investments in areas related to our transformation—inclusive of both the P&L and what is being capitalized to the balance sheet—increased at a faster pace. This increase was approximately 12% and again was highlighted by higher labor costs in the sales organization and other technology-related costs. We delivered Q1 adjusted EBITDA of $8.7 million, representing an adjusted EBITDA margin of 11%. Non-GAAP net income of $6 million and non-GAAP diluted net income per share of $0.24. Our non-GAAP net income excludes $16.7 million in stock-based compensation and it includes a $0.3 million adjustment for income taxes. We ended the quarter with $164.6 million of cash and cash equivalents. In Q1, we spent approximately $45 million repurchasing approximately 1.9 million shares of our stock at an average price of $22.92. We had 25.6 million fully diluted shares outstanding as of 3/31/2026, and as of the end of the quarter, we had $90.3 million remaining under our current share repurchase authorization, which, as previously disclosed, was increased by $100 million upon authorization from the Board of Directors on March 11. Finally, we generated $23.3 million in free cash flow, an increase of 56% versus last year, largely driven by higher cash flow from operations as a result of decreases in working capital compared to 2025. Now shifting to Q2 guidance. We currently expect revenue in the range of $82 million to $86 million, representing a 2% year-over-year decline at the midpoint and at the same time a 2% sequential increase versus Q1 at the midpoint. We expect Q2 adjusted EBITDA in the range of $9 million to $12 million, representing about a 12.5% adjusted EBITDA margin at the midpoint. With that, let me provide a little more color on our outlook. First off, as both Bryan and I have mentioned, we continue to be pleased with the consistency of our execution with our clients and publisher partners, both with core product offerings and with LiveLift pilots. This has been the driver of improving revenue trends during the last couple of quarters and we expect that to continue. One other point to make on Q2 revenue: at the midpoint of our revenue outlook, we would expect redemption revenue to return to growth for the first time since 2025. Beyond our specific Q2 revenue guidance, we are confirming our expectation of a return to year-over-year growth in total revenue in Q3 in the low single-digit range. It is probably on your mind, so let me highlight the assumptions implied in our outlook specific to the two new publishers we are adding to the network. We have assumed an immaterial impact on Q2 during the testing and piloting phase, and expect a small benefit to revenue in the second half of the year as we ramp up with these partners. I will note that offer supply will be the governor on the near-term revenue impact of this expansion on the demand side of our network. As it relates to costs, our expectations are broadly unchanged from last quarter. We continue to expect to see a modest sequential increase in quarterly non-GAAP cost of revenue and operating expenses throughout the balance of the year. That continues to be a function of investing in areas that are critical to our transformation. Specifically within cost of revenue, as we said last quarter, we expect to have substantially less growth in publisher-related costs as compared to what we saw in 2025, and we do expect, similar to the first quarter, that the biggest factor driving an increase in cost of revenue will be higher technology costs, which is partially a function of where these costs are allocated in the P&L relative to last year. Lastly, with a healthy balance sheet and positive free cash flow, we will continue to prioritize investing in organic growth and the strategic priorities of the business while also returning cash to shareholders. We remain excited and energized by the opportunities ahead and look forward to returning to year-over-year revenue growth in the second half of this year. We will now open the call for questions. With that, operator, please open up the line for Q&A. Operator: For today's Q&A session, we will be utilizing the raise hand feature. If you would like to ask a question, click on the raise hand button at the bottom of the screen. Once prompted, please unmute yourself and begin with your question. We will pause a moment to assemble the queue. Thank you. Our first question will come from Ken Gawrelski with Wells Fargo. Please unmute your line and ask your question. Kenneth James Gawrelski: Can you hear me okay? Bryan Leach: Yes. Matt Puckett: Yes, we can. Thank you. Kenneth James Gawrelski: Okay, great. Thanks so much for the question. Could Brian, could you talk about how, as you move more to LiveLift over time and you get this sales process really humming, when you look into, you know, ’27–’28, how do you think the financial picture may change? What does it mean for the margin structure of the business relative to, you know, the kind of post-IPO? What fundamental differences do you see there? Maybe this is the first one. And then second, as you think about the progress you can make in the back half of this year and into early next year, how much of it is a change in the calendar year providing another opportunity to take another bite at the apple with some of those big CPG brands versus just getting your go-to-market strategy and process working? Thank you. Bryan Leach: Thanks, Ken. I will take those in turn. The first one I will answer at a high level and then let Matt provide additional detail, and then I will have him pass it back to me for the second question. For the first one, I would say, broadly speaking, we feel like we are in a good place with our expenses to be able to build the products we need to drive the increase in offer supply over the next few years. You asked about 2026, 2027, 2028, and so that should— in other words, we do not expect to have to continue to ramp expenses at the same rate that we are ramping revenue, and so that should be positive in terms of the margins and contribution to adjusted EBITDA over the next three years. We have ongoing innovation that is baked into the R&D that is part of our current effort. I think more time will allow us to get in front of our customers with the LiveLift message. It is an evolution in the industry that is moving from annual planning and annual allocation and annual measurement to more ongoing measurement and optimization using rule-based or outcome-based systems. That go-to-market takes some time to build the necessary trust and conviction and then have the cultural changes that need to happen on the client side. But I feel like the developments that I described in my remarks will put us in a position where there will be a greater variety of different ways that people can buy on our network, and those ways will be more sophisticated and allow us to meet the needs of our clients more often and allow us to earn our way into larger and larger budgets, which is what is really going to move the needle and drive revenue in this business. I will let Matt add any additional thoughts on that before turning to your second question. Matt Puckett: Yeah, Ken, just a couple of things I would add, without being precise regarding our financial algorithm. A couple of things I will say—one is kind of more medium term and then longer term, which is really reiterating Bryan's points. We have been talking for a couple of quarters now about the investments that we were making, first in the sales organization—restructuring, reorganizing, and really just leveling up the capabilities in sales—as well as the investments we have been making in our technology as it relates to the transformation of the business and the capabilities that we have been building. We are nearing lapping most of those investments. We are not fully there, but over the course of this year, we will lap all of those investments. That is factored into everything we have said about what the forward picture looks like. Once we have done that, then as we sit here today with what we see that needs to get done, we do not expect to have to add—there is not another step change in an investment profile from here. So as we see the top line stabilize and then we start to drive consistent, sustainable growth, we are going to see the opportunity to expand both gross margins and EBITDA margins over time. Hopefully, that helps answer. Bryan Leach: The second question, Ken, about the back half and the change in the calendar year, I would say that different clients have different fiscal years. Some of our clients reset in July, some of them reset in the fall, some of them reset on the calendar year. While that is definitely a factor in situations where we have kind of gotten through the budget that was allocated to us the previous cycle, we get a chance to demonstrate the effectiveness of that—the level of performance earns us into a larger budget. That is true. However, I think it is more a function just of being able to get in front of clients with our core product, demonstrate the scale that we have, that we are along the breadth of purchase in all these different places now, the addition of these new publishers—that allows us even intra-year to go back and make the case that this is where they should be spending more money at a time when they are aware that this is how they gain market share, by intelligently thinking about where they are pricing their products and how they are promoting their products. So I do not want to lean too much on that as some major driver. We are always selling both in the annual planning process and then within that year. Our whole goal here is to move the industry away from that mentality of annual planning and into a mindset of “I always want to buy this as long as these rules and constraints are being met.” I want every dollar of top- and bottom-line revenue and profit that I can get through this platform, and I will spend until I am no longer seeing that level of efficiency. That is ongoing, but I think it is safe to say that for now, we are still living in a world where we do participate in those annual re-up conversations—they are just thousands of brands happening all the time at different parts of the year. And Matt was going to add one more thing. Matt Puckett: Yeah, Ken, just one more thing to make sure we got to the essence of part of your question there on the margin profile. As we grow LiveLift over time as a bigger penetration of the business, that does not materially change the margin profile. Whether it is core product offering or LiveLift, we would not see a different outcome. It is really about the investments we have made to enable the growth that will flow through our business model. Kenneth James Gawrelski: Thank you. Operator: Our next question will come from Tim with Raymond James. Please unmute your line and ask your question. Analyst: Hey, guys. Thanks for taking my questions. I have a couple. First, if you could talk about some of the early progress with the Uber partnership and how that is tracking. Within that, on the initiatives surrounding LiveLift in terms of what it will take to ramp that a little further, any thoughts on what inning you are in and any progress made on those initiatives so far? Secondly, on the macro, are you seeing any impacts from energy prices, whether it be on CPG spend or on the health of the lower-end consumer? Thanks. Bryan Leach: Great. Thanks, Tim. First on the Uber partnership, we were pleased to have announced that a little while ago. Like all of our publishers, they do not just turn that on overnight to 100% of all of their customers across thousands of stores that they support. They do that in a stepwise function, and we are in the early part of that rollout. We will then begin working with them on other aspects of that partnership to make sure that we are able to do the most sophisticated forms of measurement and personalization, marketing, reactivation, and activation—those best practices. We are in a position where the technology to support this has been built, and we are early in the process of introducing that to different customers at Uber, and we are excited about that. As you know, we have a strong presence in that area, and that is something where we hope that it will also have the same level of uptake and high redemption rates that we have seen in that category more broadly. On the progress we have made on the ramp of LiveLift, I think we have made significant progress from the last time we had a conversation in late February. That is along all the different dimensions that I mentioned. AI is evolving very rapidly, and so we are investing heavily in AI enablement to take advantage of the efficiencies that are available to us through using tools like Claude Code, but also our ability to create this programmatic API layer. We are absolutely working on that around the clock, getting that to a place where we will be able to automate more of these processes, which will benefit our entire business—not just LiveLift, but also all of our core offers benefit from having it be easier to design, set up, revise, and so forth from beginning to end of a campaign. The models underlying LiveLift get better with more data, with more refinement of the model, and with more publishers you add. The addition of Uber and Giant Eagle will help us refine those models. That itself represents progress, but we also are seeing that as we get a second and third LiveLift campaign from some of these repeat customers—I mentioned 60% of LiveLift is from a repeat customer—they are able to test out different strategies and learn how the consumer responds to different structured promotions based on their goals. That then helps project the next campaign that much better. So those clients that are participating are gaining an advantage. They are all aware that doing that in this environment is important, which is a good segue to your last question about the macro. The news you are reading is the same thing we are hearing from our clients. The American consumer is looking for value. We are excited that we are an integral part of that. Whether that is driven by the war in Iran or gas prices or tariffs, or some other exogenous factor, there is a lot of focus on this topic. Even earlier today, the CEO of Kraft Heinz put out a message—Steve Cahillane—saying the new mantra is value. “Consumers are literally running out of money.” Those are the kinds of things that cause people to take a closer look at the product that we sell. We are making the case that there are smarter and less smart ways to deliver that value. We think the Ibotta Performance Network is a really good way to do that in a way that is also capitalizing on the latest technologies that are available. I also want to stress that this is nondiscretionary spending, so no matter what the macro environment is, people are looking for value on the things they have to buy week in, week out. If you look at the press release we put out today from Giant Eagle, they commented on why they switched to Ibotta, Inc. They switched because they wanted to see an 8x increase in value delivery for their customers, and they are hearing consistently that that is what makes the difference in why people shop at Giant Eagle versus somewhere else. So both on the CPG side, for example Kraft, and on the publisher side, for example Giant Eagle, being in this field right now is particularly important. Operator: Our next question will come from Stefanos Chris with Needham and Company. Stefanos Chris: Hey. Can you hear me? Bryan Leach: Yeah, we got you. Stefanos Chris: Awesome. Thanks for taking the question. Just wanted to ask on third quarter revenue reflecting positive. What are the assumptions in there? Are you baking in a certain ramp in LiveLift? Are you including Uber and Giant Eagle? Would love to go through the assumptions there and where there could be upside. Thanks. Bryan Leach: Great. I am going to hand that one to Matt. Matt Puckett: It is really what we are doing today continuing. We have seen sequentially improving results in our business, particularly driven by redemption revenue, and that is really the driver versus Q1, and the same to be true for Q3 versus Q2. We expect to see that get better in Q2, and that is all going to translate into growth. There is no step change assumed in terms of LiveLift adoption or us further opening the aperture to that. Where we are today is the expectation. We have assumed a very modest impact from the two new publishers in the back half of the year—that would be a little bit less in Q3, a little bit more in Q4, as a way to think about that—but it is really an ongoing kind of performance that we have seen to date driven by consistent execution, and the fact that our products, both core products and obviously LiveLift as well, are resonating with our clients. Stefanos Chris: Thanks. If I could squeeze one more in: on the monetization of Uber and Giant Eagle, I assume Uber is similar to a DoorDash, but how about Giant Eagle? Is that similar to a Dollar General, or are there any differences in these two partnerships? Thanks. Bryan Leach: Without going into the specifics of the economics of individual partnerships, broadly speaking, those are similar to how we have approached these in the past, and we are happy with the economics of those partnerships. As we get greater scale and more momentum and greater access to supply, we continue to see publishers more interested and motivated to deliver the best possible value for their customers, and we think that will continue to contribute to favorable economics going forward. Operator: Our next question will come from Nitin Bansal with Bank of America. Nitin Bansal: Thank you for taking my question. Bryan, can you provide some more details on your progress with the go-to-market transformation, specifically how the new sales motion impacted your Q1 results? And what additional changes are you making to the sales team that could impact your performance for the rest of the year? Thanks. Bryan Leach: Thanks, Nitin. Absolutely. There are a number of different things that have been going on since the arrival of Chris Reidy on our team. That started with taking a look at the team itself and making sure we have the right people in the right roles to help ourselves with the kind of selling that we are going to need to do, which is much more of a consultative sale where we have to be fluent in the businesses of our clients. We reorganized the sales organization to be no longer geographic, but focused on an industry-based approach. We have experts in beverage, for example, or in household products, and so on. We separated into enterprise clients versus emerging clients, with each having its own industry sub-verticals. We focused on a variety of support structures that were not in place that needed to be, such as bringing in an SVP of Enterprise Sales, an SVP of Business Marketing to help us with B2B marketing expertise, and we beefed up sales finance, sales operations, and training and enablement of our sellers. I think that was very important. We filled all those senior leadership roles by 2025, as I have said on previous calls, and we brought in excellent talent. That has helped us on a lot of different fronts. We mentioned on the last call the thought leadership and the ability to be proactive and get in front of our clients. The example I gave was the SNAP program—we had a playbook that was designed, we reached out, and that led to incremental dollars being committed to Ibotta, Inc. that were not in their previous annual plan, which were opportunistic and really valuable. We have talked about other things that we have done. “Multithreading” is a term we have used—meaning teaching our sellers to go in at multiple different levels of an organization at the same time to speak to different needs and pain points of the people in those organizations, using the language of their business. It is the simple fact of being on the ground more often, being in the room more often—the hustle factor—and continuity, so not handing people over between rep to rep. That is really about trust. Most of the structural changes were made last year, but we are continuing to build that trust. As we are doing that, we are getting invited into more important strategic conversations. We are getting clients that want to say, “Let us come out and spend a day with you,” and they are bringing significant senior members of their team to discuss where we think the industry is heading and how it is impacted by things like technology and AI. We are being embraced more as a thought leader and invited more into upstream strategic planning conversations. I think the introduction of Surcana and ABCS has allowed our sales team to provide third-party independent analysis. That has given them another platform. We have done a better job with event marketing—Chris Reidy has been on stage at Adweek, NACDS, and lots of different conferences. We are getting in front of all different parts of the CPG organization. It is not one thing; it is a variety of different upgrades to how our team sells. Of course, having something like LiveLift to discuss and having the ability to focus on incremental sales and really lead the conversation around rigorous measurement has given them a lot to talk about, and I am really proud of the work they are doing. Operator: Our next question will come from Tim Huang with Citizens JMP. Tim Huang: Hi. Thank you for taking my question. I wanted to follow up about the pricing changes that were talked about in the prior quarter's call with regard to pricing being more linked to AOV. Could you give any color on how that has been received, and further progress during the quarter on pricing and what has been flowing through? Bryan Leach: Thanks, Tim. Sure. You are right, and your memory is spot on. It is a question of moving from a flat fee that is applied based on the price band that a product falls within. The old system was: if your product was $3 to $4, you paid this cost per redemption; if your product was $4 to $5, $5 to $6, $10-plus, you might pay a different cost per redemption under the old model. The problem with that is that as you get to either side of that range, you get discontinuities. The ratio that your fee represents as a percentage of the overall product price—and the total economics available to the brand—varies, and that can create inadvertent inefficiencies. It might make it unnecessarily expensive, for example, to use Ibotta, Inc. with lower-cost products where our fee per redemption cuts a high enough percentage that it is hard to deliver a cost per incremental dollar that is attractive—meaning lower than the contribution margin of that product consistent with a goal of profitability. The solve for that is to shift toward a system where it is continuous—so it is a fixed percentage of the price itself. That way, whether you are at $1.01 or $1.99, you are equally able to take advantage of that structure. What we have been doing is introducing this transition in our pricing as part of a broader reset of some terms that we have in our preferred partnerships and agreements. That has been very well received. People view that as simplifying the system—dispensing with discrete fees for things like setup. It makes it simpler. Everything is wrapped into this one percentage-of-the-price fee. As I said, it is encouraging clients to promote lower-priced items. We are still very much in the middle of that transition because we did not want to just mandate that everybody turn on a dime. But as we come back through these conversations on our annual preferred partnerships, that—along with other conversations around things like payment terms—are a natural part of our conversation. Broadly speaking, that is going well. We are seeing success in that transition, although we are still very much in the midst of it. And Matt is going to add one more thing. Matt Puckett: I would just say—and you will see this in our results—our redemption fee metrics are going down a little bit in terms of the way to think about price. We pay attention to that and understand it, but it honestly does not scare us. In order to maximize revenue, in many cases it makes sense to lower fees. It allows our clients to have profitability objectives. Think about our business model: incremental revenue flows to the bottom line at a really high rate. So seeing revenue per redemption coming down as a result of fees, but then offset by higher volume, is actually a good answer for us in most cases. Bryan Leach: Broadly speaking, Tim, it is fair to say we have had a greater level of analytical rigor. Looking at that is one of the reasons why we arrived at this transition in our pricing. We had a lot of conversations with our clients before we settled on this, and fortunately we properly prepared for the transition. I am happy with how it is going. Operator: Once again, if you would like to ask your question, please use the raise hand button at the bottom of your Zoom screen. That now concludes the Q&A section. I would now like to turn the call back to management for closing remarks. Bryan Leach: Thanks very much, everyone, for your time today. We are pleased with the results that we have reported and the momentum in our business, and we look forward to speaking with you again soon. Operator: Thank you for joining today's session. This call has concluded. You may now disconnect.
Operator: Good day, everyone. And welcome to EOG Resources, Inc. First Quarter 2026 Earnings Results Conference Call. As a reminder, this call is being recorded. For opening remarks and introductions, I will turn the call over to EOG Resources, Inc.'s Vice President of Investor Relations, Pearce Hammond. Please go ahead, sir. Pearce Hammond: Thank you, Cindy, and good morning, and thank you for joining us for the EOG Resources, Inc. First Quarter 2026 Earnings Conference Call. An updated investor presentation has been posted to the Investor section of our website, and we will reference certain slides during today's discussion. A replay of this call will be available on our website beginning later today. As a reminder, this conference call includes forward-looking statements. Factors that could cause our actual results to differ materially from those in our forward-looking statements have been outlined in the earnings release and EOG Resources, Inc.'s SEC filings. This conference call may also contain certain historical and forward-looking non-GAAP financial measures. Definitions and reconciliation schedules for these non-GAAP measures and related discussion can be found on the Investor Relations section of EOG Resources, Inc.'s website. In addition, any reserve estimates on this conference call may include estimated potential reserves as well as estimated resource potential not necessarily calculated in accordance with the SEC's reserve reporting guidelines. Participating on the call this morning are Ezra Y. Yacob, Chairman and Chief Executive Officer; Jeffrey R. Leitzell, Chief Operating Officer; Ann D. Janssen, Chief Financial Officer; and Keith P. Trasko, Senior Vice President, Exploration and Production. I will now turn the call over to Ezra Y. Yacob. Ezra Y. Yacob: Good morning, and thank you for joining us. EOG Resources, Inc. is off to an exceptional start in 2026. Our track record of consistent, high-quality execution continues to set us apart, delivering strong operational performance across our foundational assets while steadily advancing our emerging plays and exploration opportunities. The first quarter was a clear extension of that momentum. We exceeded expectations across key operating and financial metrics; production volumes, total per-unit cash operating costs, and DD&A all outperformed guidance midpoints, driving robust financial results. We generated $1.8 billion in adjusted net income and $1.5 billion in free cash flow. Consistent with our commitment to disciplined capital allocation and enhancing shareholder value, we returned nearly $950 million during the quarter through our regular dividend and opportunistic share repurchases. In today's macro environment, EOG Resources, Inc. is well positioned in realizing the benefits of decisions we made during a more challenging commodity price backdrop. Those actions were deliberate and are paying off. For example, we strengthened our portfolio through the acquisition of nCino, increasing our oil production by approximately 10%, and we complemented that with a strategic bolt-on acquisition in the Eagle Ford. We also enhanced our market exposure by securing LNG contracts linked to JKM and Brent, positioning us to capture premium pricing in global markets. Additionally, we expanded our international footprint with high-quality concessions in the UAE and Bahrain, opportunities that would be difficult to replicate in the current price environment. Finally, we continue to deepen our vertical integration across critical services. This differentiated approach further improves efficiencies, lowers costs, and strengthens execution across our operations. As a testament to investing capital at a disciplined pace, between 2022—which was the last period of very robust oil prices—and 2026, where we are in a similar oil price environment, we have added nearly 100 thousand barrels per day of oil, over 140 thousand barrels per day of NGLs, and nearly 1.6 billion cubic feet per day of gas to EOG Resources, Inc.'s net production. We did this while generating an average ROCE of 27%, returning approximately $20 billion to shareholders, and maintaining a pristine balance sheet. EOG Resources, Inc. continues to take a consistent approach to capital allocation in the current environment. Given robust oil prices and softness in natural gas, we have refined our plan for the balance of 2026. We are increasing oil and NGL production while maintaining our $6.5 billion capital budget by reallocating capital from gas to oil-weighted assets. This is a disciplined and pragmatic rebalancing that underscores the value and flexibility of our multi-basin portfolio. Our 2026 program includes production growth, domestic and international exploration, and a peer-leading regular dividend with a breakeven oil price below $50 WTI, leaving ample room for additional cash return to shareholders under current strip prices. This revised plan strikes the right balance between near-term free cash flow generation and long-term value creation, while preserving the strength of our balance sheet. Turning to the macro backdrop, the conflict involving Iran is the most significant development impacting our business and the broader energy markets. Disruptions to crude supply and flows through the Strait of Hormuz are estimated to remove approximately 900 million barrels from global markets through June 2026. Even in a scenario where the conflict is resolved relatively quickly, rebuilding global inventories back to five-year average levels will provide ongoing support for oil prices. Additionally, we expect the post-conflict outlook to include replenishing strategic petroleum reserves, limited remaining global spare capacity, and a higher geopolitical risk premium. Together, these dynamics point to a constructive oil price environment with geopolitical developments likely to continue driving periods of upside volatility. On natural gas, near-term pressure remains with Lower 48 storage levels above the five-year average. However, our medium- to long-term outlook remains positive. U.S. natural gas benefits from two durable structural tailwinds: rising LNG feed gas demand and increasing electricity consumption. We expect U.S. natural gas demand to grow at a 3% to 5% compound annual growth rate through the end of the decade and believe the previously forecasted potential for global LNG oversupply has been significantly reduced with the damage to LNG infrastructure abroad. Our investments in building a premium gas position to complement our oil business have us well positioned to supply these expanding markets. And while EOG Resources, Inc.'s share price has increased following the onset of the conflict, the move in oil prices has been even more pronounced. As a result, we continue to believe EOG Resources, Inc. represents a compelling investment opportunity for several reasons. First, we have a high-return domestic and international asset base with deep, long-duration inventory. Across our multi-basin portfolio, we estimate approximately 12 billion barrels of oil equivalent of resource potential generating greater than a 100% direct after-tax rate of return at $55 WTI and $3 Henry Hub. Our disciplined capital investment allows us to pace development appropriately and direct capital towards the highest-return opportunities across the portfolio. Second, we bring differentiated exploration capabilities and approximately 25 years of unconventional experience, an advantage we have consistently leveraged to identify and capture opportunities ahead of the market. Third, we have a demonstrated track record as a low-cost, highly efficient operator supported by strong technical expertise and operational execution. In the past year alone, we reduced average well cost by 7% and operating costs by 4%. Fourth, we generate durable free cash flow and consistently deliver a peer-leading return on capital employed. Fifth, we remain committed to a sustainable and growing regular dividend, complemented by meaningful additional cash returns. Notably, we have never reduced nor suspended our regular dividend in 28 years. Finally, our pristine balance sheet provides resilience and strategic flexibility through commodity cycles. All of this is underpinned by EOG Resources, Inc.'s distinctive culture: a decentralized, collaborative operating model that fosters innovation and drives performance at the asset level. In summary, we are off to a strong start in 2026 and are well positioned to execute in the current macro environment. We remain focused on delivering sustainable free cash flow, maintaining operational excellence, and creating long-term value for our shareholders. Now, I will turn it over to Ann D. Janssen for details on our financial performance. Ann D. Janssen: Thank you, Ezra. EOG Resources, Inc. delivered another quarter of outstanding financial performance, once again demonstrating the power of our consistent approach to capital allocation: invest with discipline, return cash, and maintain a pristine balance sheet. In the first quarter, we generated adjusted earnings per share of $3.41 and adjusted cash flow from operations per share of $5.85, building free cash flow of $1.5 billion. During the first quarter, we returned approximately $950 million to shareholders, nearly $550 million through our regular dividend and approximately $400 million in share repurchases. With $2.9 billion remaining under our current share repurchase authorization at March 31, we have substantial capacity for continued opportunistic buybacks. Our financial position remains exceptional. We ended the first quarter with over $3.8 billion in cash, an increase of approximately $450 million since year-end 2025, and net debt of $4.1 billion. Our leverage target, which is maintaining total debt at less than one times EBITDA at bottom cycle prices of $45 WTI and $2.50 Henry Hub, remains among the most stringent in the energy sector. This provides both downside protection during challenging periods and the financial flexibility to invest strategically through commodity cycles. Turning to 2026, our low-cost operations and financial strength allow us to be unhedged, providing shareholders full exposure to higher oil prices. At current strip pricing and using guidance midpoints, our 2026 plan generates a record $8.5 billion in free cash flow. Given the substantial increase in oil prices since late February, and the subsequent increase in our free cash flow, we expect to return at least 70% of free cash flow this year, which would represent a record annual cash return to shareholders. The foundation of our cash return remains our regular dividend. Historically, we supplement the regular dividend with share buybacks or special dividends. Over the past three years, we have favored share buybacks as our primary supplemental return mechanism as we believe the shares are attractively valued and we like the connection between repurchasing stock and dividend increases. We are committed to executing buybacks opportunistically. If market conditions warrant, we could build some cash on the balance sheet to provide future flexibility to maximize long-term value creation. Our track record speaks for itself. Whether through buybacks, special dividends, strategic bolt-on acquisitions, or infrastructure investments, we have consistently deployed capital to enhance shareholder value. EOG Resources, Inc.'s financial foundation has never been stronger. We are generating significant free cash flow, returning meaningful cash to shareholders, and maintaining financial flexibility to capitalize on opportunities as they arise. This combination of operational excellence and financial discipline positions us exceptionally well for long-term value creation. With that, I will turn it over to Jeffrey R. Leitzell for our operating results. Jeffrey R. Leitzell: Thanks, Ann. I would first like to thank all of our employees for their outstanding performance and efficient operational execution in the first quarter. Our quarterly volumes, total per-unit cash operating costs, and DD&A beat guidance midpoints. This was accomplished during the quarter with a significant winter storm event that impacted numerous operating areas and caused substantial third-party downtime. With the benefit of EOG Resources, Inc.-owned and operated infield gathering systems, the use of in-house production optimizers, area-specific control rooms, and our diverse marketing strategy, our teams were able to manage remote operations and minimize downtime during this event. These efforts have allowed us to get off to a strong start in 2026, and because of that, I would like to recognize our field teams for all their hard work and dedication. For the full year 2026, we are increasing oil production guidance by 2 thousand barrels per day and NGL production guidance by 6 thousand barrels per day while keeping total capital expenditures flat at $6.5 billion. The added oil and NGL volumes are driven by reallocating capital across the portfolio rather than increased activity levels. From a development standpoint, we are moderating near-term drilling and completions activity at Dorado in response to current gas prices. Dorado remains a large-scale, high-quality dry gas resource, and we continue to invest in this foundational asset at a pace to balance short- and long-term free cash flow, grow into emerging North American gas demand, and leverage our technical learnings and infrastructure to continue lowering breakevens and expand margins. Capital is being reallocated to our foundational oil plays to leverage current market conditions. This initiative underscores the strength of our multi-basin portfolio, which allows us to continually optimize capital allocation as commodity cycles evolve. This reallocation is weighted towards 2026 while maintaining capital discipline and preserving long-term value across the portfolio. Turning to costs, we have not seen any significant inflation with our services or cost increases on high-quality rigs or frac spreads. For 2026, approximately 50% of our well costs are already locked in, and we continue to rebid service to maintain pricing discipline. While some vendors have added fuel surcharges, our exposure to higher diesel prices is structurally lower than many peers. Approximately 70% of our drilling rigs can run on natural gas, and 100% of our frac fleets are e-frac or dual-fuel capable, both able to be powered by our low-cost fuel gas. This significantly mitigates exposure from rising diesel prices. On the operating cost side, the impact from higher diesel prices has been minor. Overall, we are insulated from a number of these potential inflationary pressures through our contracting strategy and self-sourced materials vertical integration. Long-term, staggered contracts limit exposure to spot market volatility, while our ability to source key inputs directly and leverage integrated infrastructure reduces risk to higher prices. Collectively, these actions allow us to maintain capital efficiency, drive execution, and focus on sustainable cost reductions, and are complemented through utilizing data and technology to reduce time on location. All of this delivered significant results across our portfolio in the quarter. First, on drilled feet per day, we realized the following increases in 2026 versus the full-year 2025 average: in the Utica, we increased by 22%; the Powder River Basin increased by 13%; and the Eagle Ford increased by 12%. We continue to make significant strides in capital through lateral length optimization, resulting in fewer vertical wellbores to drill, more productive time both on surface and downhole, as well as a reduced surface footprint. In addition, EOG Resources, Inc.'s internal drilling motor program acts as a force multiplier on these longer laterals, improving downhole drilling performance and giving us the confidence to continue extending laterals across the portfolio. We are focused on drilling two- to three-mile laterals in the Delaware Basin and three- to four-mile laterals in the Utica and Eagle Ford plays. Second, our completions teams are continuing to increase stimulation efficiency. Each of our foundational plays has increased completed feet per day, led by the Eagle Ford and Delaware Basin, at 12% and 17% increases during the first quarter, respectively. One major factor that has allowed us to accomplish these results is an increase in our maximum pumping rate capacity by approximately 20% per frac fleet since 2023. This has not only allowed our technical teams to decrease their total pump times but also allowed our engineers the flexibility to tailor each high-intensity completion design around the unique geological characteristics of every target. Additionally, our teams are applying real-time geology, drilling, and completions data to improve well performance across the portfolio through innovative completions and targeting strategies. For example, our Western Eagle Ford wells are benefiting from larger frac job designs, and we are seeing positive results in the Utica from staggering our landing zones. Third, I would like to highlight our Janus Natural Gas Processing Plant in the Delaware Basin. Since November 2025, this plant has averaged 300 million standard cubic feet per day of processing, representing 94% plant utilization. Janus had a record month in March 2026 with 100% utilization and 300 million standard cubic feet per day of processing. Strong operations at Janus help us reduce Delaware Basin GP&T costs while highlighting the advantage of strategic infrastructure investments. Delivering this level of consistent performance is impressive and is a testament to the execution of the teams on the ground. This is another example of EOG Resources, Inc.'s operational excellence delivering financial results. Lastly, our marketing strategy—built on flexibility, diversification, and control—continues to deliver significant value. A key and growing aspect to this is our access to international markets and exposure to premium pricing. On the crude side, we have access to 250 thousand barrels per day of export capacity out of Corpus Christi. We leverage this capacity to reach international markets, and it gives us the flexibility to price crude on a domestic-based or Brent-linked price. Regarding LNG gas supply agreements, our Cheniere contract expanded from 140 thousand BTUs per day to 280 thousand BTUs per day during 2026. An additional 140 thousand BTUs will start in the second quarter of this year, bringing us to the full 420 thousand BTUs per day. These volumes are linked to JKM or Henry Hub pricing at EOG Resources, Inc.'s election on a monthly basis. We also supply 300 thousand BTUs per day of LNG feed gas at Henry Hub-linked pricing. Together, these contracts highlight that our marketing strategy is a competitive advantage and demonstrate how targeted international pricing exposure is driving premium realizations and incremental value across both crude and natural gas. After a strong first quarter, EOG Resources, Inc. is well positioned to execute on its full-year plan, and we are excited about our operational team's ability to drive value through the cycles. Now here is Ezra to wrap up. Ezra Y. Yacob: Thanks, Jeff. I would like to note the following important takeaways. First, we have started 2026 with strong momentum and execution across the business. Second, capital discipline is a core pillar of our value proposition. We have updated our 2026 plan to increase oil production while keeping capital spending unchanged. Our portfolio is performing, our balance sheet is resilient, and our capital allocation remains firmly anchored in returns and shareholder value. Third, we expect to continue to deliver in 2026 and beyond for our investors. In a macro environment that demands both agility and rigor, we are well positioned not just to navigate volatility, but to capitalize on it. Our disciplined approach to investment across our foundational and emerging assets continues to grow the free cash flow potential of the company both in the short and long term. Overall, our success is grounded in our commitment to capital discipline, operational excellence, and sustainability, underpinned by our culture. Thanks for listening. Now we will go to Q&A. Operator: Thank you. The question and answer session will be conducted electronically. Please do so by pressing the star key followed by the digit one. If you are using a speakerphone, you are allowed one question and one follow-up. We will take as many questions as time permits. Once again, star one. Our first question comes from Arun Jayaram of JPMorgan Securities LLC. Go ahead, please. Arun Jayaram: Yes, good morning. First question is on marketing. You raised your full-year oil guidance by $3.25 a barrel. Can you remind us of the pricing mechanism on those waterborne barrels out of Corpus as well as the potential uplift you anticipate from the Cheniere marketing agreement as you are reaching 420 thousand BTUs in 2Q? Jeffrey R. Leitzell: Yes, Arun, thanks for the question. First off, on the waterborne volumes that you talked about, as I mentioned in my opening comments, we have about 250 thousand barrels per day of export capacity. Those barrels can be linked either to domestic pricing or Brent-linked pricing. We basically sell those cargo by cargo, on an each-ship basis. There has been a lot of price volatility recently with the conflict, so we have been able to sell numerous cargoes at attractive pricing. It has really been paying dividends to have that export capacity to diversify our marketing on the oil side. Over on the JKM side, when you look at LNG, you are starting to see a little bit of the benefit from that JKM linkage, but you are also seeing some of the volatility in the market that is counteracting that, so there is a little bit of noise. As you know, we came into the year producing 140 thousand MMBtu into that Cheniere contract. We increased that another 140 thousand in the middle of the first quarter, so you are not seeing the full realization flow through, and then we will have the additional 140 thousand come in during the second quarter, and you will continue to see it build into our overall guidance as you move forward. The other thing I would note on the actual price realization for gas is that although we have pretty minimal exposure in the Permian to Waha—less than 7%—you do see a little bit of an effect on the realization for the first quarter, especially with some of the lower pricing over there. I do not think you will see that alleviate until probably the last quarter, whenever we start bringing on some more egress in the Permian Basin and bring on that 4 million to 5 million a day of capacity. All in all, we are extremely happy with our overall international exposure. It is a great piece to diversify our overall marketing strategy, and especially at times of volatility, I think our teams are doing a great job taking advantage of it. Arun Jayaram: Great. And my follow-up is on the Middle East exploration program. I was wondering if you could provide a little bit of an update on what is going on on the ground and how, Ezra, you think about capital allocation given the geopolitical risk situation, although you could argue if the UAE does leave OPEC that perhaps provides a potential tailwind to growth. And perhaps you could give us a sense of when EOG Resources, Inc. may be in a position to share initial results either from Bahrain or UAE on your exploration program? Ezra Y. Yacob: Yes, Arun, good morning. There is a lot there, so let me unpack some of it and maybe I will let Keith P. Trasko address the current operations piece. On the UAE’s decision to leave OPEC, it does not really have any change or impact for EOG Resources, Inc. We just recently began operations in the country, so we have not felt any impact, and going forward, we certainly do not expect to. I think it shows some of the positive steps the UAE is taking within their country. From our perspective, our intention has always been that if the plays are successful, returns are going to drive the investment and growth in the oil play more so than any type of production quotas. As far as continued capital allocation given the geopolitical risk, longer term it is still early in the conflict to be making those types of decisions. During the exploration phase, we entered this trying to do a couple of different things—certainly evaluating the subsurface potential of the fields. We certainly wanted to evaluate the surface and operating environment: can we get access to high-quality equipment, can we build scale there, and things of that nature? We are also looking during the exploration phase to evaluate the geopolitics, the sanctity of contracts, our partners, things of that nature. With great confidence here during this conflict, we have definitely landed with strong partnerships with both ADNOC and BAPCO. There has been very clear communication and straightforward alignment on our operations, and that really gives us pretty good confidence going forward. It actually gives me confidence in the way that we approach or look at the potential for other international opportunities. Keith P. Trasko: On the operations side, we are closely monitoring the situation in both Bahrain and the UAE. It is pretty dynamic. We have some employees that remain in the region while others have been repositioned. Since the program is still in the exploration phase, our 2026 plan for Bahrain and UAE was designed with a lot of flexibility. On the timeline side, both projects are moving forward in line with our expectations for exploration plays. The near-term timeline has slipped slightly from the start of the year, so we anticipate having results in the second half of this year, and we will provide additional updates if there are material changes. Over the longer term, we remain very excited. We entered the UAE and Bahrain because we saw compelling subsurface opportunities, positive production results from prior horizontal development, and strong partners in both countries. In Bahrain, you have a tight gas sand. In the UAE, you have a carbonate mudrock; we are very used to dealing with those types of rocks. We believe they will benefit significantly from the drilling and completions technologies that we employ in our domestic unconventional plays every day. In the current exploration phase, we are gathering data on long-term well costs, evaluating our ability to access high-performing service equipment, and we started exploration activity with limited operations in both countries last year. Our goal remains to leverage our core competencies in onshore unconventional development to unlock resources competitive with the domestic portfolio. Operator: Our next question comes from Stephen I. Richardson of Evercore. Go ahead, please. Stephen I. Richardson: Hi, good morning. Ezra, it sounds like the decision to pivot a little bit more towards liquids is more to do with the opportunity of liquids than it is a change in your longer-term view in gas. Maybe you could talk about the value of keeping the capital flat and making that adjustment within the portfolio, and then what it does sound like you are thinking—that this is a longer-term impact to market, which I think we would agree with. So how does that set you up for 2027 and beyond from a liquids and potentially oil growth perspective? Ezra Y. Yacob: Yes, Steve, great question and good morning. I would start with the decision on the capital reallocation this year. It really is just looking at where the dynamics have played out and what has happened since the beginning of the year. There has been a dramatic upset on the liquids side, on the oil side, and you have seen a dramatic response in the oil price. Conversely, on the natural gas side, inventory levels—after starting the year off pretty strong supporting price—have climbed above the five-year average, and gas prices have pulled back a bit. For us, it is a pretty simple calculation of reallocating some of the activity in Dorado to some of our more oil-weighted assets, not just for returns, but quite frankly, there is a call across the globe right now for increased oil supply, and so that is what we are doing. In Dorado, we have made fantastic progress. We have reduced our well costs with our target down below $700 per foot, and we feel confident that we can hit that this year. As you know, we have a low breakeven price of about $1.40 per Mcf. The advantage of having a multi-basin portfolio with both geographic and product diversity is that we have the flexibility to move capital allocation around throughout the years if you see something as dramatic as we have this year. For 2027, this does set us up better to grow liquids—these maneuvers that we have done now—to grow liquids, maybe a little more oil, a little more aggressive in 2027. But really, it is too early to get there. We need to continue to see how the conflict proceeds. That is why we are confident in our plan today to maintain our capital budget because we want to see how these things start to play out a little bit longer. We are not quite there yet as far as making a call on picking up rigs or frac fleets and investing longer term. Just this morning, over the last 10 to 12 hours, you can see how volatile the situation remains. While we do think longer term this sets up an environment where there is a much higher floor for oil price than where we entered the year, we would like to have better line of sight and understand that a little bit more before we took any additional steps forward. Stephen I. Richardson: That is great. Very clear. Maybe I could also ask on the buyback. It looks like you stepped up on the buyback pretty significantly in the month of April here, and that is despite, I think we would agree, that oil price is above a view of mid-cycle when you just mentioned some of the volatility. I think Ann mentioned this in her script, but can you talk a little bit about how tactical you are willing to be around the buyback and how you think about that relative to the value of just a ratable program throughout the year? Because obviously there is a ton of volatility in the commodity and your stock price as we look forward. Ann D. Janssen: Yes. Good morning, Steve. Through the first four months of 2026, we have seen exceptional value in our stock, and that has been reflected in the buyback activity you referenced. It has put us in a good position to return at least 70% of annual free cash flow back to our shareholders this year. As reported in the first quarter, we repurchased 3.2 million shares. To dissect that a little, we did have some limitations on buybacks during the fourth-quarter earnings period because for the first two months of 2026, we were operating under the parameters of a 10b5-1, so the majority of those 3.2 million shares were repurchased in March. Then we leaned in, and from April 1 to April 28, we repurchased approximately 2.3 million additional shares. That is really a testament to us continuing to see a lot of value in our stock driven by tremendous positive momentum we see within the company. We believe those buybacks support sustainable growth of our regular dividend. Finally, if you look at the energy weighting in the S&P 500, despite the increase in stock prices, it is still very low at approximately 3.5%. You can also see free cash flow yields in the energy sector are close to historic highs. We have allocated over $7.1 billion to repurchases since we first started buying back stock in 2023, and that has allowed us to reduce our share count by more than 10% at compelling prices. That disciplined approach focuses on being opportunistic and positions us to create meaningful value for our shareholders, and we remain confident continued improvement in our business and growing intrinsic value will provide additional opportunities for us to buy back our stock going forward. Operator: The next question comes from Joshua Silverstein of UBS. Go ahead, please. Joshua Silverstein: Just a question on the shifting activity. I was curious about the decision process as to how you reallocated amongst the three different basins there. Why 10 more in the Utica versus five in the Delaware versus, say, 15 all in the Utica or Delaware? I was curious if there was something that drove this or if it was based on what you could do with the existing rigs and frac crews there? Thanks. Jeffrey R. Leitzell: Hey, Josh. Thanks for the question. There is nothing to read into there at all. It really just happens to be what flexibility we have in our activity schedules at this point in the year across all the assets. A couple of things I would state: in the Utica, where we are increasing 10, we have seen some of the easiest drilling in the company, and we have talked about that very openly, with really solid efficiency gains even in the first quarter where we increased our drilled feet per day by 22% versus 2025. Seeing outstanding results there has allowed us to build our working DUC count a little more than some of the other plays. In the Delaware, everything is going outstanding as well. We tend to be a little bit more efficient on the completion side there because we have full super-zipper operation across our fleets along with all of our sand logistics in place, so you really do not have delays there. We also saw a 17% increase in the first quarter on completed lateral feet per day, which was keeping the DUC count a little tighter. That is all it is—just the mechanics of how things were moving, the timelines we had between our rigs and completion fleets in each one of the divisions, and how it made sense to allocate that capital and keep each division healthy so we can keep improving each one. Joshua Silverstein: Got it. Thanks for that. And then I know you have not added any additional CapEx for exploration for this year, but I am curious with the additional cash you will now be building if there are new prospects you are teeing up for exploration for next year, both domestically and internationally. I know you guys are always out looking for new areas to go in—some resource upside. So curious for an update there. Thanks. Keith P. Trasko: Yes. We have a number of exploration plays, both domestic and on the international side. In fact, I would say maybe even more on the domestic side than international. Our teams are always utilizing data from our successful plays to revisit basins, look at new basins, and see what could be unlocked with the new technology we have applied to other plays and with the lower costs of today than in the years that the basin was first looked at. We are always on the lookout for what can make our inventory better. I cannot comment on specifics, but as you know, exploration has always been our preferred method of adding low-cost reserves. You look at DoradoCo, you look at Dorado, you look at our Utica first-movers, Trinidad exploration; even the Encino acquisition was born of organic exploration from the years prior. We expect all our asset teams to be exploring for inventory additions and/or something transformative. We have several prospects and leasing campaigns, and when we are ready to comment on specifics of a given program, we do so. Exploration is a big way that we deliver value to shareholders. Operator: The next question comes from Scott Michael Hanold of RBC. Go ahead, please. Scott Michael Hanold: Yes, thanks. If I could return to the shareholder return discussion, I am not sure if this is for Ann or Ezra, but could you give us a view of how you think about variable dividends? I know there have been a number of your peers who have shelved that concept. If your stock price does go at a point, do you still see variables having some value? And secondly, on shareholder returns, is there the ability or desire for you to push to, say, a 90% to 100% return versus the base 70% level like you have done in past quarters? Ezra Y. Yacob: Good morning, Scott. Thanks for the question. On the special dividend piece, that is still in our mix. We have been clear that the foundation of our cash return to shareholders is the regular dividend. That is the one that we love—sustainably growing that regular dividend. We think it sends a message of discipline to our investors; it shows increasing confidence in capital efficiency going forward. When we first started doing additional cash return three and a half to four years ago, we leaned in on special dividends a bit more than buybacks. We have always said that, in general, we are pretty agnostic to how we return that additional cash to shareholders, but we are committed, as far as buybacks go, to being opportunistic. We have really shifted in the last few years. Over just over three years now, we have shown a track record of consistently being in the market every day looking for opportunities. So opportunistic—not necessarily just holding out for a dramatic black swan event—but really looking at where we can create value for shareholders through the cycle. I think we have done a great job with that. We are also very cognizant not to let this program become procyclical, and that is one reason why we have that 70% minimum return commitment. Going to a 90% to 100% return at these elevated prices—I would not say nothing is impossible, but I would highlight that we would like to build a little more cash on the balance sheet in this part of the upcycle and prepare for a potential future pullback in prices where we could continue our track record of positive countercyclical investment. Some of the things I mentioned earlier—investment in the Janus processing plant, the Encino acquisition, the bolt-on in the Eagle Ford, some of our marketing agreements—are really when we create significant value for shareholders: being able to have the balance sheet to zig when maybe others are zagging. Scott Michael Hanold: Appreciate that context. My follow-up is on the premium pricing in the contracts. You all obviously have been a step ahead of other companies with signing these agreements and benefiting right now. As you look ahead, is there further opportunity to build on that, or are these more countercyclical decisions? Jeffrey R. Leitzell: Yes, Scott. Our marketing team looks day in and day out for new opportunities, new outlets, and diversifying the portfolio we have—both domestically, where we have emerging plays and are in new areas, and internationally. We are constantly adding new markets and trying to minimize differentials to maximize netbacks. On the international side, we have great exposure with our LNG agreements, as we have talked about, getting close to 1 Bcf a day. We continue to look for unique ways to price gas going offshore to try to take volatility out and get a premium price. As we have talked about, the Cheniere agreement is kind of a sweetheart deal, so it is tough to get those kinds of terms. But we are still in the market and looking at opportunities. With the size of the company we are now, we have a lot of scale in all these basins and internationally. With how low-cost we are, we are able to keep operations moving with consistent activity. That is an advantage to us in negotiations, along with our balance sheet—which counterparties know will be resilient through cycles—and we can lean on that. That tends to help in negotiations to get us better pricing. Our goal is to continue to improve our overall price realization and maximize netbacks, and we will continue to look for ways to do that. Operator: Our next question comes from Phillip J. Jungwirth of BMO. Go ahead, please. Phillip J. Jungwirth: We are coming up on almost a year since you announced the nCino acquisition. One of the things you noted at the time was EOG Resources, Inc.’s volatile oil wells being 8% to 10% more productive than Encino. I know we have talked a lot about lower well costs, but hoping you could update us on what you are seeing on the productivity side now that you have some EOG-drilled and completed wells on. And then also, could you expand on that staggered lateral comment that you had earlier and what exactly you are doing here? Keith P. Trasko: Morning. On the productivity side in the Utica, we are treating it all as one asset now. We see really consistent productivity in the program year over year. I would say we are even a little surprised to the upside in some of the step-out areas. On the staggering targets that Jeff mentioned, we have been testing that, especially in the north where you have a thicker section. We have been seeing good results. Our goal is always to increase recovery of each acre and each section, and we will take those learnings, integrate them with our detailed geologic mapping, and see where in the play we can apply it. Over the long term, there are a lot of opportunities to apply learnings from how Encino did things through to our other analog plays within the company to continue to improve well performance. Phillip J. Jungwirth: Okay, great. And then you also mentioned that Eagle Ford bolt-on earlier in the prepared remarks. You have done a really good job improving returns in the Western Eagle Ford through efficiencies, long laterals—four milers. It is an area we have not seen much industry consolidation. Based on the synergies you have realized in the Utica, does this make you more encouraged about pursuing additional bolt-ons in the Eagle Ford or elsewhere, given you can bring superior operating and marketing capabilities that can create value? Ezra Y. Yacob: Thanks, Philip. It is a good question. We always knew before doing the nCino acquisition that we should have an advantage in a lot of areas—assets we might be able to improve with our operations, cost structure, and marketing, like you mentioned. The challenge has always been getting these deals done at a price that allows the all-in returns to really compete. Anytime you are buying anything with a lot of production, that weighs on the returns profile of the overall project, so the upside really needs to be there to counteract a typical 10% to 12% bid-ask spread. That is always the challenge. Cyclically, like you pointed out, last year we were able to get a couple of deals done. The first was Encino, obviously with a lot of production, but Keith just talked about a tremendous amount of upside. We really got to prove to ourselves exactly what you are asking: that scale, our knowledge base, and our database from outside a single basin—and bringing data from other basins—can add tremendous value. We saw great margin expansion and great improvement on the well productivity side and, as you pointed out, on the well cost side. The other one we did was in the Eagle Ford. That was kind of a needle in a haystack. It essentially had zero production—very, very low production—and we were surrounding that acreage. It fit in like a jigsaw puzzle piece. It was fantastic for us. We immediately got the production that was there into some of our infrastructure. We immediately started to extend some laterals we were drilling surrounding the acreage onto the acreage, and very quickly, within this first year that we have had that bolt-on in our portfolio, we have already drilled a number of high-return wells on it. You are right—it has gone a long way toward telling us that continuing countercyclically and focusing on returns is a winning strategy for us when it comes to either bolt-ons or potential deals that come with a bit of production as well. Operator: The next question comes from Doug Leggate of Wolfe Research. Go ahead, please. Doug Leggate: Ezra, I wonder if I can go back to the liquids pivot, and I just wanted to understand a little bit more what you are actually doing there. Have you physically reallocated equipment, or was this—forgive me—a classic EOG beat-and-raise? What have you actually done differently? The reason I ask is, if you flex things that quickly, how do you maintain efficiency? I am wondering if this was underlying production and productivity beats that were going to happen anyway. Jeffrey R. Leitzell: Hey, Doug. The first thing I would say with the actual productivity raise for the year is that we did have a beat in the first quarter. Other than that, we are reacting to what we are seeing from a price standpoint and making very modest adjustments to the activity schedule around the portfolio—just shifting investment from gas to oil. What that really means is we are taking a little bit of capital out of Dorado. It is not a whole lot. We are going to drop them down to just less than a frac fleet, so they will still have plenty of activity to focus on the asset, continue to move it forward, and progress it. The only thing is the exit rate now in Dorado will drop a little bit; it will go from a Bcf target to just over 800 million a day. We actually do have a rig down there that is going to go up and drill just a couple of DUCs in San Antonio, actually. We are reallocating the rest of the capital to add five net completions in the Delaware Basin and then the 10 net in the Utica, which is very small and within rounding. Five wells in the Delaware are just additions to a package—it is not really any additional equipment. In the Utica, it is similar—where the rig has gotten out in front, it is just a couple of packages of DUC inventory. A lot of it, as I said, is due to the great performance and consistent efficiency, which has allowed us to do the raise on the whole year within the same CapEx of $6.5 billion. As we stated, it will add 2 thousand barrels per day on the year for oil and 6 thousand barrels per day on the NGL side. We keep hitting on it, but it is one of the benefits of having this multi-basin portfolio. We have multiple high-return assets across the company that all compete for capital, and it gives us a lot of flexibility to alter our plan in real time very quickly without much disturbance—and maximize shareholder value through the cycles. Doug Leggate: I appreciate that, Jeff. Ezra, maybe for you then—specifically, my follow-up is basically not a capital return question necessarily; it is more of a philosophical question. Remarkably, your yield is now higher than ExxonMobil, and we tend to think of them as using buybacks to manage their dividend burden. You have also got a pristine balance sheet. How do you think about that split between allowing the dividend burden to move up versus the risk—as you pointed out—of procyclical buybacks? And maybe as an add-on to that, are you prepared to let your balance sheet go back to net debt zero? Maybe you could touch on those issues. Ezra Y. Yacob: Those are good questions. On net debt zero, I would not say it is a target for us, but you clearly saw that we have been there before. I would not mind getting there again. With the 70% minimum commitment we have in place, it would be difficult to get there this year, but potentially in the next couple of years. One of the things to keep in mind is that we think having a pristine balance sheet is a competitive advantage. It allows you to move from a position of strength, and that includes cash on the balance sheet. With regards to the dividend, hopefully the dividend yield will move the other way and get lower. The way we think about share repurchases—this has been a bit of a learning experience—it is straightforward math that when you are buying back stock, that reduces your absolute dividend commitment. Having been in the market buying back stock for three years, we really have good experience with that, and we love it. Going back to Scott’s question, maybe we are not quite as agnostic anymore on special dividends versus stock buybacks because we do see the ongoing benefit and the correlation with our ability to continue to increase the regular dividend. The regular dividend is now about $4.80 annualized per share, and it has a yield that is competitive across the broad market. Over the three years we have been buying back stock—during a softer part of the cycle—we have a compound annual growth rate on the dividend of about 9%. That is something we are proud of and continue to look forward to discussing with the Board. Our dividend increases should reflect growth, margin expansion, and the ongoing capital efficiency of the company, and any share repurchases obviously help that as well. Operator: Next question comes from Analyst at Truist. Go ahead, please. Analyst: Thanks, Cindy. Good morning, everyone. Thanks for the time and prepared remarks. Ezra, I was hoping you could go back to your views on the macro. It certainly seems like maybe your bias, once all this ends, is mid-cycle oil is maybe higher than what we all anticipated prior to the Iran conflict. Can you talk a little bit about how this could change how you allocate capital on a go-forward basis? I am curious how you think about more growth in a supportive oil price environment and how you allocate across oil versus gas? Ezra Y. Yacob: That is a good question. I would say we are a little bit more bullish going forward. It might be a bit of semantics, but I am not sure we would say the mid-cycle price has changed dramatically. I would frame it as: for the next few years, we think we are going to be in an environment above mid-cycle prices. Historically, this is a cyclical business. When you look back at five-, 10-, 15-year runs, WTI usually ends up in the mid-$60s—around $65. The point now is that with inventory levels where they have gotten down to, it is going to take quite a while to get inventories back up to the five-year average. That would assume barrels flow pretty easily through the Strait of Hormuz, the committed SPR releases hit the market, and investment in the U.S. and non-OPEC is above where it was when we entered 2026. What does that mean for us? We put out a three-year scenario at the beginning of this year that contemplated an environment based on fundamentals where we were investing to grow the business on the oil side at about low single digits. If there was a real call going forward supported by fundamentals on shale, we could increase maybe to mid-single digits. Honestly, that low single-digit plan is a very compelling scenario. It is not guidance; it is a scenario. It delivers, on a conservative $60 to $80 WTI range, a 15% to 25% ROCE, $12 billion to $24 billion in free cash flow, and a compound annual growth rate of free cash flow of 6% plus. That is straight free cash flow, not per share—so any additional buybacks obviously increase that. The big takeaway is even at the same strip price as the past three years, our go-forward scenario would increase cumulative free cash flow by about 20% over the past three years. Leaning in a little more aggressively into growth not only needs to be supported by fundamentals, but we also need to be mindful of the cost environment. We do not want to lean into a higher-cost environment just to grow production if you are running into inflationary headwinds. Increasing inventory levels back to the five-year average is best for consumers and energy affordability, but to do it at an appropriate cost. We will be very thoughtful and deliberate before we did something like that. Analyst: Thanks, Ezra. That is really helpful. I will leave it there since we are at the hour. Really appreciate the time. Ezra Y. Yacob: Thank you. Operator: This concludes our question and answer session. I would like to turn the conference back over to Ezra Y. Yacob for any closing remarks. Ezra Y. Yacob: I would just like to say that we appreciate everyone's time today. Thank you to our shareholders for your support and special thanks to our employees for delivering another exceptional quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Taysha Gene Therapies First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Hayleigh Collins, Senior Director of Corporate Communications and Investor Relations. Hayleigh Collins: Thank you. Good morning, and welcome to Taysha's first quarter 2026 financial results and corporate update conference call. Earlier today, Taysha issued a press release announcing financial results for the quarter ended March 31, 2026. A copy of this press release is available on the company's website and through our SEC filings. Joining me on today's call are Sean Nolan, Taysha's Chief Executive Officer; Sukumar Nagendran, President and Head of R&D; and Kamran Alam, Chief Financial Officer. We will hold a question-and-answer session following our prepared remarks. On today's call, we will be making forward-looking statements, including statements concerning the potential of TSHA-102, including the reproducibility and durability of any favorable results initially seen in patients dosed to date in clinical trials, including with respect to functional milestones to positively impact quality of life and alter the course of disease in the patients we seek to treat, our research, development and regulatory plans for our product candidates, including the timing of initiating additional trials, reporting data from our clinical trials, making regulatory submissions, timing or outcomes of communications with the FDA and the regulatory pathway for TSHA-102, the potential for the product candidate to receive regulatory approval from the FDA or equivalent foreign regulatory agencies; our ability to realize benefits of breakthrough therapy designation for TSHA-102, our ability to drive long-term value for stockholders and the market opportunity for our programs. This call may also contain forward-looking statements relating to Taysha's growth, forecasted cash runway and future operating results, discovery and development of product candidates, strategic alliances and intellectual property as well as matters that are not historical facts or information. Various risks may cause Taysha's actual results to differ materially from those stated or implied in such forward-looking statements. For a list and description of the risks and uncertainties that we face, please see the reports that we have filed with the SEC, including in our annual report on Form 10-K for the full year ended December 31, 2025, that we filed on March 19, 2026, and our quarterly report on Form 10-Q for the quarter ended March 31, 2026, that we filed today. This conference call contains time-sensitive information that's accurate only as of the date of this live broadcast, May 6, 2026. Taysha undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call, except as may be required by applicable securities laws. With that, I would now like to turn the call over to our CEO, Sean Nolan. Sean Nolan: Thank you, Hayleigh, and welcome, everyone, to our first quarter 2026 financial results and corporate update conference call. On today's call, I will begin with an update on our recent regulatory, clinical and commercial readiness activities. Dr. Suku Nagendran, President and Head of R&D, will outline recently published preclinical data that continue to validate our novel TSHA-102 construct design and minimally invasive intrathecal route of administration. Kamran Alam, our Chief Financial Officer, will follow up with a financial update, and I will provide closing remarks and open the call for questions. We entered 2026 focused on a disciplined execution across our regulatory, clinical and pre-commercialization activities for TSHA-102 with the goal of delivering a potentially transformative therapy to a broad population of patients with Rett syndrome who continue to face high unmet need. Over the past several months, we have continued to advance our TSHA-102 clinical development program and made progress towards key clinical milestones anticipated in the second quarter of 2026. On the regulatory front, we recently held an initial breakthrough therapy Type B multidisciplinary meeting with the FDA. During the meeting, we reaffirmed alignment on the planned pathway toward a BLA submission for TSHA-102, covering the pivotal trial design, endpoints and BLA submission scenarios, including the potential to submit for approval based on a 6-month interim analysis from the REVEAL pivotal trial. We believe our consistent constructive dialogue with the FDA continues to support our streamlined path toward a potentially expedited BLA submission. Additionally, in the first quarter of 2026, we held a Type C meeting with the FDA, where the FDA endorsed our proposed Process Performance Qualification or PPQ campaign strategy in support of our planned BLA submission. I am pleased to share that we initiated the BLA-enabling PPQ campaign using our TSHA-102 commercial manufacturing process in April, and we expect to complete execution by the fourth quarter of this year. As a result, we are confident that our CMC activities are on track to support our BLA submission in step with the pivotal data readout. As a reminder, the FDA previously agreed that TSHA-102 material produced from the clinical and final commercial manufacturing processes are comparable, and therefore, they support our ability to utilize the clinical data across all clinical studies in our TSHA-102 development program in our BLA submission. The ability to leverage the totality of evidence to support the long-term clinical benefit of TSHA-102 would strengthen the overall package and support a potentially expedited BLA submission based on the 6-month interim analysis. Turning to our clinical progress. We further advanced dosing in the REVEAL pivotal trial with multiple patients dosed across multiple clinical trial sites. In parallel, enrollment in the ASPIRE trial is ongoing across multiple sites, and we remain on track to complete dosing in both trials this quarter. I am pleased to share that both high and low-dose TSHA-102 continue to be generally well tolerated with no treatment-related serious adverse events or dose-limiting toxicities observed in all patients treated across the REVEAL Phase I/II and REVEAL pivotal trials as of the May 2026 data cutoff. We look forward to reporting longer term data from all 12 pediatric, adolescent and adult patients treated in Part A of the REVEAL Phase I/II trials later this quarter. Our pivotal development strategy is grounded on the rigor of our natural history analysis and Part A data collection and evaluation with trial design, endpoints and statistical analyses developed based on discussions and written feedback from the FDA. Accordingly, developmental milestones in Part A are assessed using 3 structured criteria, all of which must be met in order for a developmental milestone to qualify as a gain or a regain post TSHA-102. First, all caregivers must complete the clinician-administered historical milestone questionnaire used in the natural history study. This allows us to identify milestones eligible for gain or regain by confirming whether a milestone was never previously achieved or was lost long enough ago that the likelihood of a spontaneous gain or regain is less than 6.7%. Establishing a documented time since loss is fundamental to accurately differentiate a true regain from natural variability as each of the 28 milestones has its own determinant. A simple baseline assessment is not sufficient documentation to support a rigorous statistical assessment and is susceptible to false positives. Our approach ensures milestone history is captured accurately so that only true open milestones are counted as gains or regains. Second, the milestone gain must be captured by post-treatment video documentation. This provides evidence of milestone gains that can be objectively reviewed, which brings me to the third criterion. Video evidence must be independently evaluated by multiple external raters using a prespecified definition of achievement for each milestone from our pivotal trial protocol. We believe these criteria are essential for interpreting functional outcomes and provide a reliable assessment of TSHA-102's efficacy as we advance towards registration. We believe our Part A data accurately reflect the outcomes we expect to observe in the pivotal trial as they are evaluated using the same FDA-aligned criteria for the pivotal trial protocol. As a reminder, we presented data from Part A of the REVEAL Phase I/II trials last year, demonstrating an 83% response rate at 6 months post treatment with 5 of the 6 patients treated with the high-dose TSHA-102 gaining or regaining at least developmental milestone. By 9 months post treatment, the data demonstrated a 100% response rate across the 6 treated high-dose patients. In addition to the 22 developmental milestones gained across the 10 patients treated with TSHA-102, patients also demonstrated a total of 165 additional functional skills and improvements across the core domains of Rett syndrome, an average of approximately 19 functional gains per patient. We observed a consistent pattern of early gains that were sustained with additional gains seen over time, demonstrating the deepening of effect. In our upcoming Part A data readout, we expect to report longer term follow-up, including at least 12 months of data from all 12 patients treated with TSHA-102. These results will include functional gains based on natural history-defined developmental milestones and additional functional skills and improvements impacting the activities of daily living that are meaningful to the caregivers and clinicians. We will be hoping to see a consistent pattern of early responses that are sustained and deepen over time across functional gains and clinical outcome measures in the treated patients. We believe this longer term follow-up will provide important context around the durability, deepening of effect and consistency in responses. With FDA alignment on the potential to pool data across the full TSHA-102 development program and our BLA submission, we believe the longer term Part A data has the potential to strengthen the overall BLA package and support an expedited submission. In parallel to our clinical and regulatory execution, we continue to build out our internal commercial infrastructure. We have strategically assembled a strong commercial leadership group, including senior hires who have deep expertise in commercial strategy, pre-commercial and product launch planning as well as payer and health care systems engagement within the gene therapy space. With these key roles now in place, we are focused on developing a strategic commercial strategy to prepare for a potential launch, and we expect to share additional details on our commercial plans in the second half of the year. I would now like to turn the call over to Suku to discuss evidence that further validates the TSHA-102 program and route of administration in more detail. Suku? Sukumar Nagendran: Thank you, Sean. We have continued to make meaningful progress advancing TSHA-102 towards registration and remain confident in its differentiated potential. A key design attribute of TSHA-102 is its minimally invasive intrathecal route of administration, which market research shows is strongly preferred by clinicians and caregivers over direct-to-brain central nervous system delivery. This preference is driven by its familiarity, accessibility and scalability, enabling broad access to treatment across institutions from major centers of excellence to regional and local sites. A peer-reviewed article was recently published by Frontiers in Medicine Gene and Cell Therapy, which highlights preclinical data we previously presented at the 2025 International Rett Syndrome Foundation Rett Syndrome Scientific Meeting. The data showed that intrathecal and direct-to-brain intra-cisterna magna administration demonstrated comparable, consistent and widespread distribution of AAV9 vector throughout the brain and spinal cord in non-human primates. We believe this further validates lumbar intrathecal delivery as a potentially safe, effective and minimally invasive approach to deliver a gene therapy to the central nervous system. In addition, on May 14, we plan to present new preclinical data that further validates the construct design of TSHA-102 at the ASGCT 2026 Annual Meeting. Consistent with previously published vector comparisons, the data demonstrated that the self-complementary AAV9 vector enables significantly higher protein expression compared to single stranded AAV9 in neuronal mouse cell models. The 30-fold higher transduction efficiency demonstrated in this study, along with the improved genomic stability of self-complementary AAV9, supports our ability to effectively deliver TSHA-102 to the central nervous system using a minimally invasive lumbar intrathecal administration. In addition, the data showed that the mini MECP2 protein used in our TSHA-102 construct was functionally comparable to the full-length MECP2 protein across molecular and biochemical functions. We believe these data support the strategic TSHA-102 construct design and provides important translational context for the early, sustained and deepening functional gains demonstrated across all patients previously reported in Part A of the REVEAL Phase I/II trials. We believe this supportive evidence, our continued FDA alignment on a registrational path and the clinical data generated to date support the potential for TSHA-102 to provide meaningful benefit to pediatric, adolescent and adult patients with Rett syndrome using a minimally invasive delivery approach that is scalable. Our focus remains on clinical execution and data generation as we work to complete dosing in our REVEAL pivotal and ASPIRE trials and report long-term data from Part A of our REVEAL Phase I/II trial this quarter. I would now like to turn the call over to Kamran to discuss financial results. Kamran Alam: Thank you, Suku. Research and development expenses were $33.8 million for the 3 months ended March 31, 2026 compared to $15.6 million for the 3 months ended March 31, 2025. The $18.2 million increase was primarily driven by BLA-enabling PPQ manufacturing initiatives performed during the 3 months ended March 31, 2026 and higher clinical expenses from the REVEAL Part A Phase I/II, Part B pivotal and ASPIRE trials. Compensation expenses, including non-cash stock-based compensation also increased as a result of additional research and development headcount. General and administrative expenses were $9.7 million for the 3 months ended March 31, 2026 compared to $8.2 million for the 3 months ended March 31, 2025. The increase of $1.5 million was primarily due to higher compensation expenses, including non-cash stock-based compensation expense and increases in consulting and professional fees, including commercial launch readiness initiatives. Net loss for the 3 months ended March 31, 2026 was $42.4 million or $0.12 per share compared to a net loss of $21.5 million or $0.08 per share for the 3 months ended March 31, 2025. As of March 31, 2026, Taysha had $276.6 million in cash and cash equivalents. We expect that our current cash resources will be sufficient to fund planned operating expenses into 2028. I will now turn the call over to Sean for his closing remarks. Sean? Sean Nolan: Thank you, Kamran. Our confidence in our differentiated TSHA-102 gene therapy candidate continues to strengthen based on the developments highlighted today. And we continue to believe TSHA-102 has the potential to deliver meaningful therapeutic benefit to a broad population of patients with Rett syndrome using a minimally invasive delivery approach. With a favorable tolerability profile demonstrated to date, dosing in the REVEAL pivotal and ASPIRE trials on track for completion in the second quarter of 2026 and a well-defined regulatory and commercial path, we're advancing toward potential registration with clarity as we work to bring a potentially transformative therapy to the Rett community. I will now ask the operator to begin our Q&A session. Operator? Operator: [Operator Instructions] Our first question today comes from Kristen Kluska from Cantor. Kristen Kluska: Congrats on these updates. So I wanted to ask you a little bit more about some of the data you're going to have at ASGCT. For the work you're doing that supports higher MECP2 protein expression with the self-complementary AAV9, can you tell us why this matters so much versus the obvious of just having more protein expression? Does this allow for a greater orchestra across more neurons? Does it mean a faster onset of action? What would you truly highlight here? Sean Nolan: Thanks for the question, Kristen. I think Suku and I can tag team this. But at a high level, I think what we wanted to do was really provide the why as to what the clinical result that we're generating is, right? I mean from a clinical perspective, in every patient treated, whether it's a pediatric patient, adolescent patient, adult patient, everyone has been a responder. We're seeing multiple skills and improvements across all of these patients and they happen quickly and then they improve over time and get deeper. And so the question is why does that occur? And I think what we're highlighting at ASGCT is the fact that the construct, which we purposely utilize self-complementary technology ultimately drives in this data set, a 30x transduction efficiency or protein expression than single strand does. And so that is a reason why you could potentially use a less invasive route of administration like intrathecal versus having to go with a closer to the brain approach. And usually, you have to do that because of a single strand. The other thing, too, is just reinforcing the fact that the mini MECP2 gene continues to show comparability. It's been published for over 15 years that this has been the case. But again, we just wanted to highlight that regardless of the genotype that we're seeing in these 12 patients that we've dosed to date and that we'll report on in a few weeks, they're all responding and they're responding across clinical domains. And the gene, the mini gene is very much a part of that because it essentially equals the full-length gene. And again, the reason we use the mini gene was so we could package the self-comp. So we're just trying to highlight the fact that the reason -- all the reasons that we put into building the construct are being demonstrated clinically and that this allows us to use a particular route of administration that we know is strongly preferred out in the community. Suku, I don't know if there's more you might want to add to that. Sukumar Nagendran: Yes, Sean, I have a few more points to add. So Kristen, thanks for that incredibly important question. What we've already shown with our REVEAL Part A program is that a simple lumbar puncture, a self-complementary mini gene construct using TSHA-102 gives you incredibly important clinical results from an efficacy standpoint that translates into a significant improvement in activities of daily living. So the clinical data at the present time from Part A now speaks for itself. So now when we work backwards and continue to further look at preclinical data, whether it's us or from other companies, it is very clear that a self-complementary construct turns on very quickly once given into the central nervous system, i.e., via the CSF. Once it turns on, it has rapid impact on one of the most important components of Rett syndrome, which is the autonomic dysfunction component, where we have impact pretty quickly usually within a couple of weeks post dosing. We've also shown repeatedly now in Part A that we have very positive clinical impact consistently regardless of age, genotype or phenotypic presentation of the patient with Rett syndrome, where there is an improvement in gross motor, fine motor skills or restoration of those skills, which have been lost over time, but also improvement in the ability to communicate as well as when it comes to social activities. So my point here is that a self-complementary stable construct turns on quickly, it persists and it continues to persist and build on top of all the preclinical data that we have that shows that a lumbar puncture with the right product can have a simple but consistent positive clinical response for a post patient population that has significant unmet medical need. And in this case, Rett syndrome. And I think we may have set the stage for an intrathecal lumbar puncture-based platform to treat difficult CNS diseases. Operator: Our next question comes from Salveen Richter with Goldman Sachs. Salveen Richter: Regarding the BLA submission pathway for 102, can you walk through the different scenarios here and whether approval based on the 6-month data should be considered the base case assumption? And how you characterize the willingness of the FDA to approve based on 6-month data sets and time lines around this, that would be great? Sean Nolan: Yes, Salveen, great question. We've been out talking with the investment community really since the beginning of the year, and this topic has come up. And so I think those that are on the call, this will sound very familiar, but we were very transparent with the FDA. Part of this meeting was trying to gain alignment and we were walking them through various scenarios. And we told them point blank that our preferred scenario would be a full approval at 6 months' worth of data. And the argument for that, right, I mean, generally, they like the precedent of 12 months of data for gene therapy, which is arguably probably pretty arbitrary, to be honest, but that's generally what they've held to. And I think our perspective on that is understood. But if we continue to demonstrate comparability with Part A, we're going to have years of data from those patients that we can use to support the durability. And their answer was essentially, look, ultimately, this is going to come down to the totality of the evidence. And this is something that if the company chooses to do, we will -- we are open to it and we will review that in due course, which is really the best answer you could possibly get, right, which is the door is open, let the data speak for itself. The second derivative of that, in our view, was basically if for whatever reason the FDA decides that let's just say they want to keep it as a precedent at 12 months, we would push hard for a rolling review because the CMC modules would be done, the preclinical modules would be done. And we can have things updated where the 6-month data is packaged in a way that they could look at that and also then there's less to review when you would submit the final 12-month data, and that can pull things forward a couple of quarters. And then obviously, the third scenario would be there may be nothing at all wrong with the data. They just want to see 12 months. So we feel in any of those scenarios, number one, there continue to be a positive and constructive dialogue with the agency. There was no opposition to anything that we put forward. There was an openness to it. Clearly, it's going to come down to the totality of the evidence and their comfort level around the data package that's put forward. But as we've said all along, the nice thing about this 6-month interim is it creates the optionality for us to potentially get this to patients faster. And my personal opinion, I can be wrong, is that almost regardless of what we come back with, I know everyone would prefer it's the fastest time point. And obviously, we're going to do everything we can to facilitate that. But we'll have clarity for the market. And even in the scenario -- and don't read into this, it's just even in the scenario where it's a 12-month ask, we can say that and you know what our 6-month data are and people can judge the probability of success, and then it's an execution story. So for all the reasons that we laid out in this call, we feel that there is strong evidence to push for the 6-month data. The fact that we've got comparability with the FDA on the CMC side is absolutely critical to this. And that opens the door for us to pool the Part A data alongside the pivotal Part B. And in our opinion, really should alleviate any concerns on the durability piece. So ultimately, we'll leave it at that. The nice thing is we've got this option -- these options in front of us, thanks to the data that we've put forward today and also the CMC quality that we've put forward today. So we're in the best possible position we can be. We've got a couple of cards that can fall our way, and we're excited about having this discussion with the FDA at the appropriate time. Operator: Our next question comes from Biren Amin with Piper Sandler. Biren Amin: Recently, the FDA Commissioner announced the real-time clinical monitoring program that enables the FDA to evaluate data real-time. Is that something that the company can leverage for REVEAL given the high unmet need in Rett syndrome, especially Sean, with the 6-month data and the agency potentially following patient data to 12 months during review under this program? So I guess that's the first question. And then second question for REVEAL. Do you expect to stop enrollment at 15 patients or could you potentially over-enroll as is typically the case with clinical trial management and execution? And if that's the case, how does the over-enrollment impact the effect size calculation for the study? Sean Nolan: Yes. Just real quickly on the real-time piece, I'll ask Suku to comment on that. But I would say we're always keeping our eyes open for what we could potentially do. Like the other one is the commissioner's voucher, right? Things are so dynamic up there. It can be difficult sometimes to tell what's afforded to you and what's not afforded to you. I think that what I just laid out in terms of scenarios, we feel very good about. If there's an opportunity for us to lever one of these additional pathways, sure, we would try to do that. But again, I don't want to try to make it sound like that's what we're attempting to do out of the gate here just because it's not as formalized and crystallized in terms of the time lines, what you need to meet the hurdle bar, et cetera. I don't know if there's anything you'd add to that, Suku. Sukumar Nagendran: Yes, Sean. I mean, Biren, thanks for that very interesting and important question because what the FDA has proposed, I think, could change the way clinical trials are overseen by the FDA with their direct hands-on experience and oversight. But at the same time, as the real-time data pours in, I think the regulators and the sponsors, clinical regulatory teams will have to work very closely to make sure appropriate interpretation is done when it comes to real-time safety data and efficacy data, because especially in the rare disease space, as we know, we are learning not only about the disease, but also the response to the therapeutic intervention at that point in time. And sometimes the real-time decisions versus a more time process-oriented decision could have significant impact and influence on programs. So I hope that helps, because at this time, we are kind of watching the process interestingly. And you mentioned the decision-making governance between the regulators and the sponsors are going to be critical to make sure real-time oversight of clinical trials will pay the dividends that the FDA hopes it will. Sean Nolan: Yes. And then the question around the potential for over-enrollment, I would say that you're always trying to balance the -- getting the appropriate patients in screened essentially, understanding that there could potentially be a screen fail. Like one of the criteria we have, right, there's a number of open milestones you must have, right, as an example. You could go through the screening and then find out that, that patient doesn't quite meet it. So you're going to want to have more patients than 15 going through the screening process. And if you do end up in a situation where you dose an extra patient or 2, we would be certainly willing to do that. I can just say that the effects on the statistics are minimal. I mean they would obviously look at the first 15 patients first and do the statistics on that. And then if you had another patient or 2, they would do the statistics on that, but they really don't change much. Anything else you would add there, Suku? Sukumar Nagendran: No, the only thing I would add there, Sean, is that as you said, the power and p-values for a patient sample size of 15, if it goes to 16 or 17 based on what Sean just described, it won't have a major impact on power or p-value for the study itself. And as you know, from REVEAL Part A, we already have 100% responder rate at 9 months with a small number of patients. And those observations, I think, are significant. And as you know, all we need is a 33% responder rate for our REVEAL Part B study. So let us see what the eventual data pans out, but I think we are confident that the Part A data hopefully should be reproduced in Part B as well. Sean Nolan: Yes. I think the key, Biren, is just simply that the null hypothesis is so low. It's effectively 1 patient spontaneously having an effect. So because of that number being such a low aspect, the overall end doesn't really change things very, very much. But good question. Thank you. Operator: [Operator Instructions] And our next question comes from Tazeen Ahmad from Bank of America. Wesley Yon: This is Wesley on for Tazeen. I had a question on sort of the mechanics of the Part B portion of the study compared to the Part A. Are the like assessments being done of the patients, the treated patients being done in the same way in Part B to Part A? Who is doing the video recordings? And with regards to sort of the patients that you are currently screening and plan to dose, are those sort of sites and investigators similar between Part B and Part A? I'm just trying to like look for any color on sort of straight lines we can draw from the 12-month update you're going to share soon to what we can expect and how the Part B is running. Sean Nolan: Thanks for the question. And Suku, we can tag team this. Our view is that the read-through from the upcoming data review that we're going to put out should be pretty direct for all of you. And that's why we've put so much emphasis around the rigor of the data collection in Part A. We spent a lot of time on the call talking about that. And it starts with the fact that, number one, what we rate is -- so first of all, all of our milestones for the primary endpoint are prespecified, right? There's clear definitions for those. And those demonstrations are from videos that are conducted in the study itself. So when people -- the way it's been working is that people are doing the hand function test or the RMBA or the Mullen. If we have video of them doing a milestone, that video then goes outside the company and 2 of 3 raters have to adjudicate that as a milestone. So the company has nothing to do with what is declared a milestone. And I think that has been a big part of the reason why the agency has been open to our data set and the interim analysis is that we had rigorous video evidence that was adjudicated outside the company. Now the other side of this coin is that the Mullen, which is another video tape demonstration and the RMBA are also supportive data sets that the agency sees. Again, those are on video. The Mullen also gets centrally adjudicated and the FDA -- and the RMBA is done in the clinic by the physician, right? So there's no real way to be putting your thumb on a scale and making this data subjective. It's very objective. So I think this is a good read-through to Part B. The only difference in Part B is that we're going to have a standalone assessment of all of the milestones. So I would argue that we're probably undercounting milestones in Part A and that we have a better chance of counting more milestones in Part B because there's a standalone test. We spent a lot of time with the FDA developing this test. We have training modules around this test. The test is conducted in the hospital by trained assessors at the hospital. So this is not done at home. The parents aren't doing this. This is very prescriptive and it's done in-house. Those videos then go outside the hospital to the raters where they remain blinded until they break -- until the 6-month time period where they break the blind for all of the 15 patients and review those videos. So the whole point of what we've been trying to emphasize since we began reporting data on milestones is clear definitions, rigorous baseline collection with videos assessed by central raters. It's going to be very similar in Part B, but even more rigorous. And I think there's more ability to capture milestones because we now have a standalone test. So hopefully, that gives you a perspective there, but I think the read-through should be pretty direct when we update you in a few weeks. Operator: Our next question is from Maury Raycroft with Jefferies. Unknown Analyst: This is James on for Maury. For the 12-plus months of follow-up in the 2Q update, how are you setting expectations for the early milestones and skills deepening versus new more complex milestones and skills appearing between 6 and 12 months? And how do you plan to communicate that in the update relative to the last presentation last year? And also, should we expect a potential safety update from the REVEAL pivotal cohort around IRSF or how should -- or should we expect that update at a later point after IRSF? Sean Nolan: Yes. To answer your second question first, I mean, even today, when we said that as of the March safety cutoff, that was inclusive of the REVEAL Part A and also the pivotal trials and ASPIRE. So that's all the studies that we're running right now. You just got a safety update on no treatment-related SAEs and DLTs. And we'll continue to do that on a quarterly basis. And the first part of the question, could you repeat that? I already lost it. Unknown Analyst: So the 12-plus months follow-up in the 2Q update, how are you setting expectations? Sean Nolan: Yes. I mean to be very simple, and I'll turn it over to Suku, what we've seen on the reports that we did last time was that there's early responses. There's more responses that occur as time goes on relative to milestones, relative to skills and improvements. And that the things that you had, you get better at and you're also developing new milestones, new skills and new improvements. That's what we would expect to see at 12 months. Sukumar Nagendran: Yes, Sean, as you have emphasized, what we will communicate is the rapid, consistent, persistent clinical impact of TSHA-102 in patients with Rett syndrome regardless of genotype, phenotype or age. And I would also emphasize that we hope that we can continue to show a significant collective improvement in "skills" that per patient could go above the 19 per patient that we disclosed this morning when Sean did his segment of the communication. So just pay attention to that as well because I think a component of reaching developmental milestones in a validated manner, as we've already discussed and described, which the FDA truly likes. And I'm going to emphasize these are done in a blinded reviewer, expert reviewer fashion and not done at home by caregivers, which usually the FDA has questions around. So I hope that our 12-month plus data disclosure further enhances the confidence in what TSHA-102 can contribute potentially in a transformative manner to this patient population. Sean Nolan: Yes. I guess last comment there, James, is that we don't expect to see any type of a plateau. We expect to continue to see improvements and new improvements over time based on the historical disclosures. Operator: Our next question comes from Gil Blum from Needham & Company. Gil Blum: Maybe just another one on the 6 months interim, as a clarification, the FDA basically has not given a clear feedback as to what it thinks about this 6-month interim. Would you say that what would dictate the decision here would be the data itself and the 12-month data that you're going to present at IRSF? Sean Nolan: Gil, can you repeat that? I honestly didn't quite get the point of the question. Gil Blum: The point is you haven't really gotten clear FDA feedback as it relates to the 6-month interim. They're actually waiting for the data. Is that fair? Sean Nolan: Yes. I mean I think that is fair. I think the clear feedback we got is that it's an option for us. And that's all you can ask for at this particular point in time. They've consistently said since we put that disclosure out, I guess it was June '25 where we started talking about that. It's always been something that's enabled. We just confirmed, and we've gotten a lot of questions from investors like, hey, when was the last time you talked to the FDA? It's like, well, we talked twice in the last few months here, once on CMC and once on our first breakthrough meeting. And we went back through, we got confirmation on the design, on the endpoints and our scenarios that I went through. And they're like, yes, I mean that is an option for you. It's going to depend on the data in terms of approvability. So you're never going to get anything better than that, which is why we were so with the outcomes from that meeting. Gil Blum: Okay. So to summarize, they're open to it. Sean Nolan: I didn't hear that. Sukumar Nagendran: Yes, they are open to the 6-month... Sean Nolan: Yes, yes. And it's in writing, by the way. I mean, so it's as good as you can get. There was very much an open-mindedness to this. And it's an open door for us at this point in time, and it's going to be won by the data. Operator: [Operator Instructions] Our next question is from Chris Raymond with Raymond James. Christopher Raymond: Maybe just 2 here. Just on the Process Performance Campaign or PPQ. You mentioned FDA has agreed on equivalency between the clinical and the commercial manufacturing. Maybe just can you give a little bit more color on what activities, what are sort of the pinch points, I guess, in terms of getting to having something you can submit in Q4 between now and then? And then one of the things that kind of struck us, we've done some KOL work where people seems physician -- the physician community seems very aware that you have a broad range of ages in your data. Maybe just talk a little bit more about the importance of enrolling a broad age range? And how that's being received by the clinical community from your perspective? Sean Nolan: Sure. So Chris, starting with the PPQ, we aligned on comparability when we had the clinical lot that was in Part A, and then we ran our, call it, our final commercial process. We ran a lot of that. And so it was 1:1, and the FDA deemed that, that was analytically comparable. And what you have to continue to do as you produce more lots is demonstrate that there's -- those additional lots are also comparable. So at this last meeting, we shared with them multiple additional lots that we'd run, and they continue to say that we're comparable. Now as you go into PPQ, you're generally doing 2 or 3 additional runs and then you share that data with the FDA. So we're in the process of doing those runs right now. Assuming those runs continue to be demonstrating comparability, that's when you're able to pool the data. So the fact that we've been able to do it with multiple runs so far gives us a lot of confidence. There's a strong alignment with the FDA. And then we take that data package and the next time we meet with them, we share that with them, and that's kind of the next step. So we feel like we're in a really good position on the CMC side, and we have been for quite some time. It is not on the critical path to the BLA submission. So that's that. As it relates to the broad ages of enrollment, if you think about the prevalent population, 85% of the prevalent population is over the age of 10. So demonstrating effect across pediatric, adolescent and adults is very, very important, because as we've done market research with both caregivers and with clinicians, they plan on offering it across the age spectrum. And they're planning to offer it because there's demonstrated effect across the age spectrum. So we feel that we're in a good position to serve the broad community who is requesting gene therapy because of the data that we've generated, and that's why we're being thoughtful about making sure that there's representation across the age spectrum in Part B. So our whole goal is to make this available for all patients with Rett syndrome and the data continue to support that. And I can tell you that the demand is high across the age groups based on what we've seen so far. Operator: Our next question is from Jack Allen with Baird. Jack Allen: Congrats on the updates. It sounds great to hear that enrollment is on track to be concluded in the second quarter of this year. I guess my question is pretty simple, and that I was wondering if you could provide any additional color surrounding how far you are as it relates to completing enrollment? How many patients have been dosed in the study? And then maybe if that's a little too direct, if you could just speak to the enthusiasm you're seeing from the patient community and the interest in the trial? Sean Nolan: Yes. I think Suku can take the second part of the question. I mean we're not going to give specifics. I would just say the demand is super high. It's high across the age spectrum, multiple sites -- we've got 10 sites that are active. Multiple patients have been dosed across multiple sites. Most of the sites have multiple patients. So I mean, do you want to talk a little bit about the enthusiasm and the demand that we're seeing across the spectrum? Sukumar Nagendran: Absolutely. So we have multiple centers of excellence who are part of the clinical trial, and they all have 100, 200-plus patients. Many of the patients' caregivers and parents have been very enthusiastic about being screened and enrolling in our trial. So I would say with confidence that we are over-enrolled and we have more than enough patients to dose to meet the 15 -- the number of 15 or a little bit more. So we should be -- we will be meeting our commitment to complete dosing for both REVEAL Part B and ASPIRE by the end of the second quarter this year. Operator: Our next question is from Whitney Ijem from Canaccord Genuity. Whitney Ijem: Just thinking about durability, how often are patients assessed in Part A? And I guess I'm just wondering if there's a scenario where later this year, either we or the FDA is getting like an 18-month update on those patients and then potential for longer term updates going forward? Sukumar Nagendran: Yes. Thanks for that question, Whitney. That's actually a very important question that you raised. So given that we have a Part B ongoing, and we have an agreement with the FDA that the 6-month interim analysis once all 15 patients in Part B are dosed would be considered based on the efficacy and safety data for potential full approval of our product, the REVEAL Part A long-term data from a clinical standpoint, safety and efficacy, I think could significantly also impact the 6-month interim analysis from Part B collectively driving towards the full approval. And Sean clearly described that the FDA is aligned with us when it comes to the CMC process and the comparability technicalities between the Part A product and the Part B product. So to really answer your question on Part A, the long-term data, I think, up to 18 months being evaluated per the protocol post 12 months every quarter, I think it's going to be also important to the collective 6-month interim analysis. And if the 6-month interim analysis gives very useful clinical data, and Sean described the other scenario for Part B where you might need 12-month data as well, the REVEAL Part A persistence of effect long term will also, I think, influence further the confidence that our product will have immediate, consistent and persistent effect long term as well in this patient community. Sean Nolan: Yes. The only thing I would add, Whitney, is when we report the data, we will also report the data that's greater than 12 months. So you should have a real good sense of what's happening over time. Operator: Our next question is from Evan Seigerman with BMO Capital Markets. Malcolm Hoffman: Malcolm Hoffman on for Evan. Thinking about potential commercial manufacturing, I just wanted to ask what redundancies exist across TSHA-102 manufacturing chain that could help if there were any disruptions to the process? Kamran Alam: Yes. So to answer the question, so we currently are at Catalent, and Catalent's Baltimore, Maryland facility has obviously been inspected and they have extensive gene therapy manufacturing experience. And we feel really confident in the team that's at Catalent and our oversight of the team there. And importantly, as Sean mentioned earlier, we have ensured that based on our lock manufacturing process, CMC is not on the critical path to a potential BLA submission. And as it pertains to downstream potential redundancy in manufacturing, that's something as we get closer to Part B interim data readout. And as we get closer to a potential BLA submission, that's something we will evaluate to mitigate any potential disruption to supply chain. But we feel really confident given Catalent's manufacturing experience in that particular facility in Baltimore that, that facility can meet our ultimate commercial demand. Sean Nolan: And Evan, that's where Sarepta is making Elevidys as well. And so it's been FDA inspected, and they're very familiar, as Kamran said, with gene therapy commercial scale. So we feel very confident about that. Operator: Our next question is from Yanan Zhu with Wells Fargo. Unknown Analyst: This is Jeff on for Yanan. Today and in the last couple of months, market research has been touched on, indicating strong demand for gene therapy in Rett and a clear preference for intrathecal delivery, including mentioning 80% of caregivers and clinicians are seeking gene therapy for their patients. Can you provide any additional color or details on this market research in terms of if you tested any product profiles for TSHA-102 and patient -- physician preference specifically for TSHA-102? Sean Nolan: Yes. I mean -- and there'll be more to come in the second half, deeper dives on the commercial aspect of things. But we essentially tested with physicians. So it was about half the physicians were at centers of excellence, half were not at centers of excellence. And then we also separately ran a study with caregivers of Rett patients or children with Rett across the age spectrum. And we kept it pretty simple. I mean we basically -- our product profile was -- our product profile that you've effectively seen, the responder rate, the CGI scores on average with the duration of time that we've been testing these patients. Think about the last data update we gave last year and the deck that we used, it was effectively that on a one pager. And then we just toggle that with is it intrathecal or is it ICV? What would it matter, assuming the same set of data? And so number one feedback consistently in both groups, physicians and the caregivers was very high interest in gene therapy. They realize that you want something that treats the root cause. So there's a very high interest in seeking that out, number one. Number two, what was interesting is it's also -- there's high treatment being sought across the age groups, including those over 30. So that also was encouraging. And then when you distill this down to make it real simple, and again we didn't want to make it too technical at first. I think more has to be shown to get more precise on comparative product profiles. But if all things are equal on safety and efficacy, obviously, there's a preference for the least invasive route, both in terms of perceived safety, but also just in terms of some of the physicians were making the point on throughput in the institutions that it's a lot easier to put -- let's just say you had 100 patients at an institution, it's easier to stage and manage those patients efficiently using intrathecally versus if you have to fight for OR time, neurosurgeon time, et cetera, it's harder to do that. You're going to have more intrusions, you're going to have more emergencies coming in that you're going to have to work to allocate time. So the scalability effect was something that was also quite top of mind for the physician group. So hopefully, that gives you a little flavor for the data. Operator: Our next question comes from Silvan Tuerkcan with Citizens. Silvan Tuerkcan: I maybe just wanted to follow-up on the intrathecal injection here. So that is not a procedure, right? So that can be done in the outpatient setting versus maybe some of other routes of administrations that may potentially come to the market as well. Can you just speak about that and potentially the cost differential between a full procedure that would require OR time in neurosurgery versus not? And then I don't know if you can comment on this, but do you know the screen fail rate that you currently have? And is that predominantly because of the strictness around the baseline measures? Sean Nolan: Yes. In terms of the first question, what we're doing is a 20-minute lumbar puncture administration with mild or no sedation. So the patient can easily have this done and be out of the hospital well within... Silvan Tuerkcan: Same day. Sean Nolan: Yes, same day, well within 24 hours. The ICV approach, obviously, you need to be in the OR for that. You have to have a neurosurgeon do the procedure. And so there is greater time and cost associated with that procedure. In terms of breaking it out, that's something we can talk more about in the second half. But just from an efficiency perspective, the ability to give someone a lumbar puncture, obviously, you can do that in various spots throughout the hospital and do it safely. That's not the case with ICV. I mean there are certain parameters that you're going to have to have, certain staff that you're going to have to have, including neurosurgeons to do the procedure itself. And keep in mind that the OR time is booked in advance. There's only so much OR space. There's only very few neurosurgeons to do these procedures. So my point is that and the point that the physicians were making is that if you have a large number of patients, it would be much more efficient in the institution to be able to dose them on the -- via the intrathecal route for the reasons that I gave. The second question, I didn't quite get. So I don't know if anyone around the table got that or Silvan, if you could repeat that, I didn't get it. Silvan Tuerkcan: Yes. And obviously, the trial is ongoing. So -- but if you could just speak to the current screen fail rate, just to give a feel of are there -- is there a significant patient population out there that just cannot qualify for this therapy because, let's say, they're too advanced or not advanced enough or do you have any data points in that direction? Sukumar Nagendran: So Silvan, you asked actually a very interesting and important question, because remember, Rett syndrome, there are multiple different genotypes. There is a very differentiated phenotypic presentation, meaning multiple phenotypes that present as Rett syndrome. And then you also have the complexity of mosaicism when it comes to central nervous system. So it's a unique combination that eventually results in a complex clinical presentation. And what we've shown in REVEAL Part A is that regardless of genotype or phenotypic presentation or age, our gene therapy given through a simple lumbar puncture consistently provides superior clinical efficacy with no major safety concerns at this point in time. When it comes to screen failure rates, in Part A, as far as I recall, there were no screen failures. In Part B, we have not discussed the screen failures publicly at this point in time. But they are minimal. And given that the common route to the disease is a lack of MECP2 or minimal MECP2 levels that have clinical efficacy or impact on the patient, restoration of MECP2 levels using TSHA-102 in general, addresses the lack of MECP2 and has superior clinical efficacy results up to now. So my assumption here is as we experience and complete Part B REVEAL study and ASPIRE that screen failure or loss of market, I guess, a clinical market access to a large group of patients is not an issue and will not be an issue. I hope that answers your question. Operator: This does conclude our question-and-answer session. I would now like to turn it back to Sean Nolan, Chairman and CEO. Sean Nolan: Thanks to everyone who called in. I really appreciate the time and interest in Taysha. Have a great day. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Welcome to the GXO First Quarter 2026 Earnings Conference Call and Webcast. My name is Sachi, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. Before the call begins, let me read a brief statement on behalf of the company regarding forward-looking statements, the use of non-GAAP financial measures and the company's guidance. During this call, the company will be making certain forward-looking statements within the meaning of applicable securities laws, which, by their nature, involve a number of risks and uncertainties and other factors that could cause actual results to differ materially from those projected in the forward-looking statements. A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings. The forward-looking statements in the company's earnings release or made on this call are made only as of today, and the company has no obligation to update any of these forward-looking statements, except to the extent required by law. The company also may refer to certain non-GAAP financial measures as defined under applicable SEC rules during this call. Reconciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release and the related financial tables are on its website. Unless otherwise stated, all results reported on this call are reported in United States dollars. The company will also remind you that its guidance incorporates business trends to date and what it believes today to be appropriate assumptions. The company's results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, changes in global economic conditions and consumer demand and spending, labor market and global supply chain constraints, inflationary pressures and the various factors detailed in its filings with the SEC. It is not possible for the company to actually predict demand for its services, and therefore, actual results could differ materially from guidance. You can find a copy of the company's earnings release, which contains additional important information regarding forward-looking statements and non-GAAP financial measures in the Investors section on the company's website. I will now turn the call over to GXO's Chief Executive Officer, Patrick Kelleher. Mr. Kelleher, you may begin. Patrick Kelleher: Good morning, and thank you for joining our first quarter 2026 results call. Joining me today are Mark Suchinski, our Chief Financial Officer; and Kristine Kubacki, our Chief Strategy Officer. Before we get into the quarter, I want to take a moment to welcome Mark, who is joining us for his first earnings call as our Chief Financial Officer. Mark's decades of experience driving enterprise performance through labor productivity, contracting and pricing improvements as well as deep expertise in aerospace and defense, which is one of our most important growth verticals, is exactly what we need as we accelerate growth and expand margins. His track record of driving value creation aligns directly with where we're headed in this new era of growth. With Mark on board, we have the right team in place to deliver on our strategic priorities. A big welcome to you, Mark. Mark Suchinski: Thank you, Patrick. I'm truly excited to be part of the GXO team. Patrick Kelleher: And we are thrilled to have you. Now turning to the quarter. In the first quarter, we delivered revenue of $3.3 billion, up 11% versus prior year and adjusted EBITDA of $200 million, up 23%. Adjusted diluted EPS increased 72% to $0.50. Organic revenue growth was 4% in the quarter, with every region contributing, demonstrating the resilience and global strength of our business model in a dynamic geopolitical environment. We entered 2026 with strong revenue visibility, and we have continued to build on that momentum. In the first quarter, we added $227 million in new business wins across key verticals, including notable contracts in aerospace and defense, several technology wins, including further growth in AI cloud infrastructure with hyperscalers and an expansion with the NHS in the U.K. In consumer, we secured a meaningful new partnership with L'Oreal in Europe. We are also seeing encouraging momentum in North America with our largest win in the quarter coming from our rapidly expanding aerospace and defense business. These wins demonstrate strong commercial momentum and give us confidence in our ability to accelerate organic growth in 2026. We now have $870 million of expected incremental new business revenue already secured for 2026, up 19% compared to this time last year, giving a strong line of sight into the balance of the year, and we are already beginning to build visibility into 2027. Mark and Kristine will discuss our financial outlook and new business wins in more detail shortly, but I'm pleased to announce that after a strong start to the year, we are raising our full year guidance for adjusted EBITDA and adjusted EPS. We now expect a 22% increase in adjusted EPS at the midpoint of the range. Now let me walk you through what's driving that confidence. We're focused on 3 strategic priorities: sharpening commercial execution, strengthening operational discipline and leading in AI and next-generation automation. These are the levers that will accelerate growth and expand margins. To execute on these priorities, we brought in new leadership across commercial, operations and our Americas and Asia Pacific region. That team is now in place and delivering results. First, on commercial, we're diversifying into strategic growth verticals. Karen Bomber joined in January and is focused on 3 key areas: bringing an unified global approach to account management that mirrors how our customers operate, pricing that reflects the value that we deliver and faster, more consistent commercial processes, and we are already seeing momentum. Our total pipeline now stands at the highest level in GXO's history. And in the quarter, 40% of wins were in our strategic growth verticals, aerospace and defense, industrial, life sciences and technology, particularly data centers. Our sales pipeline is accelerating, up 20% from the fourth quarter, of which more than $0.5 billion is in our strategic growth verticals. We also saw positive year-on-year volume growth in these verticals, helping to offset softer volumes in retail and consumer. And we have seen the momentum building specifically in North America, one of the largest and fastest-growing logistics markets globally. Our new management team and targeted marketing investments are gaining traction. In the first quarter, win rates notably increased and the pipeline grew 35% sequentially, giving us increased confidence in the opportunity ahead. In the region, we continue to benefit from our leadership position in B2B verticals, particularly aerospace and defense and data centers, while also seeing broader momentum emerging in consumer verticals, including consumer staples. During the quarter, we launched the Defense Advisory Board in the U.S. and established the Taurus Defense Supply Chain Alliance in the U.K., a significant move that positions GXO as the leading supply chain provider to the U.K. defense industry, building on the expertise or relationships Wincanton brings to our platform. Second, in operations, we have begun to implement the GXO Way. Our new global framework for standardizing and scaling excellence across the full operational life cycle. This gives us the platform to drive more consistent, repeatable execution at scale, which will make GXO even more competitive as a growth partner for customers and drive margin expansion. Third, in technology, we are making clear progress on our automation and AI strategies. GXO IQ reached an important milestone this quarter as we began to scale the platform, launching several new sites with the rollout expected to accelerate throughout the year. We are targeting more than 50 sites by year-end. The deployment of automated solutions continues to advance as well, including a fleet of autonomous mobile robots in the Netherlands and our first auto load solution in Europe. This will not only enhance how we deliver, driving greater efficiency and productivity for our customers, it creates ongoing value and strengthens the durability of our partnerships. On humanoids, we will launch more pilots across the U.S. and Europe later this year. Our first-mover advantage is real, and we are building on it. In closing, GXO is off to a strong start in 2026. The underlying business is showing positive momentum. Our strategic priorities are beginning to gain traction, and our team is fully focused on driving long-term value creation. I look forward to sharing more on our long-term strategy and progress at our Investor Day to be scheduled after the third quarter earnings. With that, I'll hand the call off to Mark. Mark Suchinski: Thank you, Patrick, and good morning, everyone. Again, it's a pleasure to join you for my first earnings call as CFO of GXO. In my first 5 weeks, I've had the opportunity to meet with our site teams, our customers and colleagues across the business. My initial takeaways are very clear. We have a strong foundation and a significant growth opportunity ahead of us. GXO has built a formidable enterprise, one with significant global scale, a competitive advantage in automation and AI and a caliber of customer base that very few companies in the world can match. My priorities are fully aligned with Patrick's. To operate as a single connected global firm, powering our commercial growth strategy, leveraging the GXO Way to drive consistent global execution and optimizing our cost structure. We will also ensure disciplined capital allocation that drives long-term shareholder value. I look forward to sharing more on each of these areas in the quarters ahead. In the first quarter, GXO delivered revenue of $3.3 billion, up 10.8% year-over-year, of which 4.1% was organic. Every region contributed, a clear demonstration of our breadth and resilience of our contractual business model in a dynamic macro environment. We delivered adjusted EBITDA of $200 million, up 22.7% from this time last year. This resulted in an adjusted EBITDA margin of 6.1%, up 60 basis points year-over-year. We delivered net income of $5 million and adjusted net income attributable to GXO of $58 million, up 70.6% year-over-year. Adjusted diluted EPS was $0.50 per share, up 72.4% from the first quarter a year ago. We generated $31 million of operating cash flow in the quarter, while free cash flow was an outflow of $31 million, in line with typical seasonality. We are managing working capital efficiently and investing in the business at high returns. Turning to our balance sheet. We ended the quarter with $794 million in cash on hand and a strong liquidity position of $1.6 billion. Our leverage levels held steady at 2.5x. Our investment-grade balance sheet is strong and positions GXO for profitable growth. We remain focused on disciplined allocation of capital to enhance long-term value for our shareholders. The integration of Wincanton is progressing at pace. We remain on track to deliver run rate cost synergies of $60 million by year-end 2026. We also expect to capture significant revenue synergies in the years ahead. Turning to the outlook for the full year. We overdelivered versus our guidance for the first quarter. We saw strong underlying performance from our core business as well as benefiting from certain contract termination costs that had been anticipated in the first quarter and are now expected to be incurred over the remainder of the year. As a result, for our full year 2026 guidance, we are maintaining organic revenue growth of 4% to 5%, raising adjusted EBITDA to a range of $935 million to $975 million, raising adjusted diluted earnings per share to a range of $2.90 to $3.20, up 22% at the midpoint and maintaining free cash flow conversion of 30% to 40%. With strong operating performance, a record sales pipeline and solid financial foundation, we are well positioned to accelerate growth and expand margins in 2026 and beyond. With that, over to you, Kristine. Kristine Kubacki: Thanks, Mark. Good morning, everyone. The first quarter results again demonstrate the strength and resilience of our business model. I'd like to provide some more context on the drivers of that growth, the durability we see across our business and how we are positioning GXO for the next phase of value creation. Patrick has been clear about our strategic priorities, sharpening our commercial strategy, strengthening our execution and leading the deployment of AI and next-generation automation. Together, these priorities will drive long-term profitable growth. Commercially, we are making significant progress deepening our global relationships with blue-chip customers and expanding across geographies and into high-growth verticals. In the first quarter, we won $227 million in new contracts, and our pipeline grew to $2.7 billion, a record for GXO and a clear reflection of the momentum that has built since Patrick joined in August of last year. As Patrick and Mark both noted, we are deliberately leveraging our strong positions in aerospace and defense and technology, including data center infrastructure to capture the rapidly growing opportunities in these verticals. We are also continuing to build on our strong foundations in life sciences and the broader industrial vertical. In the first quarter, approximately 40% of our wins and 1/4 of our pipeline came from these strategic growth verticals, a direct result of our deep capabilities, technical expertise and strong competitive positioning. With supply chains continuing to grow in complexity and reshore, we have increasing confidence in the durability and resilience of our growth outlook. And with a combined TAM of over $200 billion across these verticals, the runway ahead remains substantial. Taken together, our recent wins translate to $870 million in incremental revenue already booked for 2026, up 19% from where we stood at this point last year. This gives us confidence in our full year guidance and provides a clear visibility into our long-term growth trajectory. The second priority Patrick outlined was strengthening our execution, leveraging our position as the leading pure-play contract logistics provider to drive better outcomes for our customers and improve profitability for GXO. Central to that is our leadership in automation, technology and AI. In the first quarter, we made meaningful strategic progress on this front as we began expanding GXO IQ into a scaled platform. We have moved from pilot to global rollout, launching GXO IQ at a large consumer product site with a seamless implementation. We are now accelerating deployment across North America and Europe with U.K. sites set to follow later in the year. As a reminder, GXO IQ is an AI-powered warehouse technology platform that improves start-up efficiency, accelerates productivity and enhances data security. GXO IQ simplifies implementations and makes our proprietary AI modules and automation capabilities truly scalable. We are targeting to expand GXO IQ to more than 50 sites by year-end. In combination with strengthening our operating model, in the quarter, we have begun to reshape our organization to drive sharper execution. Our new COO, Bart Beeks, who joined in January, is overseeing the launch of the GXO Way, our operating framework designed to turn proven excellence into a repeatable advantage. This means standardizing implementation best practices, accelerating frontline automation deployment and leveraging our global procurement capabilities to drive scale and expertise benefits for our customers. Overall, these strategic priorities are serving to diversify GXO's revenue base, making our growth even more durable and driving our profitability and cash flow. We look forward to sharing more at our Investor Day after third quarter earnings, where we'll provide more detail on our long-term strategy and financial framework. With that, I'll hand the call back over to the operator for Q&A. Operator: [Operator Instructions] The first question is from Stephanie Moore from Jefferies. Stephanie Benjamin Moore: Congrats on the strong quarter and obviously, a really good start to the year. I was hoping that you could address a topic that is probably clearly top of mind with investors this past week. So I think most have probably seen this, but I'm obviously talking about the announcement from Amazon of its expanded supply chain services. So I think, it would be helpful if you could just maybe speak to your competitive moat and differentiated service proposition and how that differs from other players such as Amazon or really any other well-backed company that would look to expand fulfillment or warehousing services. I think that would be a helpful place to start. Patrick Kelleher: Absolutely, Stephanie, and thanks for the question. I've been in this industry for 32 years, and I really viewed Amazon's announcement this week as a fantastic validation of the opportunity that's in front of you and of the contract logistics industry. This is a massive market. It's approximately $0.5 trillion and growing. Very exciting today, roughly 70% of the market that being contract logistics is in-sourced, which is a huge opportunity. So we don't view this as really changing the overall competitive dynamic. I would point out that we provide a fundamentally different offering. Amazon is selling access to its supply chain, whereas GXO, we build custom solutions for our customers, and that distinction means everything to our blue-chip customers. We're not a one-size-fits-all provider. What we do is bespoke, operationally complex and relationship-driven. The more complex the supply chain, the more bespoke really matters. There's a couple of differences to our model that I really want to point out. First is control. For enterprise customers, protecting their data is a top priority. Many companies are going to be reluctant to give a competitor deeper visibility into their inventory, demand patterns, sales channels, financials. #2, we offer a flexible tech stack that is vendor agnostic, so we're not beholden to a single technology solution. And #3, our capabilities extend way beyond retail into sectors like aerospace and defense and industrial, just to name a few. We see our moat as really deep. The combination of factors, our client-aligned customized solutions feature long-term contracts, cutting-edge technology, deep vertical know-how, high-quality execution, and I think those are all key differentiators. We're really focused on delivering value for our customers, shareholders and teammates with a focus on discipline in executing our strategic plans and executing for our customers. So we really feel great about how GXO is positioned as a leader in the contract logistics industry to continue to win and grow this year and into 2027 and beyond. Stephanie Benjamin Moore: One question on just the quarter itself. Maybe if you could just speak to, I think the EBITDA performance was better than we had initially expected. So if you think about that underlying performance, do you think that this is a testament of some of the cost actions that your team have kind of implemented more recently? Maybe talk through what this should mean in terms of the momentum of those cost actions as the year progresses. Just wanted to get a sense of your underlying confidence and the ability to really look for some of the productivity savings that you called out before? Patrick Kelleher: Absolutely. I'll ask Mark to answer that question. Mark Suchinski: Stephanie, thanks for the question. As you indicated, we had a really strong performance in the first quarter in our core business. We feel good about that. The initiatives that are in place, they're starting to take hold here. And so it's a clear indication that what we're doing, we're on the right track here. And so I think as we move throughout the year, we continue to win new business and focus on very disciplined execution for our customers, along with the initiatives that Bart Beeks, our new COO, is driving, we feel good about our ability to drive margins in the long term. And you're seeing it show up in the first quarter. And that's one of the reasons why we felt confident but prudent in our approach to raising guidance. Operator: The next question is from Ravi Shanker from Morgan Stanley. Ravi Shanker: Just on the current environment, can you guys clarify if you've seen any blips in customer activity or planning at all because of the conflict in the Middle East and kind of what the outlook looks like the rest of the year? Patrick Kelleher: Yes. First, I would say that for GXO, we have virtually no direct exposure to the region, and we are not seeing any material impact from the conflict. Our volumes for the first quarter overall were relatively flat, which is something that we had actually forecasted and saw coming into the quarter. B2B volumes in our aerospace, defense, industrial technology, life sciences sectors were slightly up and B2C volumes in retail and CPG slightly down, but netting out to being flat. We continue to see great energy from customers around the exploration of outsourcing and through our new business delivery in the first quarter, clearly, customers are continuing to commit to solutions going forward. I think a great testament to the health of the industry and the opportunities out there is the increase that we saw in our pipeline in the first quarter. So a record pipeline now up to $2.7 billion. We're seeing great conversion on that pipeline. And based on the flow of projects coming in week by week, we see that continuing in the medium term, long term as we look towards the end of the year. Ravi Shanker: Great. That's helpful. And maybe as a follow-up on the Amazon topic. Thanks for the clarification and kind of what you see as your moat there, particularly the point on custom solutions. Is there any part of your business do you think where you do not have the level of complexity or customization that you would like to have? Or any end markets or geographies, where you think kind of as a result of this development, you would maybe want to pivot away from and maybe towards others? Patrick Kelleher: Sure. So the area of the business where I do see us competing with Amazon going forward, and we have been in the past for a while is with Amazon's FBA product, which is very similar to our GXO Direct product offering, which is our shared use e-commerce offering. That business for GXO Direct grew in 2025. It grew 5% in the first quarter of this year, but it does represent just under 6% of our total business. So relatively small in the overall scheme of GXO's business in total. I think where we do competitively differentiate as GXO Direct is that we are servicing high-value brands that will leverage our value-added services in packaging, etching and really white glove type services for those very high-end brands. It's a high-touch customer experience. And I think we're well positioned to continue to compete as GXO Direct in that space. Operator: The next question is from Chris Wetherbee from Wells Fargo. Christian Wetherbee: Maybe one sort of shorter-term question and maybe a little bit bigger. I guess as you think about demand and maybe what the second quarter could look like, kind of curious to get a sense of what you think organic revenue trends look like as you go through the year. So you came in a little bit better than what we thought in the first quarter. I don't know if you see an acceleration as you move into 2Q. I know we're kind of in the range that you guys gave for the full year, but any thoughts on the second quarter and kind of what you're seeing from demand in the month of April? Mark Suchinski: Chris, it's Mark. Let me just respond to that. As you indicated, we had solid revenue organic growth in the first quarter of 4.1%. We expect the second quarter to be about the same that we saw in the first quarter. And with the pipeline and the wins that we've achieved and the line of sight that we have here in the second quarter, we're seeing the organic growth then accelerate in the back half of the year. So I think the first half of the year, it's going to be at the lower end of the range, whereas in the back half of the year, it's going to be at the higher end of the range based on the visibility that we have today. Patrick Kelleher: And that visibility is really reinforced by we're seeing the signings happening today, and it's really about the timing of the implementation of the business that we have sold and when that revenue is coming on in 2026. And then I think based on the signings we're seeing and particularly the acceleration of the pipeline and the conversion rates that we're seeing, we have a lot of confidence going into 2027 around the continuation of accelerating organic growth. Christian Wetherbee: That's super helpful and a great segue. I guess I wanted to ask a little bit about sort of building that incremental revenue wins for 2027. So at $168 million, I think you're a little lower than what you've been in the last couple of years there. Is it just sort of a timing dynamic? I guess, as you guys have sort of reconstituted some of the management team has not lost enough that there could be some transition dynamics that play out here. But how do you think that builds as we go through the rest of the year? Patrick Kelleher: Yes. I'd see that solely as a timing dynamic around when ink hit paper in the first quarter versus actually signing contracts in the second quarter and beyond. And I think it will really come down to timing of implementation in terms of how much lands this year versus how much carries into 2027. But as I said, we're very confident in our direction there. And maybe, Kristine, if you want to comment on a pipeline perspective. Kristine Kubacki: Yes. Chris, I would just simply state that we feel very good, of course, about the record pipeline that we have and the underlying trends that we're seeing in the business. I think simply, we plan to sign more this year as we move forward. And a large part of that will simply fall into 2027. We'll see that layering on. So we feel very good and have every bit of confidence that we'll see accelerating growth through -- in the back half of this year and into 2027. Operator: Next question is from Scott Schneeberger from Oppenheimer & Company. Scott Schneeberger: Patrick, I'd like to touch again on the sales pipeline, an all-time high, and you certainly highlighted the 25% from the strategic growth sectors, and it sounds like a lot of progress is being made there, and congratulations. Curious to hear on the other 75% of the pipeline, what are the -- the primary verticals that are building and where you're seeing conversion? Kristine Kubacki: Scott, it's Kristine. I think we're very encouraged about what we saw in terms of the wins that we had in the first quarter. So it was $227 million and 40% of those were in our new verticals. So we had good signings from across our technology. We signed 4 more contracts, including 1 internationally for data centers. Aerospace and defense was actually our largest contract win in the quarter. So despite that, we still have a great representation of the pipeline as we move into the second quarter. But I think, obviously, with 75% of the pipeline is in our core business. And so that just shows that we're continuing to see momentum in the core geographies and our core verticals, omnichannel retail and the like and consumer are very strong. Our value proposition is resonating with customers. And certainly, in a dynamic environment, our value proposition only grows. Scott Schneeberger: Great. And then considering it was first quarter and often the time of year where reverse logistics is quite meaningful on returns post the holiday season. Any update on that area of your business, what percent of revenue it presents, what that mix may be going to and maybe some of the profitability attributes of that business? Kristine Kubacki: Scott, it's Kristine again. No, great question. As you know, returns are an extremely complex operation for us and one of our skilled expertise that GXO does. And in fact, we've seen very encouraging trends across our reverse logistics business. It remains probably around about 10% of our pipeline and of our business today. But we did see high single-digit growth for us in the quarter. And obviously, because of the complexity of the operations, it remains a very value-added service for us from a profitability standpoint. Operator: The next question is from Ari Rosa from Citi. Ariel Rosa: Patrick, I was hoping you could comment just for some context because obviously, the market feels confused and we saw the stock get a bit hit, obviously, on the Amazon threat. Just help us understand when companies leave GXO or when they make the decision to -- to kind of not renew the contract. What are the typical reasons that, that happens? And then if you could also comment on how often you see Amazon in a competitive bidding process? And do you have any concern that it could -- they're kind of stepping up their presence in this space could lead to something of an erosion of pricing power or greater pricing competition in the industry? Patrick Kelleher: Yes. So to take the first question, our churn rate is less than 5%. That trend is continuing. When customers leave, it is typically because of rarely a bankruptcy, but we do see those. Typically, it's a restructuring of the supply chain. It is closing one warehouse node in order to open up a new node somewhere else and then a very, very small part, of course, in a competitive bid to our competitors. But our churn rate continues to be very healthy and we see that going forward and improving as we focus on even more account management. You would have seen that with the introduction of Ajit Kara into the strategic account management role that we announced a little while ago. In terms of Amazon's presence in the market, I think they've been very clear around selling into our existing infrastructure. Providing stand-alone bespoke solutions is very different from selling into existing capacity in standard solutions. Outside their platform, in selling stand-alone bespoke solution, the game is very different. The market is populated with very formidable competitors in that space, which GXO leading, in my mind, in that regard in the contract logistics industry. When I look at our customers, they are the Chief Supply Chain Officers. We have many chiefs -- former Chief Supply Chain Officers on our Board within our organization running our business. When you look at their job and the things that are most important to them, cost matters, service is critical. They can differentiate between transactional supply chain activity like air freight and parcel and making -- and establishing short-term contracts for great rates and buying capacity. The strategic decision associated with outsourcing and contract logistics requires an approach to long-term relationship of purpose-built supply chain warehouse operation, a focus on continuous improvement over what is a long term, particularly our average contract is 5 years. So the business is very different. The engagement with the customer is very different. The way in which our organization supports the delivery of those solutions for our customers is very different than if we were selling into a standardized solution as Amazon is putting forward. So I feel really confident that at the most senior levels within our customers' organization, we are the right answer for the strategic outsourcing aspect of their supply chain. And then certainly, there is a role to play for airfreight parcel and so forth. And the competitive dynamics there are very different from the competitive dynamics in contract logistics. And that's why I'm really confident that we're so well positioned to succeed in what is a very big market. And as I said in the beginning, I think it was really a great thing that Amazon called out what an incredible opportunity there is in supply chain, what a great industry this is to invest in. Ariel Rosa: That's helpful. It certainly seems like there's a lot of confusion out there. I was excited to see that you guys have loosely set a date now for the Investor Day. Obviously, still a while away, and I'm sure there's going to be a lot of work in terms of refining long-term targets. But at a high level, maybe help us understand how you think of the objectives for the Investor Day? And what is it that you'd really like to get across? Or what is it that you feel perhaps the market is misunderstanding or investors are misunderstanding about GXO. Patrick Kelleher: Sure. You can expect on Investor Day, GXO will lay out our 3-year strategy. We will go in substantially more depth on organic growth, where to play, how to win and how we see ourselves delivering organic growth over the next 3 years. We will go deeper on the operational levers in terms of productivity improvement, glide path on SG&A, insight into the investments that we will be making -- continue to make in driving performance of the business, both on top line and bottom line. And we want to do that with transparency. The reason for the timing after the third quarter is to give this management team opportunity to pull those plans together, make sure that we can articulate those at a level of depth that everybody can embrace and that we set the stage for our path forward and sharing how we are performing against our plan. We want to be aligned externally and internally around those key metrics and those key KPIs that underpin an assessment of our performance, so we move with even more transparency going into 2027. Operator: The next question is from Bruce Chan from Stifel. J. Bruce Chan: Mark. Maybe just want to follow-up on the demand comments in terms of what you're seeing in the various geographies and end markets. I know we've been in a pretty soft environment for a while now. You mentioned some sluggishness in retail and consumer. So just any broad color on recovery rate in Europe or, for example, by industry? And then maybe also some comments on what's embedded in guidance in terms of volume from existing customers, just in case I may have missed that. Patrick Kelleher: Mark, do you want to talk about what's embedded in our current forecast from a volume perspective and... Mark Suchinski: Sure, Bruce. As we've indicated, our guidance reflects organic growth of -- we're targeting between 4% and 5% for the year. And from an existing customer standpoint, from a volume standpoint, we're assuming about breakeven on the year. So we're looking at that sales, that organic growth clearly coming from new contract wins that we achieved in 2025 and the early part of 2026. And so that's what's reflected in the guidance. Patrick Kelleher: Yes. And I would just comment across the 3 geographies, North America, U.K., Europe, where the majority of our business lies. The consumer appears to continue to be very strong. So while volume is a bit softer, it's only low single digit, very low single digit in terms of year-on-year volume changes. As we've shared on the B2B side, certainly higher volume increase there, but that represents a smaller percentage of our business where that is netting out to being relatively flat. So we're encouraged as we look towards the end of the year in terms of at least volumes being flat year-on-year. And as communicated, I think, on our last call, we still maintain that, that is a prudent position right now, and we're hopeful for better, but no reason to think that right now that, that would materialize... Operator: The next question is from Brian Ossenbeck from JPMorgan. Brian Ossenbeck: Maybe, Patrick, can you give us a little bit more details around the new aerospace and defense wins, especially the bigger ones, it sounds like in North America, like how long was that in the pipeline? If anything different than what you've seen in terms of the conditions, contract length, anything along those lines? And to the extent you can give us a little clarity and the confidence behind the ramp, anything that you've signed or have really good visibility to signing here in April? Patrick Kelleher: Yes, sure. I can't go into any details on what's forthcoming in terms of specific deals on April and beyond. The opportunity that we signed in the last quarter is focused on parts distribution, which is a very strong capability of ours, not only in aerospace and defense, but in data centers and life sciences as well. So that really plays to our core. That was a relatively quick turn project in terms of design to decision-making, which is encouraging in terms of how customers are able to move at speed in that space. We're seeing great traction in the pipeline build, particularly through the engagement of our Defense Advisory Board. That team has met on a number of occasions already. And the individuals on that board are great advocates in terms of helping us build the pipeline there, getting our name known out in the space and being able to look at real projects there. So I'm super excited about the traction we're seeing there. That goes for the Defense Advisory Board in North America as well as the opportunities that we're planning for in the U.K. through the alliance that we've established there. Brian Ossenbeck: And then it sounds like we're going to hear more about the operational improvement and possibilities at the Investor Day. But just maybe give some context in terms of the GXO Way, which seems like it's just rolling out right now. How quickly can you see benefits from that? I mean you've got a lot of different sites, long-term contracts. Can you make smaller incremental change that just adds up? Or do you feel like this can actually have some bigger impacts without having to deal with changing contract terms or maybe the operating footprint. So realize we'll hear more in the back half of this year, but I'd love to hear just how to think about that until then. Patrick Kelleher: Yes, sure. So it's early days there. As you said, we'll share a lot more on Investor Day in terms of dimensioning the potential there, as Kristine said, we've had great success in rolling out GXO IQ. That is really foundational to the GXO Way and GXO IQ is the platform for us to enable AI deployment at scale in our sites. And we have good success on the AI front. We have 8 AI modules, which we've deployed at a number of sites. We've gone live with those first instances of GXO IQ, which really provides a more standardized distribution of AI across all of our sites, and we're building towards 50 sites being on GXO IQ by the end of the year. So we're excited about that progress. When you look at the productivity improvement opportunities that we have, even just from an AI perspective, we're focused on 2 dimensions. One is driving innovation in our customer warehouse and transport operations, and we're already seeing benefits from the new modules that we've rolled out there and more to come. The second is leveraging AI for overhead and functional efficiency. And we've got great initiatives in flight there in functions like HR, IT, finance and so forth. So we're coming at it from both perspectives and very, very excited about Investor Day, where we can dimension that in more detail. Operator: The next question is from Jeff Kauffman from Vertical Research Partners. Jeffrey Kauffman: Mark, congratulations. Look forward to working with you. One quick detailed question for Mark and then a bigger picture for Patrick. Mark, as you expand into North America, how does that change your tax rate? Mark Suchinski: I would say this, Jeff. I don't think it changes in a meaningful way. Obviously, the North American rate is a touch higher than the rates across the globe here. But I think it won't be meaningful year-on-year over time. I think we'll see a small tick up in that. But at this point in time, I wouldn't anticipate anything significant. Jeffrey Kauffman: Okay. And then for Patrick, bigger picture, I'm just kind of curious your perspective last 3 to 5 years. I mean we've had COVID, we've had this AI boom. We've had tariffs. It's really kind of changed how companies are thinking structurally about their supply chains. What are some of the big changes you've seen? And how is the business shifting? Patrick Kelleher: Yes. I talked about the contract logistics industry and the evolution there, and I've been in the industry for 32 years. The industry has grown every single year over those 32 years. Events such as the financial crisis of 2008, maybe even the European bond crisis 2015, COVID, various wars and conflicts that have happened throughout the years, the evolution of tariffs, which all be reminded, started to be a big deal in the '80s, not 4 years ago. These headwinds, these changes have always resulted in fueling additional growth for contract logistics and outsourcing. Our industry is a great lever for our customers. Our solutions are a great lever for our customers to take cost out, improve service to drive change at a faster pace within the supply chain. The time and attention being put to that as a lever only continues to increase. I talked about over the last couple of months at a number of conferences, tariffs being a catalyst to supply chain efficiency. So as additional costs are introduced to the supply chain, that creates opportunities for return on investment that maybe didn't exist before. And a great example of that is the free trade zones. So there's significant demand now for free trade zones. That's a great way to at least mitigate or delay the impact of tariffs. We have 67 free trade zones around the world. We're seeing great growth in that space. As these headwinds come, supply chain efficiency becomes more important and outsourcing becomes a very easy lever for our customers to pull in order to drive those supply chain efficiencies more quickly in their business. And I think if you look at the evolution of the contract logistics industry, it started in the '90s around labor arbitrage and really has evolved to an arbitrage of expertise. The thing that differentiates us the most is the people that we have in our organization who bring the supply chain expertise, the technology expertise. They understand how to stitch technologies together to deliver unique solutions. They know how to implement change and warehouse operations quickly and efficiently and deliver solutions. And I think the arbitrage of expertise now is going to be a very big differentiator going forward. So I think all sets up well for the contract logistics industry to be healthy, and I think all sets up for the market we're participating in to be healthy. And as a market leader, we are capitalizing on that. Operator: The next question is from Jason Seidl from TD Cowen. Uday Khanapurkar: This is Uday on for Jason Seidl. Patrick, on this competitive subject, could you expand on the data security and governance that you mentioned as a differentiator in winning those RFPs? Like would you say that being a pure play offers prospective customers a degree of comfort maybe that their data is not at risk from leasing to other business lines. I'm just wondering how big of an enabling factor that might be really just given a lot of your competitors are conglomerates. Patrick Kelleher: Yes. I think it is an enabling factor. It is certainly something important to us, something we're very respectful of with our customers. And so that is something that will continue to feature as part of our solutions going forward. I would say in terms of competitive differentiation. That's just one of many things that differentiates us. And I think really is important from an outsourced supply chain provider and customer relationship perspective. I think that -- remind me the second part of your question there? Uday Khanapurkar: No, that's helpful. That's clear. Maybe just a follow-up on some of the volume outlook. Are the tariff changes and refund dynamics creating any kind of new variability in customer volume forecast? And if so, I mean, is that influencing your approach to planning and capacity management? Like do facilities need to flack in the coming months or quarters in case there's stimulus effectively that drives some volumes? Patrick Kelleher: Yes. So I think it is resulting in changes in volume flows. And so that, I think, is completely accepted by folks. I think what we are seeing is from a volume perspective, those shift in flows are coming from acceleration of onshoring, particularly around manufacturing. I think that is very real. I think that plays very well to our focus on the B2B more industrial verticals and the support of that activity. And so I think net-net, volumes increasing. And that, I speak in the context of North America. When you look at the U.K. and Europe business, seeing increasing flows directly from China and Southeast Asia, trade lanes being impacted there in terms of where product is flowing. And I think we're so well positioned given our position in the countries that we operate in Europe and of course, U.K. and Ireland to capitalize on those changes in flow. I think just to close out the other part of your first question was do we feel advantaged as a pure play in contract logistics. And I think that is one of our biggest advantages. We are making directed investments in being the best contract logistics provider. We're not encumbered by investment decisions that have to be made across a conglomerate and multiple service lines. So we intend to go deep in terms of our investment providing the very best services around those solutions that we're bringing forward to customers. And so we think that, that is a strategic... Operator: The next question is from Harrison Bauer from SIG. Harrison Bauer: Following up on something earlier on GXO Way and executing a repeatable operating framework, implementing best practices. Is there a way to frame a range of gross profit margins across the portfolio at a site level, maybe what might be on the lower end even at a mature site or underperforming site? Or at the very least, what's driving operational underperformance at a site level? And then as you push deeper into A&D, industrial, high-tech in North America, are you encountering heightened start-up costs or implementation friction standing up those new verticals? Patrick Kelleher: Yes. So the latter question on implementation costs or friction, the answer is no. We are already deep in those verticals in terms of our operational expertise. And that expertise has come both through a number of acquisitions that have been made over the years as GXO and with the competencies that have come, especially most recently with the acquisition of Wincanton. And so we have been executing solutions in aerospace and defense, technology, industrial, life sciences for more than a decade. And so we have great people operating those businesses and the implementations that we're seeing there have been very successful. We have a lot of confidence in our ability to execute in that space. On the first part of your question, I'm maybe more anxious than you to give the answer to that question, but we're going to defer that to our Investor Day. Harrison Bauer: Understood. And then just a follow-up. Pricing has come up a couple of times from opening remarks as well as Patrick, your call out on Mark's contracting experience. Mark, this one is for you, I guess, drawing on your experience from your prior [ seat ] at Spirit, how is that shaping the way that you're thinking about pricing and contract structure for GXO, particularly in A&D in North America? And are you pricing the new verticals differently than the legacy book? Mark Suchinski: Yes, Harrison. It's interesting when we look at the types of contract pricing mechanisms that we have here at GXO, open book versus fixed, a combination of fixed and variable. And what I would tell you is there's a lot of similarities when we think about aerospace and defense, in particular, with the defense primes around what we call an aerospace and defense cost plus, cost-plus incentive, fixed price. And so when we think about tackling some of these new verticals and move up the food chain, I think there's a lot that we can think about as it relates to the services that provide, the value that we bring in the terms and conditions and how we can create a pricing proposal that creates a win-win for us and our customers. And I've got a lot of experience doing that both with the big defense primes and the commercial folks. So I'm excited to really roll up my sleeves and get into that. As I said before, I think there's some similarities on how we do that. I found it very interesting as I came on board here. But I think there's some sharpening that we can do and some real focus that we can provide that I think will create a win-win for us and our customers. Operator: The next question is from Kevin Gainey from Thompson, Davis & Company. Kevin Gainey: Maybe we can just touch on Wincanton real quick as you guys have kind of got layered in completely. I know one of the bigger things with it was synergy opportunities. I was curious, if you ran across any more of those. Mark Suchinski: Kevin, I would say this, we outlined -- GXO outlined a target of $60 million worth of synergies to be achieved by the end of 2026. I personally reviewed the plan. We're tracking well. We've made significant progress against those targets, and we're comfortable that we can achieve those by the end of the year. I would just tell you this, we're not stopping there. We continue to look and stretch ourselves. But first and foremost, our goal is to achieve the $60 million that we committed to. But with any acquisition, there are opportunities and risks that come associated with it. And I do think that on balance, there are some further opportunities as we look at integrating that business into the bigger GXO and for us to take advantage of that. So things are on track. I can't give you a specific quantification at this point in time, but we're working very hard at that. Kevin Gainey: That was good color. And then as you guys hit a sales pipeline record, how are you thinking about the team's capability in converting that? And then how should we think about GXO's investment that may be required with that conversion? Patrick Kelleher: Yes. So we are absolutely feeling great about the pipeline development, particularly over the past couple of months. That development is the result of the amazing team that we have focused on marketing and sales, especially in building that pipeline. And we're seeing very good conversion on that pipeline, especially in the first quarter of this year. So I feel very good about the trajectory that we're on moving forward there. Operator: Ladies and gentlemen, that is all the time we have for questions today. I'd like to hand the call back to management for any closing remarks. Patrick Kelleher: Great. Thank you, operator. So to close, we are very encouraged by the strong start that we've had this year and even more importantly, by the momentum that's building across the business. As I talked about, the market dynamics are increasingly favorable. Outsourcing continues to accelerate and the addressable marketing for advanced logistics solutions is expanding. Our unique value proposition is resonating with blue-chip customers. Our pipeline is strong, and our teams are executing with discipline. With the foundation of strength and leadership we've put in place, we're moving with greater clarity, alignment and speed. The decision to raise our guidance really reflects our confidence in both the strength of demand that we're seeing and the predictability of our operating model. We're very excited as we move towards the middle of 2026. Thank you for joining today. Operator: Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful day.
Operator: Good day, everyone. My name is Ryan, and I will be your conference operator today. At this time, I would like to welcome you to the Ameren Corporation First Quarter 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time and you have joined via the webinar, please use the raise hand icon, which can be found at the bottom of your webinar application. At this time, I would like to turn the call over to Andrew Kirk, Senior Director of Investor Relations and Corporate Modeling. Thank you, and good morning. Andrew Kirk: On the call with me today are Martin J. Lyons, our chairman, president, and chief executive officer; Lenny Singh, our executive vice president and chief financial officer; and Michael Main, group president of our Ameren Utilities, as well as other members of the Ameren Corporation management team. This call contains time-sensitive data that is accurate only as of the date of today’s live broadcast, and redistribution of this broadcast is prohibited. We have posted a presentation on the amereninvestors.com home page that will be referenced by our speakers. As noted on page two of the presentation, comments made during this conference call may contain statements about future expectations, plans, projections, financial performance, and similar matters, which are commonly referred to as forward-looking statements. Please refer to the forward-looking statements section in the news release we issued yesterday as well as our SEC filings for more information about the various factors that could cause actual results to differ materially from those anticipated. Now here is Martin J. Lyons, who will start on page four. Martin J. Lyons: Thanks, Andrew. Good morning, everyone. Thank you for joining us to cover our first quarter performance and progress toward achieving our 2026 strategic objectives. Yesterday, we reported first quarter 2026 earnings of $1.28 per share compared to earnings of $1.07 per share in 2025. The year-over-year increase of $0.21 per share reflected increased infrastructure investments across all operating segments that will drive significant long-term benefits for our customers. The other key drivers of our results are summarized on this slide. Further, we reaffirmed our 2026 earnings per share growth guidance range of $5.25 to $5.45, reflecting solid execution across our business. Turning to page five. At Ameren Corporation, we remain committed to the customers and communities we are privileged to serve: the 2.5 billion electric and 900,000 natural gas customers who count on us every day. Our infrastructure investment decisions are made with that responsibility in mind, focused on strengthening the system, delivering reliable, cost-effective service, and positioning our communities for long-term growth. Through execution of our three-pillar strategy—investing in rate-regulated infrastructure, advocating for constructive regulatory and legislative frameworks, and optimizing our business—we strive to provide exceptional value for our customers, communities, and shareholders. Turning to page six. Here, we outlined our strategic priorities for 2026, which we provided in February. To date, we have made meaningful progress, which Lenny and I will discuss as we cover the pages that follow. Of course, key to serving customers well and driving growth are targeted and timely infrastructure investments. As shown on the right, you see that we made more than $1.5 billion of infrastructure investments during the first quarter to maintain and enhance our quality of service. Importantly, our infrastructure investments continue to strengthen the reliability and resiliency of the grid, minimizing customer outages during multiple instances of severe weather during 2026. For example, in January, during the multiday winter storm Fern, Ameren Corporation’s diverse generation fleet performed exceptionally well, ensuring our customers had access to power under extreme conditions. At the same time, our Ameren Illinois gas storage portfolio helps shield customers from extreme market prices, saving about $63 million, while ongoing upgrades to our underground storage fields continue to lower long-term operating costs and support winter reliability. Then we saw the benefits of our investments again in March, avoiding 4.3 million outage minutes for nearly 20,000 Ameren Missouri customers and again during late April storms, where system automation helped avoid an additional 43,000 customer outages and 12 million outage minutes each over a two-day period, effectively reducing the overall customer impact of these severe weather events by nearly half. To enhance the performance of our existing generation fleet for summer and winter peak demand periods, and as overall demand grows, we are investing in projects designed to maximize capacity and availability. For example, optimization efforts underway at our Audrain Energy Center will improve winter reliability by adding up to 700 megawatts of capacity on the coldest days. And at our Labadie Energy Center, significant boiler enhancements this year are designed to reduce the number and length of prospective outages. Alongside these enhancements, we continue to execute our Missouri integrated resource plan to add new generation resources. In total, the work we are doing across our generation fleet is designed to ensure customers can continue to rely on us to operate a safe, diverse, dependable, and cost-effective mix of energy centers today and well into the future. We are mindful that reliability and affordability are both important for customers. That is why we continue to operate with financial discipline and work to optimize our business processes in part through deployment of new tools and technology. In addition, during the first quarter, we helped connect customers with more than $40 million in energy assistance and weatherization resources through Ameren Corporation programs and federal, state, and local partnerships. Turning to page seven. Looking ahead, we see the opportunity for strong growth, with businesses making significant long-term commitments to locate and expand in our region. Our long-term earnings per share expectations outlined in February were based upon a compounded annual sales growth assumption of 6.2% from 2026 through 2030. We continue to expect that the 2.2 gigawatts of ESAs we signed in February represent upside to our sales and earnings forecast to the extent the sales from the ESAs ramp faster than our existing plan assumption of 1.2 gigawatts by 2030. As we have said, we expect to update our sales forecast for these agreements as other project milestones are achieved including the customer project announcements, groundbreaking, and construction progress. In addition, we are optimistic about converting a portion of our remaining 1.2 gigawatts of construction agreements to additional ESAs in the near term. We are excited to support these data center projects as their construction is expected to bring in thousands of jobs, and the projects are expected to generate millions of dollars in tax revenue for local communities. In addition, serving these customers will require acceleration of significant infrastructure investments on our part, supporting additional jobs and tax revenue, all paid for by the counterparties to our ESAs. As new large-load electric demand evolves, our focus remains on serving all customers reliably by carefully planning and executing grid upgrades and maintaining a balanced generation portfolio while ensuring costs to serve new large-load customers are appropriately allocated to and borne by them. Turning to page eight. We are well on our way to delivering the more than five gigawatts of new energy and capacity resources currently planned to go into service through 2030 as our team continues to execute on a robust generation plan. The 50-megawatt Bowling Green Energy Center was placed in service in March, and we recently began final commissioning activities on the second project, the 300-megawatt Split Rail Energy Center. These projects have the ability to deliver enough combined energy to power more than 63,000 homes. In addition, we continue to advance two 800-megawatt simple-cycle natural gas energy centers, Castle Bluff and Big Hollow, which are expected to begin serving customers in 2027 and 2028, respectively, along with 400 megawatts of battery storage at Big Hollow. For Castle Bluff, construction is underway, and we received the first of four gas turbines ahead of schedule. For Big Hollow, our contractors have begun mobilizing and preparing the site for construction, which is expected to begin this quarter. In the meantime, we continue to pursue approvals required for additional generation resources. In March, we reached a stipulation and agreement with intervenors for the CCN we are seeking for the Reform Energy Center, a 250-megawatt facility expected to be in service in 2028. This agreement is subject to Missouri PSC approval. Further, we expect to file additional CCN requests by the third quarter for approximately three gigawatts of new generation, primarily including the 2.1-gigawatt West Alton combined cycle facility as well as additional battery storage. At the same time, we continue to carefully analyze future sales expectations and assess the timing and mix of new generation resources in advance of our next Missouri IRP targeted for late September, which will provide an updated 20-year view of our generation strategy. Moving to page nine for a brief transmission update. We expect significant transmission investment will be needed over time to support new large-load customers and connect the new generation resources required to serve our territory reliably as regional demand grows. We expect these potential investments to be incorporated into our plans as opportunities further mature. At the same time, we remain focused on executing our awarded long-range transmission projects from the first two MISO tranches and on advancing competitive opportunities under tranche 2.1. In January, we submitted bids for two competitive projects based in Illinois, with MISO expected to select developers for the projects by mid-2026. We are also evaluating two additional competitive opportunities with bid submissions due by May. Turning to page 10, we have outlined the investment pipeline across our businesses over the next decade. These investments will support the safety, reliability, and resiliency of the energy grid while positioning our system to power the quality of life for all customers in our territory. This pipeline stands at more than $70 billion through 2035 and is expected to continue supporting strong growth opportunities for our customers, communities, and shareholders. Turning to page 11, we expect effective execution of our strategy to continue to drive strong total shareholder return. In February, we updated our five-year growth plan, which included our expectation to deliver annual earnings per share growth consistently near the upper end of our 6% to 8% compound annual earnings growth rate from 2026 through 2030. This earnings growth is primarily driven by strong compound annual rate base growth of 10.6%, reflecting strategic capital allocation across our constructive regulatory frameworks and conservative sales growth assumptions. I am excited by the milestones achieved year to date with new large-load customers and anticipated additional positive developments in 2026. Over the course of the year, as we get greater clarity on the timing and amount of these new customers’ service ramp-up, we will update our sales growth assumptions and incorporate them into our updated Missouri integrated resource plan as well as incorporate any additional transmission investment needed into our five-year plan. Last, I am confident in our team’s ability to effectively execute our investment plans and other elements of our strategy across all four of our business segments in a way that benefits our customers, shareholders, and communities. Again, thank you all for joining us today. I will now turn the call over to Lenny. Lenny Singh: Thanks, Marty. Good morning, everyone. Turning now to page 13 of our presentation. Yesterday, we reported first quarter 2026 earnings of $1.28 per share, compared to earnings of $1.07 per share for 2025. As Marty discussed, our ongoing infrastructure investments to strengthen the energy grid and expand generation resources continue to be the primary drivers of earnings growth across the company. Partially offsetting the benefits of these investments, Ameren Missouri’s first-quarter electric retail sales in 2026 were negatively impacted by warmer-than-normal winter temperatures in the current period compared to the colder-than-normal winter temperatures in 2025. Additional key drivers of the increase in earnings are highlighted by segment on this page. Moving to page 14 for select considerations for the remainder of the year. We remain confident in our 2026 earnings per share guidance range of $5.25 to $5.45 and continue to maintain disciplined cost management throughout the company. Recall that in 2025, we increased energy center and discretionary tree-trimming expenditures to enhance our customer experience, especially during severe weather events. We are continuing these reliability-focused efforts and would expect higher tree-trimming costs in 2026, particularly in the second quarter of this year as compared to 2025. As you think about quarterly results for the balance of the year, I encourage you to consider the supplemental earnings drivers outlined on this page. Turning to page 15, I will provide an update on Ameren Illinois and Ameren Missouri regulatory matters. In April, Ameren Illinois requested a $65 million revenue adjustment as part of the annual performance-based rate reconciliation under the electric distribution multiyear rate plan. This adjustment reflects 2025 actual costs, actual year-end rate base, and return on equity and common equity ratio established in the multiyear rate plan. An ICC decision is expected in December, with rates reflecting the approved reconciliation adjustment effective January 2027. In addition, over the course of the year, we will engage with stakeholders on our proposed electric distribution grid investment plan for the 2028 through 2031 period. Proposed investments in the plan are designed to further enhance the reliability and resiliency of the grid. We expect an ICC decision on the proposed investment plan by December, with an associated rate filing to follow in 2027. Finally, we expect to file our next Ameren Missouri electric rate review in mid-2026 to recover costs for significant infrastructure investments made to the grid to ensure the system remains reliable and resilient for all customers. Turning to page 16, where we provide a financing update. We continue to feel good about our financial position. In the first quarter, we successfully completed our planned debt issuances at Ameren Missouri and Ameren Parent. As we fund our robust infrastructure plan, we remain focused on maintaining a strong balance sheet and supporting our credit ratings. To that end, we continue to make progress against our expected equity issuances of approximately $4 billion from 2026 through 2030. To satisfy our 2026 equity needs, last May, we sold forward approximately $600 million of equity, representing approximately 6.4 million shares we expect to issue near the end of this year. For 2027 and beyond, so far in 2026, we have sold forward approximately $600 million of common stock under our at-the-market program. We will continue to be thoughtful about our approach to executing our equity plan. With respect to the balance sheet, last month, we held our annual ratings agency meetings with S&P and Moody’s. In April, S&P affirmed our BBB+ credit rating and stable outlook, and we expect Moody’s to issue their annual credit opinion updates in the coming weeks. As we have said before, we value our current ratings, and we remain committed to maintaining a strong balance sheet and strong credit metrics as we execute our growth plan. In summary, turning to page 17. We are making strong progress towards our strategic objectives in 2026, which we expect will continue to drive consistent, superior value for all our stakeholders. We are excited about the future. Our outlook remains supported by robust yet conservative sales assumptions, solid rate base growth, disciplined cost management, and a strong pipeline of customer value-driven investment opportunities. As a result, we continue to expect strong earnings and dividend growth supporting an attractive total shareholder return. That concludes our prepared remarks. We now invite your questions. Operator: We will now move to our question and answer session. If you have joined via the webinar, please use the raise hand icon, which can be found at the bottom of your webinar application. When you are called on, please unmute your line and ask your question. We will now pause a moment to assemble the queue. Okay, your first question comes from the line of Jeremy Bryan Tonet from JPMorgan. Please unmute and ask your question. Jeremy Bryan Tonet: Hi. Good morning. Martin J. Lyons: Good morning. Jeremy Bryan Tonet: Just want to start off here. I was wondering if we could talk a bit more about your conversations with large load and data centers here. Wondering if you are having conversations in D.C., potential interest beyond the 3.4 gigawatts in Missouri and 850 megawatts in Illinois. Just want to get a sense for those types of conversations, what that could look like over time. And then at the same time, how does community engagement stand as far as dealing with local stakeholders’ receptivity to this type of development? Martin J. Lyons: Yes, sure, Jeremy. This is Marty. Good to hear from you. I would say broadly, in both states, both in Missouri and Illinois, we have several gigawatts in each state of other projects with engineering studies underway. So in addition to those places where we have construction agreements, beyond that there are several gigawatts of interest in both states that have matured to the engineering study stage, and we will see whether those come to fruition or not. I would say some of the conversations that we are having are with hyperscalers that have already signed ESAs, specifically in Missouri, about expansion opportunities beyond what they have already signed up for. So some very encouraging conversations that speak to the long-term growth prospects associated with these data centers and hyperscalers. More specifically, if you look at what we have talked about this year that I think is most encouraging is, as you mentioned, we have in Missouri 3.4 gigawatts of construction agreements. In Illinois, we have 850 megawatts of construction agreements. Drilling down on Missouri, that 3.4 gigawatts of construction agreements—back in February, we moved 2.2 of that to energy services agreements, so ESAs that were signed. With respect to those, we are looking forward, hopefully in the second quarter, to some public announcements and groundbreaking and starting to get construction underway. That is that 2.2. Then as I said in my prepared remarks, of the remaining 1.2 of construction agreements, we are optimistic that in the very near term, we can see additional ESAs signed with respect to a portion of that 1.2 that is under construction agreement. So overall, my answer to your question, Jeremy: we are seeing good progress with respect to the ESAs we have signed. We are seeing good progress in Missouri with respect to converting some of those construction agreements to further ESAs. We are hopeful to have those completed in the near term, and we are optimistic here in the second quarter we are going to see some of those ESAs move to groundbreakings and beginning of construction activity. As I said at the outset, a fairly good pipeline of interest both in Missouri and Illinois that speaks to the long-term growth of data centers and sales across our two states. With respect to communities, I would say that broadly, our states remain supportive of the economic development associated with these data centers and ESAs. In certain communities, I think there are going to be concerns expressed, and other communities are going to be receptive to these data centers and to this growth. There are a number of places across the states of Missouri and Illinois, and in our service territories in particular, that are zoned for this kind of development and I think are appropriate for this kind of development, and so we are optimistic that we are going to see good growth specifically in Missouri but also in Illinois. Jeremy Bryan Tonet: Got it. That is helpful there. And then next question, at the risk of getting ahead of myself here, I believe you have defined ramp schedules where if you exceed that, that can lead to upside in the CapEx—a gig by ’29, 1.2 by 2030. Just wondering, taking everything that you just talked about there, your preliminary thoughts on line of sight to exceeding those ramp schedules, and when the potential for incremental capital coming into the plan might materialize. Martin J. Lyons: Yes, Jeremy, great question. You are right. What we laid out in our plans for sales growth is an assumption of about 1.2 gigawatts of growth by 2030, which would represent about a 6.2% sales CAGR in Missouri. Our generation plans that we are building out would provide for sales incremental to that. We had talked about the generation plans providing for up to an additional two gigawatts of sales by 2032, and by 2040 up to three and a half gigawatts. So again, some generation buildout to serve above that initial sales growth assumption. However, as I mentioned, we have signed 2.2 gigawatts of ESAs. We are very close to signing additional ESAs that would bump up that number, and to the extent that the growth in sales comes faster than what was assumed in our plan—so, again, if that 2.2 gigawatts or more exceeds the growth rate included in our plans out through 2030—it certainly represents upside. I would say it represents upside from the standpoint of sales and sales margins, but also causes us to think about our generation needs in the next five years and in the next ten years. Within the next five, are there things that we can accelerate—things like renewables or dispatchable resources like batteries or potentially fuel cells? And then even in the five to ten years, what do the sales growth look like associated with the ESAs we have signed? Also, as I mentioned a minute ago, we are having conversations with these hyperscalers, in particular even the ones that have signed these ESAs, about expansion possibilities—really looking at sales growth beyond the five years and the ten- and fifteen-year period and what additional generation might be needed to serve in those periods to the extent that we see sales growth beyond the assumptions included in our IRP we filed last year. That leads me up to later this year in September. We are required in Missouri to file an integrated resource plan, and we plan to do that in September. It is a comprehensive update. We will look at all the assumptions that go into that—first and foremost, sales: what we expect the sales growth to look like over a 20-year period, but certainly in the next five and ten in particular. We will take into account these ESAs that we have signed, the ramp rates we are seeing, the conversations that we are having with data center developers and hyperscalers, and the economic growth more broadly in our region beyond those data centers. We will be looking at the most reliable and affordable path forward in terms of generation resources to deploy to serve them, and we will roll that out in September. I think that will be a good milestone in terms of giving a marker for what we expect sales growth to be, what we expect the generation buildout to be, and that should also serve as an opportunity for us to give a good update on our third quarter call with respect to our investment plans, our rate base growth, and earnings expectations looking out over time. Jeremy Bryan Tonet: Got it. That makes sense. I will leave it there. Thank you. Operator: Your next question comes from the line of Richard Sunderland with Truist Securities. Please unmute your line and ask your question. Richard Sunderland: Good morning. Operator: Okay. Great. Thank you. Richard Sunderland: Picking up some of the points from the prior questions, curious if you could speak a bit more to the fuel cell opportunity you alluded to there and how you see that fitting in as a solution over the next few years? Martin J. Lyons: Again, Richard, I think I put the word “possibility” in there. What we are really looking at over the next five years is that it is obviously very difficult to get any additional gas-fired generation done in the next five or six years if you have not already started. We have two big projects going on that we have talked about, both Castle Bluff and Big Hollow, and another 2,100-megawatt combined cycle facility planned for 2031. What we are looking at—what I was trying to really say—is over the next five to six years, really looking at anything we can accelerate and bring in during that time period. The options appear to be things like renewables and batteries, which we have talked about and are deploying some of those. Of course, we will take a look at fuel cells—not a commitment to that, but something we are looking at as a possibility for dispatchable resources in this time period. Richard Sunderland: Understood. That is helpful. To take that topic but zoom out a bit, could you speak to the generation efforts overall from a supply chain perspective and a planning perspective as you think about that upcoming IRP filing and what you have an eye to into the 2030s? You spoke to the three gigawatts of CCNs to be filed in short order. Just curious what you are looking at even beyond that and if you have already taken steps there. Martin J. Lyons: Yes, Richard. I will start and then turn it over to Michael. First of all, with respect to that three gigawatts of new resources, there were some questions we got about whether that was previously planned. I will tell you that it was. If you look at the IRP from last February, which is on slide 22—it is back in the appendix—you will see that we had about five gigawatts of generation planned by 2030, and then, as I mentioned, that combined cycle facility, another 2,100 megawatts planned for 2031. To be clear, the three gigawatts that we laid out on slide eight, for which we are going to be seeking CCNs, are all consistent with that IRP we filed last year. The capital for those is consistent with the plans we rolled out in February. I will start there, but I will turn it over to Michael Main to address some of the other questions you had. Michael Main: Thanks, Marty. Good morning. A little more specifically with respect to generation, I think we sit in a good spot. There is obviously a great deal of activity going on. As Marty indicated, we feel good about the number of projects that we have under construction—these solar projects. From a gas perspective, we have spoken about this. We have a simple-cycle project coming online at the end of 2027, another one in 2028. We have those turbines under contract. In fact, we have taken delivery of our first turbine for the 2027 project. We have EPC contracts in place. Labor is mobilized and making really good progress on both of those simple cycles, along with about 400 megawatts of battery at that second site that comes online in 2028. With respect to longer term, the combined cycle—again, we feel good about where we sit today from a procurement of long lead-time material. We have executed the contract with Mitsubishi for that, and we have good line of sight on delivery of all that power island equipment in 2031—HRSGs, steam generators, etc. We feel good about those delivery timelines. We are working through the labor component piece of this. We have a consortium that we are putting in place with national construction companies. We are very fortunate to have a number of companies headquartered here in St. Louis that are going to be put together to build these plants, along with a global engineering design firm that will help design and engineer this for us. There is obviously a great deal of work that needs to go into building these combined cycles—it is a large construction project, 2,100 megawatts—but we feel good about where we sit today and the work ahead of us. Longer term, as Marty talked about, there are a number of scenarios that we are working through at the moment in terms of future demand and future generation needs. All of these conversations are ongoing with the various vendors, recognizing where we are from a supply chain perspective and making sure that we are taking the appropriate steps to continue to put us in a place that allows us to execute against this plan. So more to come as we work through it. I do not want to front-run the IRP, but all of that has been going on, Richard, for the better part of the past year. Richard Sunderland: Very helpful. Thanks for the time. Martin J. Lyons: Alright, Richard. Thank you. Operator: The next question comes from the line of Shariah Pourreza with Wells Fargo. Please unmute your line and ask your question. Analyst: Hi. This is actually Andrew on for Shar. On the topic of nuclear, the government has indicated some level of interest in the AP1000. There seems to be a consortium of regulated utilities that is forming and could consider new nuclear development as a group if cost overrun risk is taken on by a potential offtaker. Would you consider being part of this consortium, or maybe already are part of this consortium, given your experience with Callaway and the 1.5 gigawatts of new nuclear in your IRP? Martin J. Lyons: Welcome this morning. We are not a part of that consortium. As you know, we do own and operate the Callaway Energy Center here in Missouri, and if you look at that IRP that we laid out on slide 22, as we look to the longer term, we certainly think nuclear should be part of the long-term portfolio—not just Callaway, but additional nuclear resources in the long term. It is something that we are going to continue to study. The state of Missouri as well is working on an updated state energy plan, and we will be taking part in that. The state is also looking at what it would take to support new nuclear. We are going to participate in workshops associated with that, and we will see where that leads in terms of the long term—the type of technology that is deployed and the time frame on which to do it. I think we, like a lot of companies that are interested in nuclear, are certainly looking at the advancements of not only AP1000-type technology but small modular reactors and looking over time for price and schedule certainty that would allow you to move forward. Certainly, things like consortiums may very well be a good path forward in terms of being able to address some of the risks associated with price and schedule. We will continue to look at those types of opportunities and engage with the state and see where that leads over time. Thanks for the question. Analyst: Thank you. That is very helpful. Elsewhere in the country, we have seen customers with signed ESAs have trouble securing zoning for their data center sites. Do your customers have sites secured for the 2.2 gigawatts you have under ESA? And are there any other risks to the ramp under those ESAs that we should be considering? Martin J. Lyons: With respect to those 2.2, those sites have been secured, and as I said earlier, we are looking forward in the near term—hopefully in the second quarter—to see some groundbreaking ceremonies and construction get underway. With respect to those, we feel good about it. When you look beyond that, I talked about some of the construction agreements that we have or some of the sites that are going under engineering with engineering studies. Those are in a variety of areas and in various stages of getting approvals. But with respect to the projects where we have the ESAs, we feel very good about those. Analyst: Thank you. I will leave it there. Operator: Just a reminder, if you would like to ask a question, please select the raise hand icon that can be found at the bottom of your webinar application. Our next question comes from Carly Davenport. Looks like Carly lowered her hand. Our next question comes from—oh, Carly’s back. Our next question comes from Carly S. Davenport with Goldman Sachs. Carly, please unmute your line and ask your question. Carly S. Davenport: Hey. Good morning. Sorry about that. Thanks for taking the questions. Martin J. Lyons: No worries, Carly. Carly S. Davenport: Maybe just to start on the MISO transmission projects. Can you talk a little bit about the key considerations that you are evaluating on whether or not you will put forth a bid on the remaining two competitive projects as part of that process, and a sense of when you might expect to file those? Martin J. Lyons: Yes, sure, Carly. If you look at what we outlined on slide nine where we have some of the transmission projects, we outlined in the bottom table those competitive projects where we have had a joint bid submitted and then some of the projects that are under evaluation. As we look at different project opportunities like that, it is really looking at whether we think we can put forward a good competitive proposal that delivers the value that is expected to be delivered from those projects. We think we have strong capabilities in this area. We have strengths in planning, design, project management, construction, operations, and maintenance. We have delivered great value within our region, and we have won a few of these competitive projects over time. We will take a look at each one of those projects, and if we think we can be competitive and bring value, then we will submit a bid. I would also highlight, while we are on the topic of transmission, we have a robust investment plan over the five years, and we see that as having upside as well. I mentioned earlier some of the upside associated with these large loads as it relates to sales and the generation portfolio, but that exists in the transmission area as well. When we put together our capital plans each year, we have always been pretty disciplined about what we put in there—whether it is the CapEx or the rate base growth plans. We do not typically include projects until there is clarity on timing, scope, and the system and/or customer need associated with those. As we look at some of this growth—large loads and generators wanting to connect to our system—those represent upside opportunities for us in terms of incremental transmission investment. We are looking at both things. I add that because as we look ahead at growth opportunities in transmission, we are both looking at those investments that we typically make to interconnect customers and generators as well as these competitive projects—so a couple of areas of upside for us as we look at our capital plans going forward. Carly S. Davenport: Got it. Appreciate that. Super helpful. One other question from me on the ICC reconciliation process. I guess it is not atypical to have some divergence on the OPEB treatment, but what are your thoughts on the adjustments proposed related to the infrastructure investments? Do you see any scope for some movement on that side? Andrew Kirk: Hey, Carly. This is Andrew Kirk. Those adjustments are typical as part of the process. There is nothing unusual there, so you should assume that is just a typical part of the process—truing up rate base and related items as part of the 2025 reconciliation. Carly S. Davenport: Got it. Great. Thank you for the time. Operator: Thanks, Carly. Our next question comes from David Paz with Wolfe. Please unmute your line and ask your question. David Paz: Hello. Marty, you may have just answered part of this, but let me ask it more bluntly. Do you anticipate the remaining 1.2 gigawatts of construction agreements to begin ramping in your current period by 2030, or will the ramps begin post-2030? I am referring to the ones for which you expect potentially some outcome in the near term. Martin J. Lyons: Yes, David. I think that what you are asking about is: we have 3.4 gigawatts of construction agreements; 2.2 of that was announced in February, which leaves another 1.2 in construction agreements. As I said a couple of times, we do expect a subset of that to move to ESAs in the near term. The ramp rates in each one of these is confidential. You could see some movement in terms of sales associated with those during this five-year period. As you sign these ESAs, there is a period of construction to get the data center built before the sales start to kick in, but you could see some of that sales growth within the five-year period. David Paz: That is great. Relative to your current sales outlook and capital plan, would you view any generation spend in your five-year period to be additive to the $32 billion, or as you get incremental opportunities would you displace CapEx, just given any build constraints? Martin J. Lyons: We are always looking at the overall capital plan and the puts and takes, but I would expect that it would be added to the overall plan. Also, to the extent that those generation resources are being accelerated or built for the purpose of supplying the large load, obviously through Senate Bill 4 and the tariff that we have, those costs would be ultimately borne by those large loads. That is probably the best way to think about it. David Paz: That is great. Then just a clarification. I think in an earlier response you said you felt good about solar projects among other types of projects. What about the one gigawatt of wind in your plan by year-end 2030? I think at least in your IRP you have all the permits there, zoning. Any issues with that? What is the status? Martin J. Lyons: Yes, David. As you look at that portion of the IRP, we are still interested in wind as a resource. As we think about the renewable portion of our overall generation mix, it is good to have some diversity in there of solar and wind resources. But the timing of that relative to solar, I would say, is somewhat adjustable. We would love to see some more wind in our portfolio over time, but over the five-year period you could see, for example, solar displace that and the wind get pushed out a little bit. I would think about it that way: the timing does not have to be necessarily within the five-year period. We remain interested in wind, and you may see a substitution of solar for wind in that period. Operator: We have now reached the end of our question and answer session. I would now like to turn the call over to Martin J. Lyons for closing remarks. Martin J. Lyons: Thank you all for joining us today. Through robust and disciplined investment in our electric, natural gas, and transmission infrastructure this year, we are positioning Ameren Corporation to reliably serve our customers and growing communities now and in the future. We look forward to seeing many of you in the next few weeks. Thanks, and have a great day.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Central Garden & Pet Company Fiscal 2026 Second Quarter Earnings Call. My name is Kate, and I will be your conference operator for today. At this time, we will hold a question and answer session and instructions will be given at that time. As a reminder, this conference call is being recorded. I would now like to turn the call over to Friederike Edelmann, Vice President, Investor Relations. Please go ahead. Friederike Edelmann: Good afternoon, everyone, and thank you for joining Central Garden & Pet Company’s second quarter Fiscal 2026 Earnings Call. Joining me today are Nicholas Lahanas, Chief Executive Officer; Bradley G. Smith, Chief Financial Officer; John Edward Hanson, President, Pet Consumer Products; John D. Walker, President, Garden Consumer Products; and, last but not least, Jason Barnes, Executive Vice President, Garden Consumer Products. Nicholas will start by sharing today’s key takeaways, followed by Bradley, who will provide more details of our performance. After their prepared remarks, John, JD, and Jason will join us for the Q&A session. Before they begin, I would like to remind everyone that all forward-looking statements made during this call are subject to risks and uncertainties that could cause our actual results to differ materially from what those forward-looking statements express or imply today. A detailed description of Central Garden & Pet Company’s risk factors can be found in our annual report filed with the SEC. Please note that Central Garden & Pet Company undertakes no obligation to publicly update forward-looking statements to reflect new information, future events, or other developments. You can find our press release and related materials at ir.central.com. Last but not least, unless otherwise specified, all comparisons discussed during this call are made against the same period in the prior year. Should any questions come up after the call or throughout the quarter, do not hesitate to contact me directly at ir@central.com. And with that, let us begin. Nicholas, over to you. Nicholas Lahanas: Thank you, Friederike, and good afternoon, everyone. I will start with highlights from the second quarter and then walk through how we are thinking about the rest of the year. We delivered a record second quarter and a record first half, with clear improvement across the board: higher sales, expanded operating margins, and stronger earnings per share versus last year. That performance reflects resilience across our key categories, the strength of our operating model, and the actions we have taken to sharpen execution. At the same time, we are continuing to simplify the business in ways that also strengthen our teams and execution. We have moved our DoMyOwn business into our Covington fulfillment center, which is improving speed, lowering costs, and increasing flexibility across the network. We are also consolidating the TDBBS manufacturing into our dog and cat platform in New Jersey, to better leverage scale and what we believe are best-in-category capabilities. And subsequent to the quarter, we formed a joint venture with the leading U.S. pet food distributor, Phillips Pet Food & Supplies, where we will retain a 20% ownership stake. This is a strategic step which creates a stronger, more agile nationwide distribution network, reduces complexity, and allows us to focus more directly on growing our Central-branded portfolio. These moves build on the cost and simplicity work we have been driving for several years. That work has fundamentally strengthened the business. Today, we are more efficient, more resilient, and a better-run organization. And that discipline is embedded in how we operate. With that foundation in place, our focus is squarely on growth and disciplined capital allocation. We are investing where we see the highest returns and, with our balance sheet and customer relationships, we are well positioned to execute. We also advanced our innovation pipeline this quarter. We are bringing forward new products—both branded and private label—that deepen retailer partnerships and connect with consumers. In Pet, that includes Nylabone dog chews made with real meat and Farnam’s Enduro Gold Killer Fly Mosquito Control Spray for horses. In Garden, our recently launched The Rebels Sun & Shade extension in grass seed and new private label programs are performing well and delivering above expectations. Turning now to our outlook. We entered the back half of the year with momentum and a clear focus on execution. Our diversified portfolio, operational flexibility, and disciplined approach to cost management and capital allocation position us well to deliver profitable growth as the macro backdrop continues to evolve. The retail environment remains dynamic, with consumers looking for value and performance and continued shifts towards e-commerce and, in some categories, private label. We are responding with targeted investments behind our strongest brands, innovation, and consumer insights while continuing to strengthen our digital capabilities. These are the right investments. They are gaining traction, positioning us to drive both growth and margin expansion. While we are still early in our journey, innovation will become a more meaningful contributor as we continue to scale a more streamlined and efficient operating model. M&A remains a key lever. We are taking a disciplined, value-driven approach focused on high-quality, margin-accretive opportunities that strengthen our portfolio. With our liquidity and flexibility, we are well positioned to act when the right opportunities arise. On the joint venture, as expected, it will reduce reported revenue in the second half by a low-teens percentage but with minimal impact on earnings, given the lower margin profile of that business. Based on our performance and outlook, we are maintaining our guidance for Fiscal 2026 non-GAAP diluted EPS of $2.70 or better. That reflects both what we have delivered and our confidence in the path ahead. As always, this guidance excludes the impact of future acquisitions, divestitures, or restructuring actions. Before I hand it over to Bradley, I just want to recognize our teams across Central Garden & Pet Company. Their execution continues to set the pace for the organization. We built a strong foundation and we are moving forward with focus, discipline, and confidence in our ability to deliver long-term growth and value. And with that, I will turn it over to Bradley. Bradley G. Smith: Thank you, Nicholas. I will take a few minutes to walk through how the second quarter came together and share what we are seeing as we move through the year. Net sales were $906 million, a 9% year-over-year increase driven by growth across both segments and reflecting solid underlying demand, the anticipated shift of shipments from the first quarter into the second, and the benefits of actions we have taken to strengthen the business. Gross profit increased to $300 million from $273 million, with gross margin improving by 30 basis points to 33.1%. The prior year included a one-time inventory charge related to the wind-down of our U.K. operations. Excluding this charge, gross margin was essentially consistent year over year, supported by productivity gains across both segments and a favorable mix in Pet, which helped offset higher manufacturing costs and a lower-margin sales mix in Garden. SG&A expense was $186 million, up 3% versus the prior year. As a percentage of sales, SG&A was 20.5%, down from 21.6%, reflecting the improved sales leverage, prudent cost management, and ongoing simplification of the organization while continuing to reinvest in key growth initiatives. Operating income was $114 million compared with $93 million, and operating margin was 12.6% compared with 11.2%. It is important to step back and look at the first half as a whole, which helps smooth out the noise related to the timing shifts between Q1 and Q2. For the first half, our sales were up 2%. Gross margin increased by 70 basis points and operating income grew 8% versus last year. Both segments contributed to that performance in driving growth in both the top line and bottom line, together delivering record operating income for the company—a clear reflection of the strong execution we are seeing across the business. Below operating income, the picture remains stable and consistent with solid underlying profitability. Second quarter net interest expense of $9 million was consistent with the prior year. Other expense was $351,000 compared with $744,000 of other income in the prior year. Net income totaled $79 million compared with $64 million a year ago. We delivered record second quarter diluted earnings per share of $1.28, exceeding both prior year and our expectations, reflecting strong execution and the underlying strength of the business. Adjusted EBITDA for the quarter was $139 million compared to $123 million. Adjusted EBITDA margin for the quarter was 15.4% compared to 14.8%. Our effective tax rate for the quarter was 23.5%, in line with the prior year. With that context, let me turn to the segments. Starting with Pet. Net sales for the Pet segment came in at $477 million, up 5% year over year, primarily driven by the continued strength in our core consumables portfolio along with the expected shift of outdoor cushion orders from the first quarter into the second. On a first-half basis, sales for Pet were up 1% versus last year. In the quarter, we continued to see healthy demand across our consumables categories, particularly in our higher-margin dog and cat, equine, and professional product lines, where innovation and execution are driving top-line growth. Across the Pet segment, we held share overall, with gains in key categories including rawhide, dog treats, flea and tick, pet bird, and professional areas—aligned with our growth and margin priorities. We were also encouraged by the distribution gains we achieved during the quarter across a range of categories. Operating income for this segment was $78 million in the quarter, compared with $61 million. Operating margin improved to 16.3% from 13.4%, reflecting sales leverage, mix improvement, portfolio optimization, and solid execution across the segment. Adjusted EBITDA for the segment was $89 million compared with $75 million, and adjusted EBITDA margin for the segment was 18.6% compared with 16.6%. Now turning to Garden. Net sales for the Garden segment were $425 million, up 13%. As expected, the second quarter benefited from the timing of initial retailer shipments for the 2026 season and relatively low retailer on-hand inventories entering the quarter. In addition, the quarter benefited from meaningful distribution gains, particularly in grass seed and fertilizer. That said, for the first half, sales were up 4% over last year. Overall, we gained market share in Garden in the second quarter, with strength across several key categories including grass seed, fertilizer, and wild bird. As we enter the garden season, our businesses are well positioned to deliver a solid year, supported by strong preparation and close alignment with our retail partners. We remain encouraged by the continued support of our customers across our garden categories and brands. Operating income for the Garden segment in the second quarter increased to $66 million, up from $59 million in the prior year. Operating margin was 15.4%, remaining relatively consistent with last year’s performance as strong sales volume growth and productivity improvements helped offset the impact of a lower-margin sales mix and higher manufacturing costs. Adjusted EBITDA totaled $76 million compared with $69 million, and adjusted EBITDA margin for the segment was 17.7% compared with 18.2%. Let me close with cash and the balance sheet, which remain a key source of strength and provide flexibility to invest in growth. Cash used by operations was $50 million for the quarter, compared with $47 million a year ago. CapEx for the quarter was $10 million and depreciation and amortization totaled $21 million, both consistent with the prior year. We continue to expect to invest approximately $50 million to $60 million in CapEx this fiscal year, with a focus on maintenance and targeted productivity and growth initiatives across both segments. During the quarter, we repurchased approximately 110,000 shares for $3.4 million, with $128 million remaining under our share repurchase authorizations as of quarter end. At quarter end, cash and cash equivalents and short-term investments totaled $653 million, an increase of $137 million despite the acquisition of Champion U.S.A. in the first quarter, reflecting strong liquidity and cash generation. Total debt was $1.2 billion, unchanged from the prior year. Gross leverage ended the quarter at 2.8 times, compared with 2.9 times in the prior year and below our target range of 3.0 to 3.5 times. Net leverage was approximately 1.3 times, supported by our strong cash position. We had no borrowings outstanding under our credit facility. Our fortress balance sheet gives us flexibility to continue investing in organic growth, pursuing value-creating M&A, and returning capital to shareholders while maintaining a strong financial position. Before opening for questions, I want to echo Nicholas and thank our employees. Their work is driving our performance and positioning the business for continued success. Operator, please open the line for questions. Operator: Thank you. We will now open the call for questions. Nicholas Lahanas: Thank you. Operator: Our first question comes from the line of Bradley Bingham Thomas with KeyBanc Capital Markets Inc. Please go ahead. Bradley Bingham Thomas: Good afternoon. Thanks for taking the questions, and nice quarter here. I wanted to start off with a question for Nicholas and JD, I think to some extent. In this all-important spring selling season, clearly you had a great quarter in terms of sell-in. Can you give us any thoughts on how sell-through is shaping up and how you are thinking about that for the third quarter? And then as a follow-up on guidance at a high level, if we do some back-of-the-envelope math, you have had a strong first half. If you were just to hit that $2.70 number, that would imply that the second half could be lower by about $0.25 from what you did in the second half last year. In broad strokes, how are you thinking about the ability to drive profit or earnings growth in the second half? John D. Walker: Hey, Brad, it is JD. Thanks for the question. I will start and then I will ask Jason to comment as well. From a consumption standpoint, going back to the second quarter, as the weather started to improve, particularly in southern markets, consumption was great. That pattern carried into April and we saw strong consumption throughout the month. When the weather is favorable, consumers are very engaged in our categories and our retailers are very engaged and excited about the categories. We have every reason to believe that if weather cooperates and is favorable, we will continue to see that strength throughout the season. I would say we are cautiously optimistic. Jason, do you have anything to add? Jason Barnes: The only thing I would add is that we see strength across the portfolio. We have a pretty broad assortment of categories we participate in. It was not one or two categories that showed strength in March; it was basically across the entire portfolio, and that has continued into April when the weather has been there for us. Nicholas Lahanas: Also, great work with customers. We have more points of sale compared to prior year, and that has played a role too. John D. Walker: It has. Some of that was timing, some of that was low retailer inventories, and some of that was a lot of new points of distribution year over year. We did a nice job of shipping in. The consumption piece is still going to be tied to weather to a large degree. Where we see the weather, we have seen robust consumption. Nicholas Lahanas: On guidance, sure, I will give it a crack. Your point is well taken—we have started pretty strong, and as JD alluded to, April so far looks pretty good. In terms of guiding, we still need to see the season play out. As everybody knows, we are very weather dependent, and that really means May. May is that critical month—April and May—with May very important to the live goods business. Before we can give the all-clear signal and take guidance up, we really need to see that play out. If you look at our history, we usually do that in early to mid-June once we are comfortable with May. We feel really good about the business. It started very slow in the first quarter, and it played out exactly the way we thought. A lot of those sales slipped into the second quarter, then we had some really nice weather, and that momentum has continued into April. We are cautiously optimistic that the momentum will continue, but we just do not know for sure to the point where we are willing to move on guidance just yet. John D. Walker: I would add that May is critically important. We still have a number of markets that have not come on board yet. A lot of the northern markets are just now starting; I was in Boston last week and it was still winter. As those markets come on, we will feel a lot more confident in making a call. As Nicholas said, we really need to see how May plays out. Nicholas Lahanas: And as you know, we give ourselves a very wide range by saying $2.70 or better. We like the momentum we are seeing and the teams are executing, so we feel really good. We just need to see it play out for a few more weeks. Operator: Our next question comes from the line of Brian McNamara with Canaccord Genuity. Please go ahead. Brian McNamara: Hey, good afternoon, everyone. Thanks for taking the questions, and congrats on the strong results. Three months ago, your comments sounded like Pet was at or near a bottom. The second quarter looks like your first quarter of growth in the segment out of the last five and second out of the last seven. Should we think about the back half—appreciating you guide to revenue—as growth continuing as a reasonable expectation, and what drives that? And then apologies if I missed this: what was the durables versus consumables mix for the quarter, and how did durables do? Cushions probably helped there, obviously. Lastly, on distribution and the JV: what drove the decision, and do you still get the benefits like consumer insights, stronger customer relationships, and access to emerging brands and M&A? Why is there an earnings headwind rather than net neutral for the back half? John Edward Hanson: I can take the first part. We feel really good about where we are. We showed 5% top-line growth, and as we said on the last call, from everything we can see—from household penetration and buy rate to even our live animal sales—we believe the category has stabilized. We still feel that way. We did have help in the 5% this time from some timing on our cushions business that slid from the first quarter to the second, but even if you back that out, we feel pretty good about the organic piece of the growth in the business. It is difficult to have a crystal ball on the balance of the year, but I would say we are cautiously optimistic. Bradley G. Smith: On the durables and consumables mix, given the timing noise, I would look at it on a first-half basis. Durables were 18% of sales for the first half in Pet. John and I continue to believe that is going to go down over time given the rate of performance in our consumables business, but durables were relatively resilient. John Edward Hanson: We feel good about consumables performance in the second quarter—it was up mid-single digits, which is a higher-margin piece of our business and a good mix play in our focus area. Durables were up quite a bit in the second quarter largely because of the cushion shift. Nicholas Lahanas: On the JV decision, we still own 20%, and the way we viewed it was access versus ownership. We still have access to the channel; we just do not own the whole business. There were a lot of factors: listening to investors and analysts regarding margins and the overhang of the lower-margin distribution business; our cost and simplicity program—we had roughly 26,000 SKUs, many ship points, trucks, and employees; we want to streamline and focus our energy on higher-margin products and businesses that really move the needle rather than managing a high level of complexity. The independent channel has been a challenge, and we knew that to give us the best chance of success it made sense to do a JV with another player strong in food, whereas we were more on the supply side. We think the combination makes a lot of sense. Bradley G. Smith: From a financial perspective, the business was making money when we sold it—not a lot, but a little—so we lose that in the back half. When you look at the equity that we record for our 20% of the joint venture in the back half, we are currently projecting some initial losses. They will not yet be in a position to start to unlock synergies, and there is going to be a fair amount of purchase accounting attached to it, which will have a non-cash impact that will flow through earnings. Our estimate on the back half in terms of the financial impact to Central Garden & Pet Company is conservatively $0.03 to $0.05 per share dilutive. As we get into next year and the following year, as synergies begin to be realized, we should start to see some positive results. Operator: Our next question comes from the line of Robert James Labick with CJS Securities. Please go ahead. Analyst: This is Will on for Bob. Congrats on the strong quarter. From raw materials and plastic sourcing, with the war, have raw material prices impacted the Garden segment at all so far? And how is pricing in the garden industry in general—are retailers raising prices? John D. Walker: We have seen some inflation, particularly as it relates to urea. One of the benefits we have is we prebuild a lot of our materials for the year, so we will see some impact late this year, but it will be a manageable, smaller number. For next year, as we start our prebuild for 2027, it will have an impact on our fertilizer cost, and that is something that is widely known and already discussed with our customers. It is fluid right now and we will have to see where this goes. We have not taken pricing for this year—no pricing planned for 2026—and the impact should be manageable. Most likely next year we will be forced to take pricing as a result. I would add on urea that it is a very small piece of the business—from a COGS perspective, about 1%—so our exposure is not like some of our other competition. From a fuel standpoint, it is similar. We are managing through it. A lot of our customers pick up product at our facilities right now, so that too is fluid. We will have to see the duration and depth and whether pricing is needed to cover costs. To date, we have been able to manage through it. Our cost and simplicity initiatives help us offset some of these impacts. On broader industry pricing, retailers coming into this year have not been taking wholesale price increases. For next year, depending on input costs, if manufacturers have to take price, then retailers will have to take pricing. For this year, pricing has been fairly stable. We are seeing a fairly promotional marketplace right now, which we anticipated and planned for. Operator: Your last question comes from the line of Andrea Teixeira from JPMorgan. Please go ahead. Shovana Chowdhury: Hi, this is Shovana Chowdhury on for Andrea. Thanks for taking our question. You commented that consumption stayed robust throughout April. Can you add more color on the health of the consumer—are they more value seeking, and are you seeing any trade down to private label? Also, what is the level of promotions that you are seeing? Nicholas Lahanas: On the Garden side, we are seeing really nice consumption when the weather is good. Across the board, consumers are value seeking. They want performance at a reasonable price. Our grass seed brand, The Rebels, has done really well because it strikes that balance of being affordable and a great product. Those areas are taking off. John Edward Hanson: On the Pet side, we are seeing a bit of a channel shift. Consumers are going into mass and club and e-commerce to get value pricing. The value seeking is there, but branded is performing pretty well—solid overall. It is more of a channel shift than a brand trade-down. John D. Walker: On the Garden side, it is very similar. Retailers count on lawn and garden to drive footsteps into the store at this time of year, so they have been very promotional and very engaged in the category. From a consumer standpoint, when the weather is good, we are seeing robust consumption. They are seeking value, and this was a good year for us to pick up meaningful private label business across many retailers. That business is performing extremely well. It is not just private label—our branded products are also seeing strong consumption across categories, which is encouraging. I am not concerned about the health of the consumer right now; when the weather is favorable, the demand is there and retailers are ready. John Edward Hanson: To John’s point about channel shifts, we continue to see e-commerce grow as a percentage of our business. We are well positioned there and believe we are gaining share online as well. One last comment: we had noted in previous calls that footsteps at retail—particularly in home centers—had tailed off over the last few years. We have seen that stabilize and start to increase again, which is encouraging for us. Operator: Thank you for all the color. We do have one additional question coming from Brian McNamara with Canaccord Genuity. Please go ahead. Brian McNamara: At Global Pet, it sounded like everybody was going after cat—that is a hole in your portfolio for lack of a better term. How would you characterize the current M&A environment relative to three months ago and maybe a year ago? It sounds like activity has been heating up. Nicholas Lahanas: Very much. We are seeing things really pick up in terms of conversations and deal flow. A lot of bankers were telling us a year ago that 2025 was going to be the year, and that ended up being a lot more talk. This year, the conversations are a lot more sincere. We are seeing processes kick off with some really nice assets and have several conversations going on right now. We are very encouraged by the M&A environment picking up. Brian McNamara: Great. That is all I have. Thanks, guys. Nicholas Lahanas: Thank you. Operator: Well, this was our last question. Thanks, everyone, for joining us today. Please reach out to us with any additional questions you may have. Thanks. Nicholas Lahanas: Thank you. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines and have a wonderful day.
Operator: Welcome to the Mineralys Therapeutics, Inc. First Quarter 2026 conference call. It is now my pleasure to introduce your host, Dan Ferry of Life Science Advisors. Please go ahead, sir. Dan Ferry: Thank you. I would like to welcome everyone joining us today for our first quarter 2026 conference call. This afternoon, after the close of market trading, Mineralys Therapeutics, Inc. issued a press release providing our first quarter 2026 financial results and business updates. A replay of today's call will be available on the Investors section of our website approximately one hour after its completion. After our prepared remarks, we will open up the call for Q&A. Before we begin, I would like to remind everyone that this conference call and webcast will contain forward looking statements about the company. Actual results could differ materially from those stated or implied by these forward looking statements due to risks and uncertainties associated with the company's business. These forward looking statements are qualified by the cautionary statements contained in today's press release and our SEC filings, including our annual report on Form 10-Ks and subsequent filings. Please note that these forward looking statements reflect our opinions only as of today, May 6, 2026. Except as required by law, we specifically disclaim any obligation to update or revise these forward looking statements in light of new information or future events. I would now like to turn the call over to Jon Congleton, Chief Executive Officer of Mineralys Therapeutics, Inc. Jon Congleton: Thank you, Dan. Good afternoon, everyone, and welcome to our first quarter 2026 financial results and corporate update conference call. I am joined today by Adam Levy, our Chief Financial Officer, David Rodman, our Chief Medical Officer, and Eric Warren, our Chief Commercial Officer. I will begin with an overview of the business, clinical programs, and recent milestones, followed by Adam to review our first quarter financial results before we open up the call for your questions. Our NDA acceptance in the first quarter has been the culmination of a massive effort by our team and our mission to provide more healthy days to patients with cardiovascular disease. From an operational perspective, we are focused on preparing lorundrostat for a successful launch in the United States while we continue to evaluate partnering opportunities and consider the next steps in the clinical development of lorundrostat. During the first quarter, the FDA accepted the NDA for lorundrostat for the treatment of adult patients with hypertension in combination with other antihypertensive drugs and assigned a PDUFA target date of December 22, 2026. This represents a significant regulatory milestone for lorundrostat that moves us meaningfully closer to our goal of delivering a potentially best-in-class therapy to patients with uncontrolled or resistant hypertension. The NDA is supported by a comprehensive clinical data package, including positive results from the Launch HTN and Advance HTN pivotal trials, TRANSFORM HTN, our open-label extension trial, and the proof-of-concept trials, TARGET HTN and EXPLORE CKD. Collectively, these five trials demonstrated that lorundrostat delivers clinically meaningful reductions in blood pressure, is well tolerated, and maintains a durable response across diverse patient populations. We believe this data package supports the potential for lorundrostat to be included in prescribing guidelines, the economic value of lorundrostat to the health care system, and lorundrostat as a differentiated novel therapy. Uncontrolled and resistant hypertension continue to represent areas of unmet medical need, affecting over 20 million people in the United States and contributing significantly to cardiorenal complications. Aldosterone dysregulation often plays an important role in resistant hypertension where patients on three or more antihypertensive medications fail to achieve their blood pressure goal. The launch of lorundrostat, if approved, will be initially focused on this population with the highest need. Our ongoing market research highlights the following three key factors. One, prescribers prioritize magnitude and consistency of blood pressure reduction and have stated a consistent willingness to prescribe lorundrostat in the fourth line. Two, payers recognize the high-risk nature of patients whose hypertension is uncontrolled on three or more medications and have expressed a willingness to provide coverage for lorundrostat. Three, patients are seeking meaningful and sustained blood pressure reductions that are tolerable and simple to integrate into their daily lives. They are very receptive to novel agents like lorundrostat that may help them achieve their goal. As we move towards our PDUFA target date, our operational focus will continue to be on preparing lorundrostat for commercial success. Our teams are working on early market access planning and payer engagement to ensure the value proposition of lorundrostat is clearly understood. In parallel, we continue to invest in physician advocacy with our medical communications capabilities, including broader education of the unmet need in uncontrolled or resistant hypertension through peer-reviewed publications, increased participation in scientific meetings, and the continued build out of our field-based medical science liaison team. We are also expanding our sales and marketing capabilities to ready lorundrostat for success. Together, these activities are intended to support awareness of the clinical profile and position lorundrostat for a potential commercial launch. We continue to evaluate partnering opportunities and engage in strategic discussions. The right partner could provide enhanced value and enable us to reach more patients who could benefit from lorundrostat. Our focus on preparing for a strong commercial launch is invaluable to potential business development partners. I will now turn the call over to Adam to review our financial results for the first quarter 2026. Adam Levy: Thank you, Jon. Good afternoon, everyone. Today, I will discuss select portions of our first quarter 2026 financial results. Additional details can be found in our Form 10-Q which will be filed with the SEC today. We ended the quarter with cash, cash equivalents, and investments of $646.1 million as of March 31, 2026, compared to $656.6 million as of December 31, 2025. We believe that our current cash, cash equivalents, and investments will be sufficient to fund our planned clinical trials and regulatory activities as well as support corporate operations into 2028. R&D expenses for the quarter ended March 31, 2026 were $24.4 million compared to $37.9 million for the quarter ended March 31, 2025. The decrease in R&D expenses was primarily driven by a $15.5 million reduction in preclinical and clinical costs following the conclusion of our lorundrostat pivotal program in 2025. This decrease was partially offset by $1.1 million of increased clinical supply manufacturing and regulatory costs and $800 thousand of increased personnel-related expenses resulting from headcount growth and increased compensation. G&A expenses were $21.0 million for the quarter ended March 31, 2026, compared to $6.6 million for the quarter ended March 31, 2025. The increase in G&A expenses was primarily driven by $7.9 million of higher professional fees, $6.1 million of increased personnel-related expenses resulting from headcount growth and increased compensation, and $400 thousand from other general and administrative expenses. Total other income, net, was $6.0 million for the quarter ended March 31, 2026, compared to $2.2 million for the quarter ended March 31, 2025. The increase reflects higher interest earned on investments in our money market funds and U.S. Treasuries due to higher average cash balances invested during the quarter. Net loss was $39.3 million for the quarter ended March 31, 2026, compared to $42.2 million for the quarter ended March 31, 2025. The decrease was primarily attributable to the factors impacting our expenses that I just described. With that, I will ask the operator to open the call for questions. Operator? Operator: Thank you. At this time, we will be conducting a question-and-answer session. It may be necessary to pick up your handset before pressing the star key. One moment please while we poll for questions. Our first question comes from Michael DiFiore with Evercore. Your line is now live. Michael DiFiore: Hey, guys. Thanks so much for taking my question. Two for me. Number one, in the scenario where Mineralys Therapeutics, Inc. launches lorundrostat itself without a partner, will you conduct any more significant R&D activity or business development, or will you preserve funds just to support the launch and focus on the launch? And separately, as you near the day 120 safety update, it may have already passed, I am not sure. Can you comment on whether safety remains consistent with the past and whether there are updated plans to publish data from the OLE? Thank you. Jon Congleton: Yes, Mike. Thanks for the questions. To the first one, in the event that we launched alone, we, from the beginning, have been focused on how we build value with lorundrostat and how we do that by extension for Mineralys Therapeutics, Inc. We have built this organization from the beginning thinking about our clinical development program with an eye towards how we generate the greatest value from a commercial standpoint launching, whether it is on our own, with a partner, or through someone else. And so I think it is fair to say we are going to continue to look at ways that we increase value for lorundrostat and Mineralys Therapeutics, Inc. If you think about the development program to date, we have done that. Launch HTN, obviously, spoke to the real-world audience. Advance HTN stands out on its own because it is a very distinct, complicated population that no one else has studied with an ASI. EXPLORE CKD provides information for prescribers looking at the complexity of resistant hypertension and nephropathy or CKD. So we have always had an eye towards meeting the physicians where they are, what they need with lorundrostat, and building the appropriate data around that. So we will continue to look at opportunities to build value from a clinical development perspective, and we will continue to look at opportunities to expand the value of lorundrostat through business development. To your second question around the 120-day safety mark, we continue to be very confident in the safety profile of lorundrostat. The TRANSFORM HTN trial, our open-label extension, continues to collect that data. We think lorundrostat is well characterized from a durable effect and safety and tolerability profile perspective. And as we have noted in the past, we will be looking to get that long-term data published in due course. Michael DiFiore: Great. Thanks so much. Operator: Thanks, Mike. Our next question comes from Richard Law with Goldman Sachs. Your line is now live. Richard Law: Hey, guys. Good afternoon. A couple of questions from me. Do you get a sense that you need to compete with AZ on preferred or exclusive access with payers based on some of the discussions that you are having? And, also, what is your confidence level on getting access to that 3L setting compared to fourth and fifth line settings? Is your 3L strategy based on broader use, or is it more on the smaller niche population? And then I have a follow-up. Jon Congleton: Yeah, Rich, thanks for the questions. As we have talked about in the past, our clinical development program looked at that third-line-or-later opportunity. Both Advance and Launch looked at that population failing to get to goal on two or more because that is where significant need exists. I think that is where an ASI can add significant value. From a market standpoint, in a launch, we think the focus will be fourth line. It is our feeling that in that fourth-line resistant hypertension setting, payers appreciate the risk that these patients are under and the lack of satisfactory alternatives that are currently available relative to what lorundrostat has shown in our clinical program. Eric, do you want to add some more? Eric Warren: Yeah, hey, Richard. It is all about sequencing. The fourth line is the entry point. But, obviously, there is that need for those comorbid patients that are third-line patients. The opportunity will be to gain that experience, gain that confidence, and then make that transition to the third line using that comorbid condition as a bridge. This has been well vetted with payers in research and advisory boards, and as our team is now out there engaging payers with our account executives. You also asked about whether we are going to try to position ourselves in a different way than baxdrostat. Obviously, there is an opportunity for both ASIs, and having parity access is something that is a focus for us. Richard Law: I see. Got it. And then a follow-up. We heard that AZ has been saying that baxdrostat can potentially achieve something like $10 billion peak if they can succeed in other indications beyond hypertension and CKD that they are developing. And I also remember, Jon, I think you mentioned that when you think about a partner, an ideal partner would be the one who would recognize lorundrostat’s potential. So when I hear that, I think you meant the potential beyond hypertension. In your discussion with potential partners, how many of them recognize the value of lorundrostat outside hypertension? And what are these indications that you believe partners are bullish on or not bullish on based on the unmet need and the drug's mechanism? Thanks. Jon Congleton: Thanks, Rich. As we noted before and in the prepared remarks, there are 20 million patients that are struggling to get to goal on two or more meds right now. We know the clear linkage of uncontrolled or resistant hypertension to poor outcomes, whether they are cardiovascular or renal. I think at this stage we can clearly say that what lorundrostat has demonstrated in reducing blood pressure is a clear surrogate for what we could expect as far as a reduction in cardiovascular risk. So I am not surprised by AstraZeneca's bullish position on baxdrostat. I would say we have shared that view given the fact that, just in the United States alone, there are 20 million patients at risk. We have talked in the past about having a partner that is more global in nature and has a holistic view of this asset. I do not think that view has changed. I cannot really opine on how some of those discussions have looked at different indications. But, clearly, we know that aldosterone is going to be a key target for the next several years into the 2030s as it relates to not only hypertension, but the related comorbidities. Operator: Thanks, Rich. Our next question comes from Seamus Fernandez with Guggenheim Partners. Your line is now live. Seamus Fernandez: So I guess I will address, or ask you to address, the elephant in the room, which is you guys have been talking about potential partnering for quite some time. You have had the data and now you have had the NDA firmly established in terms of the PDUFA date for some time. What is it that you are looking for at this point in a potential partner that perhaps you are seeking but has not quite matched up? Or should we anticipate that you are in active discussions along those lines? I think we are all just trying to metric what is the timing for either selection of a partner or a potential go-it-alone strategy in the U.S. Thanks so much. Jon Congleton: Yeah, Seamus, appreciate the question. And, as we have said in the past, we are interested in finding the right partner. In response to Rich’s question, I talked about the global nature of that. We are routinely evaluating those partnering opportunities. As you can imagine, and I think appreciate, we are not in a position to provide color or specifics around the level of dialogues, the timing, or the structure. But it is something that we are mindful of. We have, as noted, continued to focus on how we build value going forward, and that is why, operationally, we are focused on commercial readiness for this asset. I think it is an important part of those partnering dialogues. But, clearly, looking for a partner to build on that value continues to be something we are focused on. Seamus Fernandez: Great. Maybe if I can just ask one follow-up question. As you look at the opportunities to partner your asset with other mechanisms, specifically, what would you say are the core mechanisms that you are particularly excited about? We have a whole host of new cardiometabolic mechanisms that are advancing and potentially looking to emerge outside of hypertension. Which would you say would be particularly exciting from your perspective to partner with lorundrostat? Thanks. Jon Congleton: Yes, Seamus, it is a great question. I think what is key as an opportunity for Mineralys Therapeutics, Inc. is we have the core foundational molecule, that being lorundrostat as an ASI. Given the nature of aldosterone to be a driver of not only hypertension, which is the beginning point of many other cardiorenal metabolic disorders, but also the role that aldosterone plays in CKD and heart failure and other disorders, it begins with the fact that we have the core foundational molecule. There are other mechanisms. Certainly, the SGLT2s are what our competitors are looking at. I think the fact that dapagliflozin is generic at this point, given the data that we have generated to date within our pivotal studies and specifically EXPLORE CKD, gives us an entrée to put lorundrostat forward in a hypertensive nephropathy or CKD population. But there are other mechanisms that we are looking at from a cardiorenal standpoint. We are not in a position right now to opine on those. But I would come back to the fact that we have the core product that really addresses the key driver of pathology, and that is lorundrostat. Operator: Thanks, guys. Appreciate it. Our next question comes from Jason Gerberry with Bank of America. Your line is now live. Jason Gerberry: Hey, guys. Thanks for taking my question. As you are doing a lot of your prelaunch activities, how are you thinking about the physician segments that you think are going to be the most likely to drive early adoption, especially in that fourth-line setting where it sounds like maybe you will not be focusing on doctors that focus on comorbidities like CKD, but maybe more cardiology-driven hypertension? Can you discuss some of the learnings from the prelaunch activities and how you are thinking about the early adopter? Jon Congleton: Yes, Jason, thanks for the question. I would say that we have been thinking about this going back three to four years when we framed the pivotal program for lorundrostat. Clearly, there is a primary care portion of the audience that is key prescribers in fourth line. They would be part of a launch target. But cardiologists as well. That is why Advance HTN is such a critical, differentiating piece of our data story. These are the patients that a cardiologist is truly seeing. They are maximized with treatment. They have tried various alternatives and still cannot get to goal. That was the test that Advance HTN put lorundrostat through, and lorundrostat came through with flying colors. That is a key and distinct dataset that AstraZeneca, frankly, does not have. The cardiologist will certainly be a part of that target base. Nephrology as well. We know that nephrologists deal with uncontrolled and resistant hypertension with comorbid CKD. As we speak to those nephrologists, the number one goal for them to try to arrest the progression of kidney disease is to get their patients’ blood pressure to goal. We have been thinking about the target population, the prescribers and the use cases they have, and that is why we built out a very distinct and diverse dataset that provides information about how to use and where to use lorundrostat, and the expected benefits they can see in blood pressure control and beyond, such as proteinuria. Jason Gerberry: And as a follow-up, is there any one or two things you will be looking at in the first three to six months of your competitor’s launch that may alter your go-to-market strategy? Jon Congleton: I do not know if I would say it will alter it. Certainly, it will be informative. We have a view of the data package we have. Eric and his team have done a really nice job of identifying where the unmet need is, who the key prescribers are, where that beachhead indication is for fourth line, and what is important to them in prescribing. We will obviously be looking at AstraZeneca's launch, and we anticipate it is going to be significant given the unmet need here and the lack of innovation in the last 20-plus years. But given the data that we have generated, and specifically speaking to the different prescribers that your first question alluded to, we are very confident in our ability to tap into that, assuming approval and launch very quickly after that. Operator: Our next question comes from Annabel Samimy with Stifel. Your line is now live. Annabel Samimy: Hi. Thanks for taking my question. I would love for you to talk about who you think might be driving the process of guideline changes that would position the new ASI class as the next drug to try after third-line agents have failed. You have a tremendous amount of data across the spectrum of patients as well as safety, CKD, and OSA. How important is it to have that wealth of data to drive those conversations, or do you think that it is the first to market that drives the conversations? Just want to understand the mechanics behind that. Jon Congleton: Yeah, Annabel, thanks for the question. I think it is safe to say that we have been interacting with those physicians that are part of the guideline committees, appropriately sharing the information that we have. It is something we contemplated three years ago, and it is why we worked with the Cleveland Clinic and Steve Nissen and Luke Laffin with Advance HTN, because we knew there had been a lack of innovation in this space. This is a heavily genericized space, and the guidelines would be a critical component. Advance HTN becomes the study that addresses all of the questions guideline committees are going to have about whether it is apparent or truly confirmed resistant hypertension. That dataset is going to be an instrumental component of the argument for inclusion in the guidelines. Launch HTN is an important part as well. It speaks to the primary care physicians. EXPLORE CKD and EXPLORE OSA, as you alluded to, provide additional data that is informative and speaks to the unique complexities of the resistant hypertension population. We are in front of the right physicians who are part of those guideline committees, and we have the right data and dataset with lorundrostat to make a compelling argument. Annabel Samimy: If I could just follow on the physician segmentation that you are thinking about. Given the Launch trial and the fact that primary care is a big prescriber of hypertensive agents, do you expect the focus to be cardiologists and nephrologists and hope for trickle-down into primary care, or do you expect to include high-prescribing primary care physicians within that first set of physician targeting? Jon Congleton: I do not know that our view has changed. We are continuing to narrow in on those prescribers that control approximately 50% of that third- and fourth-line, predominantly fourth-line, segment, and within that there are primary care as well as specialists. Eric, you can add some more to that. Eric Warren: Well said, Jon. Cardiologists, nephrologists, but there are primary care physicians that function very well within this fourth-line state. They are actively prescribing. We have looked at the segmentation. We have looked at the deciling, and there will be primary care included in that initial go-to-market strategy. Operator: Great. Thank you. Our next question comes from Mohit Bansal with Wells Fargo. Your line is now live. Mohit Bansal: Great. Thank you very much for taking my question. One question I have is regarding differentiation. Do you expect to see any kind of differentiation when it comes to labeling between lorundrostat and the competitor here, based on your market research? What feedback are you getting from physicians that they see any differentiation between these molecules? Thank you. Jon Congleton: Yeah, Mohit, thanks for the question. On the label, I think there will be a level of uniformity, certainly within the indication. But I will step back to a point that I have been making. There is a distinct difference between the datasets that we generated with lorundrostat and that of baxdrostat. Launch HTN speaks to the real-world audience, but, again, Advance HTN is a very distinct and differentiated dataset that provides information to cardiologists specifically who are dealing with very difficult, confirmed resistant hypertension patients. Then EXPLORE CKD. We know that proteinuria and having a benefit on proteinuria is a key attribute in physicians' minds when they think about an antihypertensive and how they view its utilization. Certainly for nephrologists, having a benefit on proteinuria is a key signal, or surrogate if you will, for slowing renal progression. Launch HTN, Advance HTN, and EXPLORE CKD, as well as our long-term open-label extension TRANSFORM HTN, were all part of our submission in the NDA. Now, what language and what portions of those studies get into the actual label will be part of negotiations with the FDA. But having that data, whether within label for promotion or through medical information, is going to be very instructive and informative for those distinct prescriber populations. Mohit Bansal: And the physician feedback, the second part? Jon Congleton: The physician feedback has been very robust. Eric? Eric Warren: Two things I will highlight, Mohit. Number one, the absolute systolic blood pressure reduction. That is really what shines from a physician perspective. That 19 mmHg that we demonstrated in Launch, but also the diversity and the well-represented trial populations. I will call out the Black/African American population at between 28% and over 50% of our patients depending upon the trial. Physicians really appreciate the inclusivity of our populations. Mohit Bansal: Got it. Very helpful. Thank you. Operator: Our next question comes from Matthew Coleman Caufield with H.C. Wainwright. Your line is now live. Matthew Coleman Caufield: Hi, guys. Thanks for the updates today. You covered a couple of my questions, but I think overall the sense is that baxdrostat's possible approval mid-year helps overall ASI receptivity and awareness. At a high level, do you anticipate there being any headwinds with that approval, or do you see it only as a positive as we get closer to the December PDUFA? Jon Congleton: I think there is significant opportunity within this space. As I noted previously, Matt, the lack of innovation speaks to the high interest from physicians to have a novel agent or novel class of agents. I do think there is an opportunity to see this market grow as AstraZeneca launches six to seven months in advance of potential approval for lorundrostat. I think it is important to highlight that we will have a voice in the market during that six to seven month period. We have had national account executives in front of payers going back to Q1. We have our MSL team in place, going out and building advocacy within those top-tier and regional-tier KOLs. So I think it is really both companies out there progressively talking about the role of aldosterone, the importance of addressing it within the ASI class. That grows this market opportunity. Whether you look at it from a revenue projection that AZ guided to, or the 20 million patients that we target, this is a massive market opportunity. There is significant interest in the novelty of the class of drugs. So I think it is a net positive. Matthew Coleman Caufield: Great. Thank you, guys. Appreciate it. Operator: Our next question comes from Rami Azeez Katkhuda with LifeSci Capital. Your line is now live. Rami Azeez Katkhuda: Hey, guys. Thanks for taking my questions as well. Given that AZ will likely set the initial pricing benchmark for the ASI class with baxdrostat, are there any other market access levers that you can pull to differentiate lorundrostat? And then, secondly, I know there are not many recent cardiovascular launches, but what do you view as the most relevant commercial analog for lorundrostat at this point? Jon Congleton: Yes, Rami, thanks for the questions. Relative to AZ, presuming approval, they will be setting the initial price point. I have been asked whether that is an anchor point. I think it is a guiding point. I have no idea where they are going to price it at this stage. Clearly, they are bullish on the revenue opportunity, but it will be informative for us. Going back to differentiation and the payer discussions, we are seeing that right now. As we have dialogues with payers, the distinction of the dataset—whether it is Advance HTN, which I have commented on previously in a very distinct population that AstraZeneca cannot speak to, or the Black/African American population that Eric alluded to—we know that is a critical high-risk population. We believe we have the dataset that is very informative for payers from an access standpoint. The feedback we have gotten from payers to date is they are open and willing to create access in this fourth-line setting and potentially, in due course, third line. They are also interested in having two assets to evaluate. So it is not as if, from our perspective, baxdrostat will launch and secure all access from a payer standpoint. On commercial analogs, it is a fair question and hard to answer because there has not been a lot of innovation within cardiovascular for quite some time. An interesting analog for me, although it is a GenMed category and not cardiovascular, is migraine with the gepants, the orals. When you come out with something truly novel from a clinical profile standpoint and match that to a market with significant unmet need, you can see significant commercial uptake. That is an informative analog we think about as we prepare the commercialization of lorundrostat. Operator: Thanks. Our next question is from Analyst with TD Cowen. Your line is now live. Analyst: Hi, thanks and good afternoon. A follow-up from Mohit’s question. It was helpful to hear about label differentiation. Can you tell us more about how you will react to baxdrostat pricing, especially when it comes to your pricing strategy? We know how important access is to physicians, but we are curious about the strategy you are thinking there. Could you launch with a lower WAC price? Should we assume rebates would be the primary mechanism to drive access, or something else? More thoughts there would be helpful. Thank you. Jon Congleton: Yeah, thanks. I appreciate the question. I hope you appreciate that it is really early to opine too much on that. We will see where AstraZeneca comes in with pricing. We have guided in the past that thinking about Farxiga and Jardiance WAC, or list price, is probably a good barometer to work from. We will see where they go from a pricing standpoint and evaluate what makes sense for lorundrostat. The key for us at the end of the day is to ensure that patients that physicians believe could benefit from lorundrostat get access to it. There are a lot of different levers we could pull, from contracting to what we do with our patient assistance program, but it is too early to give you the level of color your question would require. Analyst: Okay, great. That makes sense. Maybe then I can ask a different question. As we are looking at this launch as a proxy to lorundrostat, can you talk about how you would think about the cadence of that launch? It is hard without recent hypertension proxies, but do you expect that there would be an initial bolus of patients within the hypertension population, or anything that could help us understand what a good first few quarters might look like? Jon Congleton: Looking at 2024 IQVIA data that shows, in third line or later, there are about 8.8 million patients that are turning over and trying new medications, and that is in the absence of any innovation—that is with existing treatments that have been available for 20-plus years. As an old marketer, to me, that tells me there is a market with a great deal of dissatisfaction. Physicians have not given up. They continue to trial existing medications to help patients get to goal. There is significant pent-up demand and appreciation of the risk these patients are under if they do not get to goal. Fundamentally, that is a proxy. How that translates to baxdrostat’s launch quarter over quarter, I cannot opine on that. I just know, looking at fairly recent data from 2024, there is a lot of movement within this marketplace, and that creates opportunities for novel agents like lorundrostat. Operator: We have reached the end of the question-and-answer session. I would now like to turn the call over to Jon Congleton for closing comments. Jon Congleton: Thank you. In closing, we remain encouraged by the FDA acceptance of our NDA based on a strong clinical data package that I have just spoken about through the question and answers. From an operational perspective, we are focused on executing on our pre-commercial readiness strategy, while in parallel evaluating partnering opportunities and considering the next steps in the clinical development of lorundrostat. We believe Mineralys Therapeutics, Inc. is entering an important next phase in its evolution. This reflects the dedication of our entire team, the physicians and researchers who have supported the lorundrostat program, and, most critically, the patients whose needs continue to guide our daily work. Thank you to everyone for joining us today. We appreciate the continued interest and support, and we look forward to providing further updates in the quarters ahead. With that, we will close the call. Have a nice day, everyone. Operator: This concludes today's conference. You may disconnect your lines at this time. We thank you for your participation.
Laura Lindholm: A very warm welcome, and thank you for joining Cloetta's Q1 Interim Report Presentation. I'm Laura Lindholm, the Director of Communications and Investor Relations. Our CEO, Katarina; and CFO, Frans will first go through our results, after which we will move to the Q&A, where you either have the possibility to dial-in and ask questions live or alternatively post your question through the chat. It's already possible to add questions in the chat. Over to you, Katarina. Katarina Tell: Thank you, Laura. Today, I'm very proud to present our first quarter 2026 results. After a transformational 2025, this is our first quarter with execution and clear result from our strategy. As you will see during the presentation, we are making great progress and are moving closer to delivering on all 4 long-term financial targets. But first, over to the agenda. Today, it looks as following. I will start with Cloetta in a brief, then I shortly recap our strategic framework and our updated financial targets for the ones that have not listened to us before. After that, I move to our quarterly highlights. Our CFO, Frans, will then walk you through our quarterly and full year financials. And as always, we wrap up with a Q&A. For the new listeners on the call, let me start by introducing Cloetta. We were founded in 1862. And today, we are the leading confectionery company in Northern Europe. We strongly believe in the power of true joy and our everyday purpose is to spread joy through our iconic brands. We have grown a lot since the early days and now have an SEK 8.5 billion in sales last year, combined with an operating margin of 12.1% to be compared to 10.6% in 2024 and 9.2% in 2023. We have established a strong profitability uplift, which we also will talk more about today. Over half of our sales come from our 10 biggest and most profitable brands, and we call them our super brands. Despite the increased geopolitical uncertainty, we remain largely unaffected. This resilience is due to several key factors. First, we operate in a noncyclical market with stable consumer demand, which provides a solid foundation even in uncertain times. Second, our broad product portfolio allows us to offer a range of alternatives, helping us adapt quickly to shift in consumer behavior. And finally, we have, despite the current geopolitical uncertainties, still many attractive growth opportunities like expansion of our super brands, step-up in innovation and growing beyond our core markets. These strengths gives us the confidence to continue delivering solid performance, profitable growth and building further long-term value for our investors, our customers, consumers and for the people at Cloetta. I will now briefly walk you through how we bring our vision to life through our strategic framework and then in relation to this, also our updated financial targets. To learn more, please see the recording of our Investor Day 2025, which is available on our website. So let me start by talking about our vision at Cloetta because it's really capture what we are all about. Our vision is to be the winning confectionery company inspiring a more joyful world. And it's not just something we say. For us, this is a real promise to do great work, to keep innovating and most of all, to bring joy to people every day. This vision is what guides us, is what keeps us learning, improving and leading the way in our industry. I will today also show you 2 concrete product examples of the vision. We have created a clear strategic framework to guide us forward. And right at the center is our vision. Our strategy is about focus, clear choices that will help us scale, grow and make the biggest impact where it truly matters. We have 5 core markets. It's Sweden, Denmark, Norway, Finland and the Netherlands. And today, around 80% of our total sales come from these markets. Our first strategic priority is to focus on our 10 super brands within those core markets. These are the brands with the strongest potential. By leaning into an expansion strategy, we can open new opportunities, grow faster and build real scale. We are not stopping there. We're also looking beyond our core markets. We have identified 3 high potential markets that sit outside the core, and that is U.K., Germany and North America. Our third priority is to elevate our marketing and accelerate innovation. The market keeps changing, and we need to stay ahead, not just following trends, but also help to shape them. In our strategic framework, we are now also opening up to explore M&A, but only if it fits our strategy and when, of course, it makes good business sense. That said, any M&A would serve as an accelerator. It's not something we rely on to reach our financial targets. And to make all of this work, we need, of course, the right enablers in place. This means having a focused, efficient operating model and a structure that actually support our strategy and goals. During 2025, we aligned our structure with our strategy so we can move faster and strengthen our path to profitable growth. People and culture are, of course, the heart of everything. Without them, the rest is just a black box. Our culture is the foundation of how we work, and we have now built an organization that is strong, capable and filled with joy. So Lakerol is one of our super brands in the pastilles category. And this slide capture our launch of Lakerol more and how it delivers on our vision and fits into our strategy win with super brands. What we are introducing here under the Lakerol brand is a new texture and flavoring experience, softer, chewer and more indulgent, while we are staying fully within the sugar-free space. This is a successful multi-market launch in line with our vision and strategic focus. This launch is helping us recruit younger shoppers into the Lakerol brand as Lakerol more feels modern, sensorial and relevant without alienating our existing core users from the brand. We've seen a strong start across the Nordic markets where we have launched the 2 flavors with early results showing increased market shares in the pastilles category and what's particularly is encouraging is the repeat purchase rate, which is already above the category average, really confirming that consumers don't just try Lakerol MORE, they actually also come back to buy more. Moving on to our second example. And here, we are showing how we are scaling a winning pick & mix concept into branded packaged products. Zoo Foamy Monkey started as a pick & mix success within CandyKing, where it quickly stood out, thanks to its taste, foamy texture and playful shape. Consumer demand was strong, and this gave us the results we wanted to also scale Foamy Monkey into branded packaged format. Under the super brand Malaco, we are building on the iconic Swedish Zoo monkey shape and flavor that Swedish consumers already know and love and now translated into a soft foamy candy in a Malaco branded bag. Malaco Foamy Monkey is rolled out across major Swedish retailers as we speak and is available in 2 variants, sweet and sour. This is a great example of a smart brand leverage, proven products, strong emotional equity and high engagement, both in-store and on social media. These projects deliver faster growth, lower risk and stronger relevance, a perfect example of how we continue to win with our super brands and deliver on our vision. In March 2025, we updated our long-term financial targets to match our strategic priorities and our vision. With a clearer plan in place, we raised our long-term organic growth target from 1% to 2% to 3% to 4%. As reported, inflation has now stabilized. It's obviously difficult to justify price increases driven by inflation. This means that future growth primarily needs to come from higher volumes, exactly what our strategy is designed to deliver. Our long-term adjusted EBIT target is 14% with a goal to reach at least 12% by 2027. As many of you saw in the report, we're already above 12%. As Frans will explain later, both Q4 and Q1 got an extra boost, and we will wait to celebrate 12% EBIT when it's fully repeatable. Our EBITDA net debt ratio target is below 1.5% -- 1.5, sorry. Of course, if a strong M&A opportunity appears, we may go above that temporarily, but only if it clearly supports our strategy and with a clear deleverage plan in place. And finally, our dividend policy. We are now targeting a payout about 50% of profit after tax. And now a short quarterly update. As highlighted in the report, we delivered a very strong first quarter with profitable growth driven primarily by higher volumes. Easter sales fell into the first quarter this year, but even when we adjust for that effect, we still achieved our long-term organic growth target of 3% to 4%. I'm also proud to see solid growth across both of our business segments with particularly strong performance in the Nordic and North America. Inflation continued to ease during the quarter. At the same time, geopolitical uncertainty increased, and we, therefore, expect societal and political pressure related to food pricing to remain high. Our EBIT margin reached 12.9%. And even excluding the compensation related to the quality incident, we are in the quarter, exceeding our profitability target of at least 12% by 2027. After a transformational 2025, we are now fully executing and delivering on our new strategy. And with that, we are now also another step closer to reaching all of our long-term financial targets. And with that, it's time for the financials. I'll hand over to Frans, who is more than ready to dive into the first quarter's numbers. Frans Rydén: Yes. Thank you, Katarina. So just before looking at the details here, I'd like to tell you what I'm about to tell you, and then I'll tell you. So firstly, and it's worth repeating, strong organic volume-driven net sales growth in line with our higher long-term growth target set 1 year ago and then a favorable Easter phasing on top of that. So not because of, but on top of, and I'll come back to that. And then I'll talk about the continued significant margin expansion, delivering another quarter with an operating profit adjusted margin meeting the midterm target set to be reached only in 2027. And then I'll tell you about the continued improved leverage for yet another best ever at 0.6x net debt over EBITDA, further improving on our ability to secure resilience in a volatile world and importantly, financial strength to act on business opportunities in line with our strategy. And lastly, not Q1 specific, but Tuesday, I guess, 2 weeks ago, given our strong financial position, the AGM approved the Board's proposal, which was in line with our new long-term target to distribute for 2025, our highest ever ordinary dividend, so SEK 1.40 per share, a 27% increase versus last year. So let me then start with our net sales. So again, very strong volume-driven organic net sales growth of 6.9%. Now as you recall, in Q4, our slight volume decline from Q3 had turned to stable growing volumes. So now from the stable growing volumes, we are now in the territory of solid volume growth. In Q4, I also shared that we expected that quarter 1 2026 would benefit from the shift of Easter sales coming into Q1 from Q2 last year. And I can confirm that shift to SEK 40 million to SEK 45 million this year, which is in line with the earlier estimate I gave. This means then that even when adjusting for the earlier Easter phasing, Q1 2026 organic growth is at the upper end of the range for our long-term target growth of 3% to 4%. And we are, of course, very pleased with this and to be able to confirm that after a transformational 2025, implementing the new strategy and updating our organizational structure to support that, it all starts to come together in product innovation, marketing and sales and supported by a reignited supply chain organization. Naturally, given that the phasing was from quarter 2 into quarter 1, in the coming quarter 2, that quarter's growth will reflect also that shift. So the main point will be then to look at the first half of 2026. And given the strong Q1, so you can imagine, even if we would not grow at all in quarter 2, the first half of 2026 will still be growth in line with our long-term target. And I'm not trying to sandbag quarter 2 here. The main point is just to illustrate how strong of a quarter 1 really is. Now on the 6.9% organic growth, that's partially offset by currency effects of about 3.3% for a reported growth of 3.6%. And before looking at the segments, I want to repeat something mentioned also last quarter about the currency effect. So companies incurring costs in Swedish krona in Sweden to make products which are then exported and sold in euro, of course, will have a challenge when the Swedish krona strengthens. But at Cloetta, we largely sell our products where we make them. So products made in Sweden are mostly sold in Sweden and products made in euro-denominated countries are mostly sold in euro-denominated countries. So the real effect is really limited for us, and it's primarily a translation effect. Then moving to the regular page showing then the segment here side by side or over and under, I should say. In Q4, we could report that both segments were growing to stable again, while for Q1, both segments are now clearly growing and they are growing on volume. And for pick & mix on the bottom half, we are growing solid double digits. And also if one assumes the full Easter effect in pick & mix, then pick & mix is still growing at a very healthy 2x the long-term target for Cloetta. For packed, we're also growing a healthy 3.6%, which is also in line with the long-term target. That's against a softer quarter 1 2025, but then we also rationalized the portfolio at that time and volumes were also affected by pricing and especially on chocolate back then. That said, we are very pleased with this growth being of high quality. It's volume driven and it's profitable. So let's look at the profit. So in the quarter, we are reporting an operating profit adjusted of 12.9%, and we're very pleased with that. As we also reported about 12% in quarter 4 and for the full year 2025, let me unpeel that a bit. So you may recall, for the full year of 2025, the margin was 12.1%. But then that was aided by the receipt in Q4 of compensation for suppliers' quality deficiency back in 2024. Now in Q1, we have received the second and final part of that compensation. The total compensation over the 2 quarters is SEK 44 million, of which SEK 32 million was received in Q4 and SEK 12 million now in Q1. So doing the math on that, it means that in Q4 2025 and for the full year 2025, the margin, excluding the compensation were 12.4% and 11.7%, respectively. So 12.4% in Q4 and 11.7% for the full year 2025, which is why back then, we said we would hold the celebration of having reached 2027's profitability target of 12% in 2025. Now it does mean that our Q1 margin, excluding the compensation is 12.4%. And that, my friends, is above the 2027 target. So in line with what we flagged earlier, 12% is within sight for the full year 2026. Taking one layer down into this, and it's quite obvious from the slide that the profit is driven by volume as well as mix. On the volume, the mentioned Easter phasing drives further volume. And although we supported that with merchandising and sales activities, which will be visible in the SG&A, we're obviously making a healthy profit on those sales. And then for the mix, you do have an effect of the faster-growing pick & mix, but largely offset by favorable mix with respect to market mix and also product mix within the branded package side. And I mentioned the rationalized portfolio last year, but we also have a strong lineup of new products this year. Now these net sales are supported by marketing at similar levels as in Q1 last year. So the overall SG&A is flattish to up, and we look at that separately. But cutting back on investments is not how we are driving the stronger margin. And actually, before a view of profit by segment, a quick comment for those who wants to look at the gross margin. Remember, you need to look at the adjusted gross margin, and we have that commented in the report. Given that in Q1 2025, we released provisions related to the [indiscernible] the greenfield project. So that led to favorable items affecting comparability, boosting the gross profit that year. So on an adjusted basis, so like-for-like, the gross margin is up about 50 bps. Looking then at the segments over and under, you see that both segments margin improved in the quarter over last year with the Pick & mix segment on the lower half, reaching a quarterly margin of 12%. Now that is, of course, above the target to be between 7% to 9% obviously aided by the strong sales and the favorable fixed cost absorption as a result. And we believe that the targeted long-term range is the appropriate range to continue to drive profitable growth in the category as well as geographic expansion in line with our strategy. Then for the Branded package segment, the quarterly margin is 13.4%, aided, of course, by the second part of the compensation. But irrespective of that, it's a great recovery versus last year and again, bringing us closer to the sort of plus 15% pre-pandemic level margin we used to generate in this segment. And we will continue to seek to further strengthen the packed margin and over time, return to the levels we were before the pandemic. Then moving to SG&A. Here, stripping out the benefit of translating the cost incurred in euro to Swedish krona, which I'm showing separately here, it is an almost flattish SG&A. Actually, it's the lowest quarterly increase we've had in many years. And that is, of course, on account of the savings from the change to the operating structure in 2025. So I can confirm the upside of SEK 60 million to SEK 70 million on an annual basis. And that saving in Q1 is fully offsetting the investments we have for growth, including the investment in the geographical expansion beyond our core markets, mostly well-known is the CandyKing store in New York, but it's also on the organizational side. We're, of course, already profitable on that store, but it does generate SG&A. And then also in overall organization in North America and the U.K. as well as investments in product innovation. And then increased merchandising and sales activities on account of the Easter phasing. Again, obviously, a profitable sales, but it does incur additional SG&A cost. As mentioned, our advertisement and promotions are in line with last year, where we already made a big step-up for new launches and a further step-up will be phased more into Q2 given the already strong Easter performance. The net increase in SG&A shown then on the slide is mostly driven by the carryover effect of annual salary adjustments from April 2025 with the next round, of course, now in April 2026. So key takeaway is that the change to the operating structure in 2025 has not only aligned the organization better to execute on the new strategy as evident from the quarter's results, but also permanently lowered the SG&A baseline and helped offset the stepped-up investments beyond the core markets. So overall, costs are held in check. Then on cash. In Q1, we delivered a solid SEK 144 million in free cash flow, and the difference to Q1 last year is really driven by the working capital effect of this Easter phasing as we ended Q1 with higher receivables, only partially offset by lower inventories. This is in line with expectations. And for comparison in Q1 2024, when Easter was similarly phased to how it is this year, our free cash flow was below SEK 100 million. So we continue to see the favorable development on account of the focus on both profit and working capital. And then CapEx in the quarter, that's SEK 38 million that remains on the low side, in line with earlier communicated is expected to rise to between 4% and 5% of net sales over the next 5 years, and we will revert on that later this year. That brings me to my last slide on financial position. And here, you can see that our leverage as we closed the quarter is 0.6x as net debt over EBITDA, well below our target for the leverage to be under 1.5x. And it's also the lowest ever we've had. Now the result is a combination of the strong cash flow, resulting in a lower debt, lowest ever actually at SEK 820 million and then, of course, the improved earnings. Now with the low debt, we have plenty of access to additional unutilized credit facilities and commercial papers, which together with the cash on hand is just shy of SEK 3 billion. So coming back to where I started. One, we have secured resilience in a changing world and the financial strength to act on business opportunities. And two, in April now, of course, not shown on this slide, we distributed SEK 402 million in dividend, and we're, of course, pleased to have created the conditions for that dividend payment of SEK 1.40 per share, up 27% versus last year. And on that note, I conclude that our financial position developing in line with our set targets remains very strong and hand back to you, Laura. Laura Lindholm: Thank you very much, Katarina. Thank you, Frans. It is now possible to either dial-in and ask questions live or alternatively post your question to the chat. And I think, Vicki, we already have some questions on the line. Operator: [Operator Instructions] We have the first question from Stefan Stjernholm, Handelsbanken. Stefan Stjernholm: Can you hear me? Operator: Yes. Stefan Stjernholm: Stefan here. Congrats to a good start to the year. If you start with the gross margin, if adjusting for the SEK 12 million in compensation for the quality issue, I get the margin to 34.6%, i.e., flattish year-over-year. Am I missing something? Or is that right? Frans Rydén: Sorry, can you repeat that, the flattish? Stefan Stjernholm: If you adjust gross margin for the SEK 12 million in compensation, I am getting to 34.6%. Frans Rydén: Yes. Stefan Stjernholm: Yes. I mean, how should we think about the gross margin going forward? Is there room for improvement? I mean, you had a positive leverage on the strong growth in the quarter, and you're also highlighting positive sales mix. And in spite of that, the margin is -- the adjusted margin is flattish. Frans Rydén: Okay. Okay. Yes. So it's always a little bit -- the reason that we're focusing on the operating profit margin adjusted is because of the 2 segments and that it's difference between the branded side and the pick & mix side. So when we have really strong pick & mix sales, you would have an unfavorable mix effect on the margin as a result. But the reason that we get a higher profit at the end is because we have really good fixed cost absorption when it comes to merchandising and depreciation of the racks, et cetera. So our focus is a little bit further down into the P&L because of the segments are -- it plays out a little bit differently between them, if I put it that way. Stefan Stjernholm: Yes. I got it. Good. And regarding the Easter impact, good that you give the figure of SEK 40 million to SEK 45 million on sales. Is it possible also to quantify the EBIT impact if you get -- if you take the margin for the group, it's like 5% positive. I guess that's slightly more than that given the leverage on better sales. Frans Rydén: Yes, yes. So I would say that it is possible to do it, but we haven't done it. It's not a level that we want to disclose. But we're obviously very happy with the profit in the quarter. Stefan Stjernholm: Yes. But somewhere between 5% and 10% is a fair assumption, I guess, for the EBIT impact. Frans Rydén: Yes, yes. So definitely favorable, yes. Stefan Stjernholm: Yes. And then a final one for me, the pick & mix, the pilot with Edeka in Germany, how long is the evaluation phase? Katarina Tell: Stefan, this is Katarina. Yes. So as we wrote, we are now setting up in the report. We are testing in one store, and then we will also -- we have another try at another customers next quarter. So I would -- it's usually goes for a couple of months and then we evaluate. Of course, you can't drag it out too long. So it's a couple of months, then we do an evaluation. Stefan Stjernholm: Interesting. It would be nice to hear more about that later. Okay. These were my questions. Katarina Tell: Yes. We'll update for sure. Operator: The next question from Nicklas Skogman, Nordea. Nicklas Skogman: I have 3 questions, please. First, could you give some more flavor on the organic growth? You mainly highlighted the growth in chocolate, the Kexchoklad and the Tupla, but how did these new innovations that you mentioned like the Lakerol and the Zoo Foamy, how did they contribute to growth in the quarter? And also how did the rest of the sugar candy business do? Katarina Tell: Okay. I will start with that one. So as mentioned, the Lakerol more was a successful launch. We launched that quite early in the -- or I think it was week 7 or 8 or something in the quarter. And it's already taking market share. So that is, of course, a very positive signal. We also see that consumer already coming back to buy more in a double sense. So that is a very -- we have very positive signal. So that launch have, of course, contributed to the growth. The Foamy Monkey was launched a bit later right now. So it's too early to know the consequence of that one. But we have proof, of course, that the consumer already likes it because it's a client in CandyKing. So that is, of course, we really believe big in this launch as well. Nicklas Skogman: And the rest of the sugar candy business, how is that excluding Easter and the launches -- the innovation launches? Katarina Tell: It's performing well. So we have -- we are on a good growth. And as I said, we had a very strong quarter and on top, the Easter sale. So we really now get the strategy into action. And what we also see is the Nordic performing very well together with North America. Nicklas Skogman: Okay. Second question is on the inflation. You mentioned that it is slowing. Do you think we could see price being a net negative contributor for the full year, given the massive decline in the cocoa prices? Frans Rydén: So first of all, we don't want to comment on our prices in terms of price signaling. What we've said is that we have an established way of working with our customers, which is around fair pricing and where we adjust our pricing based on world market commodities. And now cocoa, which, of course, is only part of our portfolio has stabilized. And here, we have to think about when players who are as us sell chocolate products, if that would be at a lower price, how many consumers would then come back into the category, and that would drive volume to maybe more than offset that. And as Katarina mentioned in the CEO comments in the report as well that although from a market point of view, and I'm talking Nielsen here, the chocolate candy or confectionery chocolate category has -- looks like a little bit more promising now than it did before. We have really strong volumes. So you could have a rollback without dropping NSV. Nicklas Skogman: Yes. So volume could offset the potential price impact in short. Okay. Good. Last question is on the announcement yesterday from a competitor. They acquired a company called Aroma. Do you have any business with Aroma today via a pick & mix part of your company? And also from a broader market view, do you expect any changes to the market dynamics as a result of this acquisition? Katarina Tell: Yes, I can confirm. In the CandyKing concept, we have Aroma products. As mentioned in the interview this morning, it's not in line with strategy for Cloetta to acquire Aroma because we have a clear M&A strategy from that perspective. [ Fazer ] and Aroma are 2 well-known players today in the market. And of course, they will now have one -- there will be one set of competitors that we have to -- yes, play with, so to say, and see. I don't think it's too early to say what the key changes will be. But of course, this is a signal that Fazer will be more focused in the confectionery category. And that, of course, we need to take a position and manage. Nicklas Skogman: Could you share how much of the pick & mix business that is like how much is Aroma at the retail level? Frans Rydén: No, no, that's not something we would do. But if you think about Aroma is about 1% of the confectionery market in Sweden. So Aroma plus Fazer is less than half the size of Cloetta in Sweden. So it's not going to change -- impact our strategy this. But as Katarina says, we'll have to continue to see how this acquisition develops. And -- but it doesn't impact our strategy, and it would not have -- Aroma would not have been relevant for us with our focus on our super brands in the Nordic. Nicklas Skogman: All right. Good. Maybe I'll sneak a last one in. What's the latest on the North American business? Katarina Tell: Sorry, what is the latest update on the North American business? Nicklas Skogman: Yes. What's the last, yes. Katarina Tell: Yes. So as mentioned, North America grew well in the quarter. So it contributed to the growth. We launched the CandyKing store in Manhattan in the end of December. It's a profitable business. It's there to drive CandyKing and also to learn about -- learn the consumers and customers about our concept. We are also, as mentioned, we have recruited a business manager that's located in the U.S., all the packaging for what we can -- how we can drive the Swedish candy in the packed format are now approved from a legal perspective, both the design and the information on pack and recipes and so on. So we are progressing well, but we will share a more updated information about North America, yes, going forward. But we are progressing well and it's contributing to the growth in this quarter for sure. Laura Lindholm: Thank you, both. Vicki, it seems we do not have any further questions from the line. Is that correct? Operator: That's correct. No questions for the moment. Laura Lindholm: Thank you. We move over to the chat. We do have one question that was posted quite early on, but that's quite commercial and business driven in terms of promoting products. So we will come back to that separately. We will move to the second question, which is focusing on the agreement with IKEA. Assuming the IKEA contract has made your products available in more countries than you are already existing in and beyond the 3 identified markets, will you explore the opportunity to accelerate the expansion to new countries? Katarina Tell: Yes. So last year, we signed a global contract with IKEA. Today, we are -- we're having sale in 14 markets, and we continue to roll it out in more countries. We have planned for that in 2026 and 2027. The details of the agreement with IKEA are confidential. So -- but as long as we have the opportunity possibility, we will share information about the contract -- about the business within the details of the contract. Yes. Yes, it's 14 markets. Laura Lindholm: Good. We have no further questions in the chat. So should you like to post a question, please do so now. And I think also no further questions from the lines, right, Vicki? Operator: No questions from the phone. Laura Lindholm: All right. Let's double check the chat. It appears we have no further questions. It's time to start to conclude our event for today, but we take this opportunity to update and remind you of our upcoming IR events. Our next report Q2 is published on the 15th of July. But in addition to that, quite a lot is happening. Before the report, you can meet us in Stockholm and at our plant in Ljungsbro, Sweden as well as also New York and Dublin. You can see the details here on the slide. After Q2, we have so far have confirmed IR seminars and other events in Stockholm and in New York. And also there, you can find all the details on the slide and then also keep an eye out for the IR calendar on our website. We've updated it almost weekly. For those of you who are based in the U.S. or plan to travel there, our CandyKing store has been mentioned many times, and we extend a special welcome to that store. It's located in the West Village at 306 Bleecker Street. And do trust me, it is the perfect spot to familiarize yourself with our leading brand and concepts and to know what Swedish Candy is all about. It's now time to conclude the event. Before we meet again, we, of course, hope that you get the chance to enjoy our wide portfolio of confectionery products during many joyful occasions. Thank you for joining us today.
Operator: Thank you for your continued patience. Your meeting will begin shortly. Star zero, and a member of our team will be happy to help you. Hello, and welcome, everyone, joining today’s Q1 2026 SLR Investment Corp. earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. Please note this call is being recorded. We are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to Michael Gross, Chairman and Co-CEO. Please go ahead. Michael Gross: Thank you very much, and good morning. Welcome to SLR Investment Corp.’s earnings call for the quarter ended 03/31/2026. I am joined today by my long-term partner, Bruce Spohler, our Co-Chief Executive Officer, as well as our Chief Financial Officer, Shiraz Kajee, and members of the SLR Investment Corp. Investor Relations team. Shiraz, before we begin, would you please start off by covering the webcast forward-looking statements? Shiraz Kajee: Good morning, everyone. I would like to remind everyone that today’s call and webcast are being recorded. Please note that they are the property of SLR Investment Corp. and that any unauthorized broadcast in any form is strictly prohibited. This conference call is also being webcast from the Events Calendar in the Investors section on our website at srinvestorancorp.com. Audio replays of this call will be made available later today as disclosed in our May 5 earnings press release. I would also like to call your attention to the customary disclosures in our press release regarding forward-looking statements. Today’s conference call and webcast may include forward-looking statements and projections. These statements are not guarantees of our future performance or financial results and involve a number of risks and uncertainties. Past performance is not indicative of future results. Actual results may differ materially as a result of a number of factors, including those described from time to time in our filings with the SEC. We do not undertake to update any forward-looking statements unless required to do so by law. To obtain copies of our latest SEC filings, please visit our website or call us at (212) 993-1670. At this time, I would like to turn the call back over to our Chairman and Co-CEO, Michael Gross. Michael Gross: Thank you, Shiraz, and thank you to everyone for joining our earnings call this morning. Following a year of relative outperformance and strong portfolio credit quality metrics, we are pleased to report a solid start to 2026 for SLR Investment Corp. This is despite the confluence of events in the first quarter that created challenges for our industry. These include rising geopolitical uncertainty and elevated concerns about the disruptive impacts of artificial intelligence on the economy, and to a greater extent the private credit asset class. These dynamics have triggered a speculative and often negative global conversation about the industry unlike anything we have seen in our twenty years of operating SLR Capital Partners and decades of experience managing BDCs designed to match the ownership of illiquid private credit assets with permanent equity. While we expect an elevated focus on private credit and BDCs to persist through 2026, we think it is important to remind investors we have been positioning the portfolio for this moment of recalibration of risk in direct lending for a long time. We believe SLR Investment Corp.’s conservatism and focus on collateral-based specialty finance strategies should enable our portfolio to weather uncertain economic conditions while allowing our origination teams to be opportunistic in an improving investment climate. Additionally, we continue to embark on growth initiatives across our specialty finance investment strategies. We also believe that both institutional and private wealth investors are increasingly recognizing SLR Investment Corp.’s value proposition and place in a portfolio’s allocation of private credit that provides differentiated exposure. For the first quarter of 2026, we reported net investment income, or NII, of $0.33 per share and net income of $0.31 per share. NII was down sequentially primarily due to three factors: first, the lag impact on our floating rate loans from the Fed’s 50 basis points cut in the fourth quarter of 2025; second, a contraction of the comprehensive portfolio as deal activity slowed meaningfully in what is already a seasonally light quarter amid rising economic uncertainty; and lastly, a decline in fee income. As of March 31, the company’s net asset value per share was $18.16, down one-half of 1% sequentially but flat year-over-year. SLR Investment Corp.’s net income for the quarter equates to an approximate 7% annualized return on equity. While we recognize that the company’s net investment income ROE did decline sequentially, we continue to expect that our net income ROE, or total return, remained above the public and private BDC industry average in the first quarter and continued to compare favorably on both a one-year and three-year basis. During the first quarter, SLR Investment Corp. originated $242 million of new investments across the comprehensive portfolio and received repayments of $360 million for net repayments of $180 million, resulting in a quarter-end comprehensive portfolio of $3.2 billion. The primary driver of new originations continues to be our commercial finance strategies, which we believe offer more attractive risk-adjusted returns in today’s competitive private credit markets. As of 03/31/2026, approximately 85% of our portfolio investments were senior secured specialty finance loans, which remains the highest percentage on record and offers a risk profile that is highly differentiated from other BDC portfolios available to investors. We continue to believe that SLR Investment Corp.’s investment portfolio mix shift over the last couple of years to asset-based specialty strategies provides greater downside protection than cash flow loans through our strong credit agreements, actively managed borrowing bases, and underlying collateral support. We expect to continue to approach new investments in cash flow lending opportunistically, especially if signs of widening spreads and improved terms endure. For investors concerned about the uncertainty, technology obsolescence risk, and enterprise value destruction for the software industry from the burgeoning threat of artificial intelligence, we believe that SLR Investment Corp.’s portfolio, with its lack of software exposure, offers a safe haven for investors. Our direct industry exposure to the software industry remains at approximately 2% of our portfolio’s fair value as of 03/31/2026 and is one of the lowest amongst publicly traded BDCs. During the first quarter, we established an artificial intelligence investment committee responsible for assisting investment teams with evaluating both new opportunities as well as the existing portfolio as it relates to the risk of AI to both companies and industries. Despite our de minimis exposure to software, we believe that AI will have an impact either positively or negatively in nearly all industries and are assessing every portfolio company and new investment opportunity accordingly. Our underlying analysis includes evaluating the impact to business model, customer base, and competitive moat from AI as well as incorporating company- and sector-specific evaluation categories. We will apply this process during underwriting of new investments and will reevaluate all portfolio companies at least once per quarter. In addition, we are implementing AI in our specialty finance businesses to assist in analyzing borrowing bases and covenants, streamlining routine workflows, and improving legal document reviews. Overall, we are pleased with the composition, quality, and performance of our portfolio, a direct result of SLR Investment Corp.’s multi-strategy approach to private credit investing. At quarter end, 94.5% of our comprehensive investment portfolio was comprised of first lien senior secured loans. 100% of investments at cost were performing with zero investments on nonaccrual. Our watch list investments represented only 2.2%, which we note is unchanged from the first quarter in 2021. We believe these credit quality metrics compare favorably to peer public BDCs. At March 31, including available credit facility capacity, at SSLP and our specialty finance portfolio companies, we had over $900 million of capital available to deploy. Our liquidity profile puts us in a position to take advantage of either stable economic conditions or a softening of the economy. At this point, I will turn the call back over to Shiraz to take you through our first quarter financial highlights. Shiraz Kajee: Thank you, Michael. SLR Investment Corp.’s net asset value at March 31, 2026 was $990.8 million, or $18.16 per share, compared to $18.26 per share at 12/31/2025. At quarter end, SLR Investment Corp.’s on-balance sheet investment portfolio had a fair value of approximately $2.1 billion in 99 portfolio companies across 28 industries, compared to a fair value of $2.1 billion in 100 portfolio companies across 31 industries at December 31. SLR Investment Corp.’s investment portfolio continues to be funded by a combination of our multi-lender revolving credit facilities and the issuance of term debt in the unsecured debt markets to institutional investors. The company is investment grade rated by Fitch, Moody’s, and DBRS. More than 40% of the company’s debt capital is comprised of unsecured debt as of March 31. At March 31, the company had approximately $1.1 billion of debt outstanding with a net debt-to-equity ratio of 1.14x, within our target range of 0.9x to 1.25x. We have ample liquidity to fund our unfunded commitments and for future portfolio growth. Looking forward, the company has one debt maturity in 2026 with $75 million of unsecured notes maturing in December. We expect to continue to prudently access the debt capital markets and issue unsecured debt as and when needed. Subsequent to quarter end, the company increased its revolving capacity by $25 million with the addition of a new lender. Total revolving commitments now total $720 million, up from $695 million as of quarter end. Furthermore, in May, the Board authorized a one-year extension of our $50 million stock repurchase program. Moving to the P&L, for the three months ended March 31, gross investment income totaled $49.3 million versus $54.5 million for the three months ended December 31. Net expenses totaled $31.4 million for the three months ended March 31. This compares to $32.9 million for the three months ended December 31. Accordingly, the company’s net investment income for the three months ended March 31, 2026 totaled $17.9 million, or $0.33 per average share, compared with $21.6 million, or $0.40 per average share, for the prior quarter. Below the line, the company had net realized and unrealized losses of $0.7 million in the first quarter versus a net realized and unrealized gain of $3.5 million for the fourth quarter of 2025. As a result, the company had a net increase in net assets resulting from operations of $17.1 million for the three months ended 03/31/2026, compared to a net increase of $25.1 million for the three months ended 12/31/2025. On 05/05/2026, the Board declared a quarterly distribution of $0.31 per share, payable on 06/26/2026, to holders of record as of 06/12/2026. The Board also approved a voluntary and permanent change in the company’s advisory agreement with the investment adviser, SLR Capital Partners, reducing the performance-based incentive fee payable to 17.5% from 20%. This further aligns the adviser with our shareholders. With that, I will turn the call over to our Co-CEO, Bruce Spohler. Bruce Spohler: Thank you, Shiraz. As Michael shared, we believe that the private credit industry continues to exhibit signs of the middle stages of a credit cycle, characterized by rising defaults and growing credit dispersion in direct lending. With uncertainty percolating, today’s environment requires highly disciplined underwriting and a heightened focus on capital preservation. Our specialty finance strategies offer high returns in cash flow loans and greater downside protection through their underlying collateral support and tight documentation. We view these more favorable terms as a complexity premium earned through investing in structures that require significant expertise as well as infrastructure that many private credit firms do not have. Turning to the portfolio, at quarter end, the comprehensive investment portfolio consisted of approximately $3.2 billion with average exposure of $3.7 million measured at fair value; approximately 98% of the portfolio consisted of senior secured loans with 94.5% in first lien loans. The 3.2% of our portfolio held in second lien loans consists entirely of asset-based loans with borrowing bases and no second lien cash flow loans. At quarter end, our weighted average asset-level yield was 11.1%, down from 11.6% in the prior quarter. The sequential decline was primarily due to the lagged impact from the 50 basis points decline in base rates in the fourth quarter and reduced one-time income that had occurred in the fourth quarter. Overall, we believe our portfolio has been less impacted by changes in base rates and spread compression compared to the BDC peer group because of our lower allocation to cash flow loans. Based on our quantitative risk assessment scale, our portfolio continues to perform well. At quarter end, the weighted average investment risk rating was under two, based on our one-to-four risk rating scale, with one representing the least amount of risk. Just under 98% of our portfolio is rated two or higher. Importantly, 100% of the portfolio was performing with no investments on nonaccrual. While our credit quality remains strong, in light of market concerns of increasing defaults in private credit portfolios, we believe it is important to note that SLR Investment Corp. has a strong track record of successfully navigating workouts. When a portfolio company’s performance deteriorates, we work closely with our co-lenders, owners, and management teams to arrive at a value-maximizing path forward. In the event owners are no longer willing to support a portfolio company with additional equity, we are comfortable stepping into an ownership role if we believe that will be the path to drive the maximum return. We have a dedicated senior team that works closely with our investment teams when a situation first becomes noisy. They work hand-in-hand with our senior leadership team at SLR on all workouts. In addition, our asset-based lending teams are led by industry veterans with over thirty years of liquidation and workout experience, and they provide additional restructuring support when needed. Now let me touch on each of our four investment verticals. Starting with our Specialty Finance segments, as a reminder, we dynamically allocate to our strategies based on market and economic conditions, which allows us to source what we believe to be attractive investments across market cycles. Let me start with asset-based lending. Our direct corporate ABL business remains a highly fragmented industry and contains high barriers to entry through the complexity of underwriting, collateral monitoring, and active borrowing base management. This strategy requires significant investment in experienced human capital as well as infrastructure. Our priority remains first lien positions on liquid current account assets, which has historically minimized our downside risk exposure. At quarter end, our ABL portfolio totaled just under $1.4 billion across roughly 250 issuers, representing approximately 43% of our total portfolio. During the first quarter, we originated $77 million of new ABL investments and had repayments of $194 million. The weighted average asset-level yield on this portfolio was 12.3% compared to 12.6% in the prior quarter. Our ABL portfolio contraction in the first quarter was predominantly due to temporary paydowns of existing revolving credit facilities and our proactive management of borrower exposures, consistent with our hands-on ABL credit discipline, as opposed to repayments of loans that would have generated repayment fees. In our ABL business, a meaningful contributor to returns is derived from portfolio churn in the form of early repayment fees and the acceleration of upfront fees. We had close to 70% of this portfolio churn last year across our ABL businesses. Over time, we expect this churn to revert to its historical level, which we expect will drive incremental fee income. We are seeing increased activity across our ABL platform. In particular, we are seeing an uptick, post a quiet first quarter, from our sponsor finance clients who are increasingly seeking incremental liquidity through companies. We expect to produce net portfolio growth in our ABL strategy through the remainder of this year. Turning to ABL strategic initiatives, our adviser recently established a sourcing arrangement for ABL investments with a large U.S. commercial bank that spans many of our ABL strategies. This partnership expands our origination reach. We are optimistic that this initiative will enhance our investment sourcing funnel and support portfolio growth in specialty finance ABL investments. We are currently in discussions for other partnership opportunities similar to this. In addition, we are continuing to evaluate strategic transactions such as portfolio and ABL business acquisitions. We also continue to expand our ABL origination team. Now let me touch on Equipment Finance. At quarter end, the equipment finance portfolio totaled just under $1.1 billion, representing approximately a third of the total portfolio. It was highly diversified across roughly 580 borrowers. The credit profile of this portfolio was unchanged quarter over quarter. During Q1, we originated $122 million of new assets with the majority of these investments coming from our business that provides leases to investment grade corporate borrowers. We had repayments of approximately $126 million. The weighted average asset-level yield for this asset class was 10.2% compared to 10.9% in the prior quarter. We remain encouraged by current trends we are seeing in our equipment finance business. Our investment pipeline has expanded and we are seeing demand from our borrowers to extend leases on equipment rather than buy new equipment at higher tariff-adjusted prices. Now let me turn to Life Sciences. At quarter end, the portfolio had just over $180 million of senior secured investments, representing close to 6% of the total portfolio, which is down from a peak of 15%. Over the past couple of years, we have been reporting on the origination challenges in this strategy. The debt market for venture-backed private and public late-stage life science companies has seen an influx of capital and a corresponding degradation in credit discipline. Our life science finance team has been in this business for over twenty-five years. A zero loss track record has been predicated on underwriting and structuring standards that new entrants are often not adhering to. This trend has impacted our portfolio growth. For context, Life Sciences has historically accounted for an average of 22% of our quarterly gross comprehensive income since 2020. However, in the first quarter, it was only 13.5%. One-time life science fees have historically contributed an average of 3.5% to our gross investment income, whereas they represented approximately 1% during Q1. Similar to asset-based lending, churn is critical in our Life Science portfolio and has been a significant contributor to our earnings. The pipeline of new opportunities has picked up materially in 2026. To capitalize on the expected growing opportunity set in Life Sciences, our adviser has expanded the team through the hiring of three highly experienced professionals. We expect that these efforts to broaden our origination reach and product offering should generate strong portfolio growth over the coming quarters. We will eventually both increase portfolio churn as well as fee income. Finally, let me turn to cash flow lending. As a reminder, in cash flow lending, we position SLR Investment Corp. not as a generalist capital provider across all industries but rather as a specialized, industry-focused partner to private equity firms with portfolio companies in the upper mid-market. This is most evident in the healthcare sector. We intentionally curate our sponsor base, partnering exclusively with dedicated healthcare private equity firms with long-standing successful track records of investing in the healthcare industry. These sponsors prioritize knowledge over terms, recognizing that the healthcare industry’s ongoing regulatory and reimbursement evolution requires a lender with deep domain expertise. By leveraging SLR Investment Corp.’s three healthcare investment pillars—healthcare ABL, Life Sciences, and Healthcare Sponsor Finance—we evaluate sponsor-backed investments with a level of granularity that generalist lenders cannot replicate. Beyond our focus on healthcare, we selectively deploy capital into business and financial services which mirror these same defensive characteristics: target market leaders with high recurring revenue, sustainable business models, and low capital intensity. By focusing on companies that share the resilient non-cyclical profiles of our healthcare portfolio, we maintain rigorous underwriting standards while providing prudent diversification across our cash flow finance strategy. At quarter end, this portfolio was $480 million across 28 borrowers, including the senior secured loans in our SSLP. Approximately 2% of the portfolio is allocated to software investments. Weighted average EBITDA was approximately $110 million. 100% of our cash flow investments are in first lien investments, and the portfolio carried a weighted average LTV of 38%. Our borrower fundamentals are trending positively, with year-over-year growth in both EBITDA and revenue at our portfolio companies. Weighted average interest coverage on this portfolio was 2.2x at quarter end, up from 2.0x in the prior quarter. During Q1, we made investments of $43 million in first lien cash flow loans and had repayments of approximately $40 million. Only one of these 12 investments was to a new borrower. At quarter end, the weighted average cash flow yield was approximately 10% compared to 9.8% in the prior quarter. Now let me turn to our SSLP. During the quarter, we invested $9.8 million and had $3.4 million of repayments. Net leverage was just under 1x. In the first quarter, we earned income of $1.5 million, representing an annualized yield of roughly 12.25%, compared to 9.25% in the fourth quarter. At quarter end, we had approximately $54 million of undrawn debt capacity. We expect to grow this portfolio opportunistically over the remainder of 2026. Now let me turn the call back to Michael. Michael Gross: Thank you, Bruce. Over the last seven months, we think both the public and private markets have come to terms with private credit’s maturation as a core asset class with a corresponding recalibration of forward return expectations to reflect a tighter spread environment and a more normalized default loss experience. With less than 10 basis points of annual losses at SLR Investment Corp. since the company’s IPO sixteen years ago, resulting in an IRR above 9%, our North Star at SLR continues to be protecting capital, avoiding losses, and not chasing higher spreads at the expense of structural protections. We believe this approach provides our investors with absolute returns designed to consistently exceed the liquid corporate credit markets yet with lower volatility. It is with this view—that the private credit market has matured and correspondingly carries tighter illiquidity premiums—that our Board of Directors took action this quarter to adjust the second quarter dividend distribution to a level we view to be sufficiently covered from earnings while simultaneously preserving capital as we grow our earnings, and to adjust our performance-based incentive fees to 17.5% from 20%. These are actions that we do not take lightly as leaders and significant shareholders of SLR Investment Corp. since founding more than fifteen years ago. However, we believe that we have struck the right balance and are acting in the best long-term interests of shareholders. As a reminder, we have taken action previously at SLR Investment Corp. to adjust the dividend during transitioning investment climates to make way for growth. The SLR team owns over 8% of the company’s stock and has a significant percentage of their annual incentive compensation invested in that stock each year, including purchases that took place in the first quarter. The team’s investment alongside fellow institutional and private wealth investors should demonstrate our confidence in the company’s portfolio, stable capital structure, and earnings outlook. We have made significant investments and resources across the SLR platform over the last couple of years and year to date that should fuel growth in the investment portfolio that will support net investment income growth. Importantly, we have the available capital to be opportunistic in market dislocations and to evaluate strategic transactions. Thank you all again for your time today with a busy day of BDC earnings releases. Operator, will you please open up the line for questions? Operator: Thank you. And our first question today comes from Erik Edward Zwick with Lucid Capital Markets. Your line is now open. Erik Edward Zwick: Thanks. Good morning, everyone. I thought you made some interesting points in the prepared comments describing how lower churn in some of the portfolios has led to lower fees and how this is, hopefully, a more temporary, market-related impact, but that has driven down the investment income here in the most recent quarter. And I suspect that is what is driving action in the stock price today. But you also highlighted some initiatives you have taken to grow the specialty finance strategies and how those should help rebuild that income through additional churn. I am just curious to what degree—and I realize there is no definite time frame—how soon should we start to see the benefits of those initiatives that you have taken and outlined? Shiraz Kajee: Yes. I think that it will take a few quarters. If you step back for a moment, the churn commentary goes specifically to both our asset-based lending and life science portfolios. Historically, those assets have had a contractual duration of five or six years, but an actual duration of about two years. So it is a combination of bringing more of those assets into the portfolio, which we expect to do this year, and then letting those mature and start to repay over the next twelve to twenty-four months. That is a typical life cycle of that churn that will get back to a more normalized nonrecurring-yet-recurring fee income portion of our gross investment income. Additionally, the strategic initiatives include strategic sourcing arrangements—particularly on the asset-based lending side—additional origination team members on both the ABL and life science teams, and then, less predictable from a timing perspective, we continue to see some attractive opportunities in potential portfolio and team acquisitions in specialty finance, though those are a little less able to predict. Erik Edward Zwick: Thank you. I appreciate the color there. And then, just more importantly from my research and investigating, credit performance is ultimately one of the biggest predictors of long-term ROE and performance for BDCs, and you have outlined your very limited loss history and that the portfolio remains very clean from a nonaccrual perspective. Also, comparing your internal risk ratings from last quarter to this quarter, there has been an improvement there, but we are seeing kind of the opposite at other BDCs. So I wonder if you could just talk about the improvement that I noticed here in the most recent quarter from your internal risk rating perspective. Shiraz Kajee: Yes. I think, as you know, we do not judge it quarter to quarter. There are always some names coming in and names coming out underneath those risk ratings. What we like to point to is the watch list is about 2.2%. If you go back over the last five years, it has been a little higher, a little lower, but 2.2% is actually the average going back to 2020. So to your commentary, we are looking for more consistency across the credit performance, and that is what we are happy about and comfortable with. It is also an example of how we have talked for a long time that the specialty finance assets, the ABL assets, are much less volatile than cash flow–oriented loans. That is why the watch list is so low, and we expect it to stay that way. Erik Edward Zwick: Thank you for taking my questions this morning. Michael Gross: Thank you. Operator: Thank you. Our next question comes from Rick Shane with JPMorgan. Your line is now open. Rick Shane: Hey, guys. Thanks for taking my question. Look, the implied ROE on your new dividend based on current book is about 6.8%, which is roughly SOFR plus two. That seems like a relatively low margin given the return and risk profile of the company. And again, I realize great track record on credit, but this is a levered portfolio. There is inherently credit risk in it. How do we think about this going forward? Are you saying that the return profile for the company is likely to be altered—or for the industry is likely to be altered—long term because of some of the dynamics we are seeing in terms of the broader flows to private credit? Or how should we think about the dividend in the context of your long-term return objectives? Michael Gross: I think we set it at a level where we have confidence it is exceeding the near term. In the long term, as Bruce alluded to in his commentary, we have several levers and initiatives that give us comfort that over the medium to long term, we should see our earnings move back toward the $0.40 level that we have experienced in the past and get to the higher ROE and ROI that we expect and have experienced. The other thing is our focus continues to be on total return. Obviously, that takes account of losses. We feel very good about where we are because of the credit quality, and that is something that is sustainable. Rick Shane: Got it. And when you think about those levers to get back to the $0.40 of core earnings, what is the path? Recasting the portfolio is a gradual process. Is the most immediate opportunity a modest degree of enhanced leverage? I am trying to figure out not only what the destination is but what the path looks like as well. Michael Gross: Fair question. We touched on this earlier in terms of timing. Potential portfolio acquisitions, particularly around the asset-based industry—which we have done in the past given the fragmented nature—have shown more opportunities. Those would be more difficult to predict, but more immediate should they come to pass as we bring portfolios in. The most recent, as you may recall, was in 2024 when we brought in the Webster factoring portfolio. Those are difficult to predict but are immediately accretive and also strategic in terms of expanding our ABL footprint either geographically or by industry. The other levers you heard generally revolve around expanding our sourcing across specialty finance, in particular ABL and life sciences. It is a combination of additional originators and strategic sourcing arrangements where we are creating partnerships with existing ABL players. As you know, we are incredibly conservative, so having a broader pipeline and expanded origination opportunity set allows us to bring more of these short-duration ABL and life science loans into the portfolio. We also know they will churn out fairly quickly with a roughly twenty-four-month average duration, so you will start to see those come into the portfolio this year and begin to exit as early as next year. That velocity in those two asset classes will contribute additional nonrecurring, recurring fee-based income. Rick Shane: Got it. And then, philosophically, you guys are conservative. Your credit results are evidence of conservatism. For some types of lenders—if you are a credit card lender—there is an efficient frontier; it is not a zero-defect business by definition. If your loss rates are too low, you are leaving too much opportunity on the table. I would argue that BDC lending is, in fact, a zero-defect business. One of your most thoughtful competitors years ago said to me, “There is no spread that makes up for a bad loan,” and that has always stuck with me. But I do wonder if even within a zero-defect construct, is there a concern that you are too far from that line of zero defect and that there is a little bit of widening you can do and still maintain a zero-defect objective? Bruce Spohler: That is a phenomenal point. The way we address our, let us call it, ultra-conservative approach to this requirement to be zero defect in private credit is by moving increasingly into these specialty finance strategies. The reason that we have zero defects is in large part because of the leadership of our Life Sciences and ABL teams. Secondarily, they come with collateral, tight documentation, and borrowing bases. There has been no degradation in the documentation in Life Sciences and ABL. The performance of these asset classes, in addition to the leadership of those teams over decades and multiple cycles, allows us to take on more risk in those strategies than we would as a team focused exclusively on cash flow lending because you have that downside protection of underlying collateral—be it cash and IP in Life Sciences and working capital assets in Asset-Based Lending. We are extremely cognizant of your point, and therefore it further aligns with our conservative culture to do more in these specialty finance, collateral-based strategies. Michael Gross: I would add that, in terms of where we are and where others are on the risk spectrum, the jury is still out. We have had a seventeen-year run without a real credit cycle. What we are seeing this quarter and last quarter is public and private BDCs with significant NAV degradation, with the storyline behind it being that it is temporary and mark-to-market. The jury is out on whether that is truly mark-to-market and recoverable. When you think of software exposure, that mark-to-market may be permanent and can actually become worse. We are very comfortable where we have been—on documentation and not pushing the envelope on traditional direct lending—because to your earlier point about spread, it is not just spread that you cannot make up for; it is bad documentation that prevents you from getting to the table early enough to protect your interests. In the past, are there deals that we passed on because we were too conservative and they worked out just fine? Yes. But had we applied that same mentality as a portfolio approach, we would be sitting on a lot of loans today that we would be really worried about. To the earlier comment about rebuilding NII, the good news is that given how low our watch list is and that we have no defaults, the team is not focused on restructurings. They are focused on growth and how to rebuild in a way that we can be profitable for the long term. Rick Shane: Guys, thank you very much. I appreciate it. I realize they are pretty hyper-philosophical type questions, and I appreciate the thoughtful answers. Michael Gross: Thanks, Rick. Appreciate the questions. Operator: Thank you. And as a reminder, it is star one if you would like to ask a question. We will go next to Robert Dodd with Raymond James. Your line is now open. Robert Dodd: Hi, guys. I have got a first question—the second question basically already asked—but I have got a slightly different way of looking at it. On the comprehensive portfolio, paybacks—right, you would always rather get your money back than lose it. It surprised me a little bit that it was so strong and the portfolio shrank so much relatively speaking in this quarter when there is this sense that the banks are not looking to go heavily risk-on right now. They are one of your primary competitors on ABL lending. It is a fragmented market. Was the real driver of that payoff simply seasonal? It seems like a market where I would have expected repayments on ABL or competitive takeaways to be more muted. You were very successful on getting a lot of capital back—that is a good thing and a bad thing. Any thoughts on what drove that dynamic? Bruce Spohler: Under the hood in asset-based lending, there are three primary sources of repayments. There is the traditional refinance to another ABL lender or maybe to a cash flow loan. Then there is what I would call temporary repayment because most ABL facilities have a large revolver with seasonal draws. In our $194 million of ABL repayments, some of that is seasonal repayments, and most of it was not a borrower exiting the platform and canceling their facility. The third dynamic—which we did not have in Q1 but to touch on your broader question—is that sometimes in asset-based lending when we feel the fundamental performance of the business is not going in a direction we are comfortable with, the beauty of ABL is that because we have strong documentation, we can start to turn up the pressure on that borrower and create alternative sources of liquidity. We can wind down our exposure with that borrowing base by increasing reserves and ineligibles such that our advance rates continue to contract in our favor. That will drive an exit or repayment, not necessarily because we got refinanced or there was a temporary paydown, but because we have applied some pressure and encouraged them to refinance us with somebody else. That is also a dynamic our Life Sciences team has used selectively from time to time. A key element of our specialty finance strategies is that you have the ability to wind down exposure and take down advance rates given how tight the documentation is and the underlying collateral support. Specifically to your question in Q1, it was really temporary repayments of facilities rather than a true refinancing or an agreed-upon exit. Robert Dodd: Got it, got it. Thank you. And then the second one—it is basically related to Rick’s question. I agree that zero defect is the goal. But when you look at the portfolio, have you been, with the in-house teams, so strict in pipeline construction that the result is you have really high-quality assets but maybe not enough “good” assets in the flow? So when a great asset repays, you do not have a flow of acceptable, probably zero-defect but maybe not “great,” to moderate the size of the portfolio more? Is expanding distribution—like signing a deal with a bank to see more ABL deals—part of moderating the flow? Bruce Spohler: When you are saying yes to about 5% of the opportunity flow, the way to expand funded investments is to expand the funnel so that 5% becomes a much bigger absolute number. The quality of deals we generally see from ABL banks is higher quality—it might not be their quality because they are measured based on the borrower’s risk rating, rather than the collateral—whereas we can look at the collateral and say, “That is phenomenal collateral.” As Michael touched on with the AI initiative, there are a number of businesses that we lend to that may be impacted by AI. If we have collateral, some of those companies may not survive, but we will likely liquidate ourselves out and be fine. To your specific question, there is no such thing as a “great” private credit deal; you are taking on the ability to potentially lose money. Everything we do is looking for “good.” The more deal flow we have with underlying collateral that checks the SLR box for “good,” the better. Expanding that pipeline by getting more from ABL banks also increases the level of the operating performance of those borrowers. It is really the combination of a much larger pipeline and high-quality collateral—both in ABL and Life Sciences—that we believe, if things go sideways (and we always assume they will), we are going to be fine because of the additional collateral support beyond just traditional ownership support in a borrower. Robert Dodd: Got it. Thank you. Operator: Thank you. And our next question comes from Finian O’Shea with Wells Fargo. Your line is now open. Finian O'Shea: Hey, everyone. Good morning. Thanks for having me on. Can you hit on the fee change, the break to 17.5% on the incentive fee—appreciating that. How did you and the Board come to that number? Michael Gross: It was not a long discussion. It was initiated by us, not the Board. We looked around at what others were doing and thought it was the right thing to do. Finian O'Shea: Okay, that is helpful. And then did the concept of the hurdle rate come up, given the story now is growing earnings—which is tough for a BDC to do—you have been working at that for a long time; it is not the easiest thing to deliver on. Do you think a higher hurdle rate would motivate or align the team better to achieve higher earnings? Michael Gross: No, actually a lower hurdle would do that in terms of incentive fees, but that was not something we were going to consider. The team, frankly, has never focused on our hurdle rate. That is not their job; that is not how they are motivated or compensated. The hurdle rate we have had since inception goes up and down with rates—it is the right place to be. Finian O'Shea: All for me. Thanks so much. Operator: Thank you. At this time, there are no further questions in queue. I will now turn the meeting back to our presenters for any additional or closing remarks. Michael Gross: No further comments other than to thank you all for your participation today. We recognize it is a very busy period of time and there is a lot going on within the private credit space, both in the public and private BDCs, and as always, the entire team is available for any questions that you may have to follow up with. Thank you. Operator: Thank you. This brings us to the end of today’s meeting. We appreciate your time and participation. You may now disconnect.
Operator: Welcome to the Primoris Services Corporation First Quarter 2026 Earnings Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. To ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. I would now like to turn the call over to Blake Holcomb, Vice President of Investor Relations. Please go ahead. Blake Holcomb: Good morning, and welcome to the Primoris Services Corporation First Quarter 2026 Earnings Conference Call. Joining me today with prepared comments are Koti Vadlamudi, President and Chief Executive Officer, and Ken Dodgen, Chief Financial Officer. Before we begin, I would like to make everyone aware of certain language contained in our Safe Harbor statement. The company cautions that certain statements made during this call are forward-looking and are subject to various risks and uncertainties. Actual results may differ materially from our projections and expectations. These risks and uncertainties are discussed in our reports filed with the SEC. Our forward-looking statements represent our outlook only as of today, 05/06/2026, and we disclaim any obligation to update these statements except as may be required by law. In addition, during this conference call, we will make reference to certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures is available on the Investors section of our website in our first quarter 2026 earnings press release, which was issued yesterday. I would now like to turn the call over to Koti Vadlamudi. Koti Vadlamudi: Thank you, Blake. Good morning and thank you for joining us today to discuss our first quarter 2026 financial and operational results. Our first quarter results reflected the impact of a small number of solar projects that experienced cost pressures resulting in lower reported gross profit and margins for the period. These impacts were driven by execution-related factors including specific labor issues, project redesigns, adjustments to sequencing, and weather-related disruptions. The majority of the impacted projects were subsequent to the project discussed in our Q4 earnings call, which experienced cost overruns driven by unforeseen underground conditions. Through our review, we identified two primary drivers behind these challenges: preconstruction planning and the complexity associated with new geographic labor markets. The rapid pace of growth in the solar market placed increased demands on our organization and, in a limited number of cases, this resulted in gaps during the early planning, estimating, and construction phases. Importantly, since these contracts were executed in 2024, we have taken decisive actions to address these areas. We made targeted leadership changes and added experienced talent to strengthen our preconstruction, estimating, and project management functions. In addition, we have adjusted our market expansion approach and have not pursued new work in the geographies where first-time entry contributed to these outcomes. We are confident these actions position us well to mitigate similar risk on projects booked in 2025 and beyond. All of the impacted projects are progressing toward completion and are expected to be substantially complete in 2026, with several concluding within the next month and the final project scheduled for completion in 2026. In addition to the margin impacts associated with these projects, we have also seen the timing of new project bookings and starts shift to the right. As a result, we now expect certain bookings originally anticipated in the second quarter to move into the third quarter, and revenue from projects booked late in 2025 to be recognized later than previously forecasted. Based on these timing dynamics, we now expect Renewables revenue to be approximately $2.3 billion for 2026. Despite the challenges associated with this limited number of projects and the timing shift in new project starts, we remain very optimistic about the solar market outlook. We continue to see meaningful opportunities ahead this year and beyond to build backlog, and we are confident in our ability to put these issues behind us and return to our strong, consistent track record of delivering profitable projects supported by our industry-leading safety and quality performance. I will now provide additional comments on our segment performance for the quarter. Starting with the Utility segment, we had strong year-over-year top-line growth and solid operational performance leading to improved margins in the quarter. The first quarter is typically a seasonal low point in utilities, so we would expect to see further revenue and margin expansion as activity accelerates in the second quarter. In gas operations, revenue was up double digits, supported by new awards in the Southeast and higher design-build volumes in the Midwest. Gross profit was also up, while margins were slightly lower due to a difference in project mix in 2026 compared to last year. In communications, revenues were mostly flat compared to the prior year, but profitability meaningfully improved driven by improved productivity and a reduction in indirect labor costs. Communications continues to see increased opportunities in fiber associated with data center build-out and we are exploring new opportunities for splicing and fiber work within the facilities, which would further expand our addressable market. We do anticipate lower volumes in fiber-to-the-home programs beginning in the second quarter as we transition from legacy programs toward BEAD-related build-outs in certain markets. Power delivery continued its strong execution on increased activity with revenue and margins growing double digits. We are seeing meaningful volume increases in Texas and the Southeast, particularly in transmission and substation work, which is generally accretive to margins in the business. To support this growth, we remain focused on attracting, developing, and retaining the skilled talent we need while maintaining the highest standards of safety and quality. The labor market is competitive, but our strong market position, culture, and robust backlog continue to be an asset attracting and retaining talent. Turning to the Energy segment, despite the challenges outlined in renewables, the rest of the segment delivered solid performance with increased gross profit year-over-year. Industrial margins improved meaningfully, driven by higher natural gas generation activity. Looking ahead, we expect a significant increase in project awards across both natural gas generation and solar in the coming quarters. Most of these projects are in limited notice to proceed status, and we anticipate final awards beginning in the second quarter and accelerating further in Q3. The funnel of opportunities continues to expand, and these upcoming awards will help soften the impact of the troubled projects in 2026 and set us up for strong growth in 2027. Pipeline services also had a solid start to the year, with revenue and gross profit up more than 20%, indicating that we are on track to emerge from the cyclical trough we experienced in 2025. We are still expecting growth this year, with new awards beginning to materialize in the coming quarters. That said, and as we have previously alluded, the more substantial revenue and margin growth opportunity is likely to come in 2027 and 2028 as the market strengthens and our backlog conversion ramps up. We successfully completed the acquisition of Paynecrest on May 1, in line with our expectations. As previously announced, Paynecrest is a St. Louis-based union electrical contractor that provides design, construction, and service solutions to a blue-chip customer base. Their customers span a diverse set of end markets including data centers, industrial, power and renewables, and commercial. Approximately 40% of revenue is generated from data centers with another 40-plus percent tied to industrial, power, and renewables infrastructure. We believe this well-balanced mix of end markets and customers enhances opportunities for cross-selling across our platform and expands the breadth of services Primoris Services Corporation can deliver in these growing markets. While the majority of Paynecrest’s work is performed within a 500-mile radius of St. Louis headquarters, the company has successfully executed projects in more than 25 states, providing flexibility to expand geographically as opportunities arise. With the transaction closing within our anticipated time frame, our expectations for revenue and earnings contribution remain unchanged. That said, we see meaningful upside potential should additional scope with a large hyperscaler customer be finalized in the coming months. We are excited to welcome the Paynecrest team to Primoris Services Corporation and see significant long-term growth potential for this business as part of our organization. In summary, we remain optimistic about the opportunities ahead despite the unexpected renewables execution challenges that impacted our first quarter results. I want to emphasize that the majority of our portfolio remains very healthy and we believe the underlying fundamentals of our business are strong. As projects continue to ramp, and near-term awards are finalized, we would expect to see improvement across revenue, margins, and backlog as we progress through 2026. Now I will turn it over to Ken to discuss our financial results. Ken Dodgen: Thanks, Koti, and good morning, everyone. Revenue for the first quarter was $1.6 billion, a decrease of $88.2 million or 5.4% from the prior year. This was primarily driven by lower revenue in the Energy segment partially offset by solid growth in the Utility segment. The Energy segment was down $152.9 million or 13.8% from the prior year, primarily driven by the timing of renewables projects including slower-than-anticipated start of new projects, partially offset by growth in pipeline revenue. The Utility segment was up nearly $70 million or 12.3%, supported by continued growth in our power delivery and gas operations compared to the prior year. Gross profit for the first quarter was $134.7 million, down $36 million or 21.1% from the prior year due to lower revenue and margins in the Energy segment partially offset by higher revenue and margins in the Utility segment. Gross margins were 8.6% for the quarter compared to 10.4% in the prior year. Turning to the segment results, in the Utility segment, gross profit was $62 million, up $10.4 million compared to the prior year. This improvement was driven by higher revenue in power delivery, supported by increased transmission and substation activity, as well as new service program awards for gas utilities. Gross margins in utilities increased to 9.8% from 9.2% in the prior year. Margin expansion was driven by the revenue growth in both power delivery and gas operations, along with improved gross profit across all three business lines within the segment. We expect to see margins increase in Q2 and Q3 driven by normal seasonality and trend towards the midpoint of our target 10% to 12% range for the full year. In the Energy segment, gross profit was $72.7 million for the quarter, a $46.4 million decrease from the prior year. This decline was primarily driven by lower gross profit in our renewables business stemming from the previously discussed cost overruns and delays on certain projects and was partially offset by improved performance in our industrial and pipeline services businesses. As a result, gross margin for the segment was 7.6% compared to 10.7% in the prior year. We anticipate Energy margins to begin improving in the second quarter supported by new project starts in natural gas and renewables as well as incremental contributions from the Paynecrest acquisition. For the full year, we expect Energy segment gross margins to be in the high-9% to low-10% range. Turning to SG&A, first-quarter expenses were $105.8 million, an increase of $6.3 million compared to the prior year. The increase was driven by higher personnel costs, including increased stock compensation expense. As a percentage of revenue, SG&A was 6.8% compared to 6% in the prior year, largely reflecting the decrease in revenue this quarter. For the full year, we continue to expect SG&A to be in the mid- to high-5% range. Net interest expense for the quarter was $4.6 million, a decrease of $3.2 million from the prior year driven by lower debt balances. For the full year, we now expect net interest expense to be $35 million to $38 million compared to our prior guidance of $23 million to $26 million, reflecting the approximately $400 million increase in the term loan to fund the Paynecrest acquisition. Our effective tax rate was 12.7% for the quarter due to a one-time tax benefit on equity compensation recognized in the quarter. Our second quarter tax rate is expected to be approximately 29% with a full-year effective tax rate around 28% to 29%. Moving on to cash flow for Q1, cash used in operations was $122.6 million, representing a year-over-year decline of $188.8 million. The decrease was primarily driven by a reduction in accounts payable as well as lower operating income during the quarter. Looking at the balance sheet, we maintained strong liquidity of $676.5 million at the end of the quarter. In conjunction with the close of the Paynecrest acquisition, we increased our revolver to $750 million and we expect our net debt to EBITDA ratio to remain just under 1.5x. This positions us with a strong and flexible balance sheet, providing capacity to continue investing organically to support growth while also maintaining the flexibility to pursue strategic M&A opportunities that meet our financial and operational objectives. With respect to backlog, we ended the quarter with $11.6 billion in total backlog compared to $11.9 billion at year-end 2025. The Energy segment backlog decreased $780 million primarily due to the timing of new natural gas generation, pipeline, and solar awards, which we expected to be softer in Q1 after a strong Q4. As Koti mentioned, we are confident we will see meaningful Energy segment bookings as natural gas generation and solar projects progress from limited notice to proceed to final contract awards this year. Historically, our conversion rate from LNTP to FNTP on these types of projects has been very high, even though the exact timing of contract execution can vary. Based on our current expectations for new award signings in the Energy segment, we anticipate our segment book-to-bill to exceed 1x for the full year 2026, with the majority of those bookings occurring in the second half of the year. Utilities backlog increased by $476 million year-over-year, driven by continued growth in MSA work. We are seeing rising customer demand, particularly in power delivery, as utilities accelerate capital programs focused on grid reliability and capacity expansion, driving higher volumes and supporting backlog growth. Closing with guidance, we are updating our full-year outlook to reflect the lower revenue and margin impact discussed earlier and the inclusion of the Paynecrest acquisition. For the full year, we expect earnings per fully diluted share to be between $4.05 and $4.25 and our adjusted EPS to be between $4.80 and $5.00. Our adjusted EBITDA guidance is $480 million to $500 million for 2026. Our guidance does not include the potential benefits from storm restoration work, which is typically accretive to margins, nor upside to our assumptions for Paynecrest revenue and adjusted EBITDA. We expect to see higher revenue and improving margins beginning in Q2, with continued improvement in the back half of the year as we reach substantial completion of the impacted renewables projects. While our first quarter results were below our expectations, we are encouraged by the strong demand environment across our end markets and by our ability to reestablish revenue growth and margin expansion in the quarters ahead. With that, I will turn it back over to Koti. Koti Vadlamudi: Thanks, Ken. Prior to opening the call for questions, I want to recap the key takeaways from the quarter. First, I want to reiterate that we believe we have taken the necessary steps to improve performance going forward in solar with enhanced oversight in project planning and execution. We have also refined our geographic expansion approach to avoid locations that could present similar execution risks. We have not executed any new contracts in these geographies since 2024 and are confident in the leadership and talent additions we have made on the front end of projects, both within our existing backlog and work we expect to book in 2026. Second, we are seeing a number of positive trends in the portfolio that we believe position us well to drive higher revenue and margins over time, including within our solar, battery storage, and EVOS businesses. Our Utility segment continues to perform at a very high level, and the tailwinds, particularly in power delivery, appear to be strengthening. In addition, we are experiencing the most favorable conditions for natural gas generation in more than a decade, along with an improving market for pipeline services, both of which we expect to be accretive to company revenue and margins. Finally, we expanded our electrical service platform through the acquisition of Paynecrest, which was well aligned with both our strategic and financial acquisition objectives. The transaction adds accretive revenue and margin growth and exceeds our return thresholds. As Ken noted, we continue to maintain a strong balance sheet, providing significant flexibility and optionality in our capital allocation strategy, including the ability to pursue additional acquisitions that meet our disciplined criteria. Overall, I am confident in our team's ability to remain nimble and capitalize on favorable end market conditions, effectively navigate near-term challenges, and consistently deliver safe, high-quality service to our customers while generating long-term shareholder value. We will now open the call for questions. Operator: At this time, I would like to remind everyone, in order to ask a question, simply press star then 1. Our first question is from the line of Lee Jagoda with CJS Securities. Please go ahead. Lee Jagoda: [inaudible]. Ken Dodgen: Yeah, Lee. The $110 million, it is kind of in three buckets if you think about it. We talked about the revenue pushout and the lower revenue in renewables. That is about $400 million for the year, and so at kind of our normal gross margins, that is about $45 million, give or take. Then the cost overruns on the jobs in Q1 are about $35 million to $40 million of it. And then there is about another $25 million or so that will just be lower margins as we finish out the jobs over the course of Q2, predominantly Q2 and Q3. There is one job that will linger into Q4, but that is about it. So those are really the three buckets. Koti Vadlamudi: And then I think, as you can imagine, these jobs will still have a margin effect on our Q2 and then less so in Q3. So Q2 is going to be kind of a recovery quarter for us with respect to renewables. Q3 will be kind of gravitating back toward normal and ideally by Q4, we are back in that 10% to 12% range for renewables. On the renewable revenue forecast, the pull forward of that one project that we talked about all last year—one project that was supposed to be in 2026—got pulled forward to 2025. And then the balance of it, frankly, is mostly just continued ripple from all the disruption last year. As we talked with our clients last year, we were under the impression from them that it would mostly be resolved by 2025. But unfortunately, clarification on what is qualified for the tax credits, the need to reengineer projects a second and a third time in light of safe harboring of certain panels, just involved our clients taking more time and having to delay the start of certain projects. The good news is the funnel is as strong as ever, and we have a large number of projects across renewables and energy where we have been verbally awarded and should sign in the next two to three quarters. We have verbal awards of $1.1 billion in the second half of this year, and another $2.8 billion that will sign. So the end market in renewables is still very strong for us, and we have optimism for growth going forward. Operator: Our next question is from the line of Adam Robert Thalhimer with Thompson Davis. Please go ahead. Adam Robert Thalhimer: [inaudible]. Koti Vadlamudi: On power delivery, we have articulated in our growth strategy that we felt strong secular tailwinds, specifically around transmission and substation. We are seeing some anchor clients—customers that do capital planning on a longer cycle. What you are seeing in the MSA backlog improvement is a reflection of these customers’ CapEx, and then I will let Ken talk to the margins. Ken Dodgen: The growth cadence is still similar to what we have seen in the past. We had a good Q1 that is reflecting that growth cadence as well as some good weather in the quarter. And the margins should be in line with what we have expected and, with some storm work, we could even end up in the upper half of our 10% to 12% range for the year. Koti Vadlamudi: On Paynecrest and mix, first, we are excited about welcoming Paynecrest to the Primoris Services Corporation family. Often, the talking points are about the data center exposure, which we are certainly excited about—how they can bring their expertise inside the facility is a great opportunity for us to expand. But they also have industrial facility exposure, and their market and skill sets are fungible, so we are really excited about their opportunity to grow. With a particular hyperscale client that they have cultivated over the last few years, there are additional opportunities and line of sight to some major program spends that are well within their wheelhouse and geography, so we are excited about the opportunity for growth there. Operator: Our next question is from the line of Sean Milligan with Needham & Company. Please go ahead. Sean Milligan: [inaudible]. Koti Vadlamudi: We still have a deep conviction on the end market with gas power generation. Last quarter, we articulated that the overall funnel is actually up, and we are talking about verbal awards because we see near-term visibility to adding to backlog. Specifically in this end market, we have nearly $800 million in verbal awards that are imminent to be added to backlog. In 2026, that funnel is an additional $3 billion that we are pursuing. If I do not restrict that to 2026 and take it further out, that funnel is over $7 billion, up from $6 billion that we talked about last quarter. So it is a really strong end market for us and we are excited about the opportunity to grow. We did see some project starts slip to the right. They have not been canceled—just delays due to clients doing more due diligence on cost and addressing investment decisions. On renewables revenue, with the pull-forwards last year, we had expected this year to be sort of flattish given that move to the left of those project accelerations. What we are seeing now is some project delays slipped to the right. We had some projects that we thought were going to be awarded that straddled the quarter. We expected going into the year to be flat and now we see it is going to be a little bit down based on portfolio shifting to the right. Overall, that market remains very strong; the funnel we see in 2026 and beyond right now is over $15 billion. On confidence in the guide, we feel confident. We have risk-assessed the portfolio and identified the quantum for the projects that are in this distressed state. The projects last quarter where we identified subsurface conditions are now behind us; we achieved mechanical completion and are doing punch list items. On the ones going forward, many of them reach substantial completion in the next few weeks, with the balance one project finishing at the end of this calendar year. We feel confident we have done appropriate risk assessment of the portfolio and we are excited about winning further backlog. We have also made changes in preconstruction planning, project management, project controls, and being more discriminating around geographies where we pursue work, all of which give us confidence in achieving our forecast targets. Operator: Your next question is from the line of Julien Dumoulin-Smith with Jefferies. Please go ahead. Julien Dumoulin-Smith: [inaudible]. Koti Vadlamudi: On the $1.1 billion of verbal awards and $2.8 billion that we said we will sign, some projects have slipped to the right, but what gives us confidence is that we are still working closely with our customers, often helping them with cost estimates and preconstruction planning, so we have good visibility to the near-term portfolio. It sets us up very well for 2026 and into 2027. We are also seeing an emerging growth trend in the BESS portfolio within renewables. Our BESS funnel, measured in megawatt-hours, has more than quadrupled year over year. We see that business with an aptitude to more than double going forward, which gives us renewed confidence despite the slip to the right. On the project issues, these were all projects bid in 2024. The common themes were underappreciation of risk, including geographies where we were less familiar with labor markets and permitting, such as soil disturbance and stormwater runoff protection. Knowing what we know now, we will use better discrimination going forward. The additions in project leadership across preconstruction, project management, and project controls will enhance risk identification and mitigation. Regarding a multiyear view for gas generation, we are on a cadence of a three-year strategy refresh now and look forward to announcing an investor day where we will lay out targets for 2027 through 2029. The gas power generation portfolio is an exciting, dynamic part of our business. Some programs we are discussing with customers are quite large. I have a CEO top-to-top next week with a customer looking at a combined-cycle plant—potentially multibillion-dollar investments—with clients seeking turnkey delivery to de-risk execution complexity. We will provide more color at investor day. Operator: Your next question is from the line of Sangita Jain with KeyBanc Capital Markets. Please go ahead. Sangita Jain: [inaudible]. Koti Vadlamudi: On the challenged geographies, we stopped taking new backlog in those areas in 2024. The total renewables funnel of roughly $15 billion gives us confidence we do not need to chase revenue in areas where we see further risk. We have strengthened our risk posture and do not need to bend it for growth’s sake. We do not believe this will impact our ability to hold and grow going forward. Ken Dodgen: On margin guidance, the impact to renewables margins will be meaningful within renewables, but the overall Energy segment impact is moderated as renewables becomes a smaller percentage of Energy and the rest of Energy grows. I expect the Energy segment as a whole in Q2 to be in the upper single digits as we continue to work this off. In terms of confidence, as Koti mentioned, we have risked these jobs, evaluated them as much as possible, and baked in as much incremental cost as we believe we are going to incur. In a couple of cases, we have completed the jobs, and the rest will be completed for the most part within the next two to three months. Operator: Your next question is from the line of Steven Fisher with UBS. Please go ahead. Steven Fisher: [inaudible]. Koti Vadlamudi: On how many projects and geographies are involved, it is a small minority of the total renewables portfolio. We will be judicious in our geographic selection given the strength of the overall market. If a core client brings us to a new area, our learnings will inform the go/no-go decision and execution approach. Most of the projects that had margin compression are nearing substantial completion in the next few weeks, with one completing in the fourth quarter of this calendar year. We have risk-assessed the overall portfolio and feel confident we have addressed the issues on these projects that were bid in 2024. Regarding risk versus reward in Utilities versus Energy, in power delivery we have anchor clients with long-term relationships. We have seats at the table with them in resource planning and execution model development. We also have organic opportunities with new customers who are looking to Primoris Services Corporation to ensure appropriate capacity. Given demand, we can be very careful and judicious about our risk posture and do not need to grow beyond our skis. Training and development of people is a key area for us, and we share lessons learned across segments so growth areas like renewables inform practices in utilities and gas generation. Operator: Next question is from the line of Philip Shen with ROTH Capital. Please go ahead. Philip Shen: [inaudible]. Koti Vadlamudi: Q1 was expected to be a softer booking quarter for renewables. The project delays are largely due to two buckets: certainty around the 48E tax credits, as customers assess how to maximize credits; and maturing engineering design for more predictability in cost and schedule. We think the added definition is ultimately a good thing. On 48E specifically, yes, that relates to the broader tax equity and implementation clarity dynamic. On the challenged projects and customer relationships, project outcomes for customers are very good—they are getting first-rate facilities and we have met our scope obligations. In some cases, we did have entitlement, but even with that, we did not meet our financial targets despite contingencies. Client relationships remain very positive. Most of our work is repeat business, and our quality and execution credibility remain strong. Operator: Your next question is from the line of Jerry Revich with Wells Fargo. Please go ahead. Jerry Revich: [inaudible]. Koti Vadlamudi: On the gas power business beyond this year, we have verbal awards of nearly $800 million that we feel confident will add to backlog. If I unrestrict the funnel in terms of years, we have line of sight to $7.1 billion of identified opportunities beyond 2026. Regarding lead times, these investment decisions are large, so we often receive LNTPs to advance equipment orders and site work. Prior to full investment decisions, clients may augment our scope, and when the program is mature, we receive FNTP for the full amount. We can begin realizing revenue shortly after verbal and LNTP stages as clients mobilize resources quickly. On renewables projects with negative adjustments, there are six projects in total with margin compression. Three will complete in the next few weeks, one in the next quarter, and one in Q4. We feel good about our risk assessment and target dates. Weather-related productivity is a remaining variable, but we believe we have appropriately vested the effort required in estimates to complete. We are not sharing prior-year revenue contribution for these specific projects at this time. Operator: Next question is from the line of Steven Fisher with JPMorgan. Please go ahead. Steven Fisher: [inaudible]. Koti Vadlamudi: We are not going to call out specific geographies. Predominantly, issues were around weather impacts. In some cases, we mobilized a workforce and then had to demobilize and remobilize. Many client contracts have schedule milestone conditions. When we remobilize but productivity is impacted by weather, we add field labor and sometimes work out of sequence, which increases hours and dollars—one thing piles upon another. In some jurisdictions, environmental requirements for ground disturbance, exacerbated by heavy rain, also impacted productivity and costs. We will record these as lessons learned and be more disciplined in growing from areas where we are more familiar with labor and environment. On contract structures, it is more about disciplined project and geography selection and maintaining a disciplined risk posture. We walked away from a recent project where we could not come to terms on risk, despite being the preferred supplier. The market allows us to be disciplined based on our solution offering. Operator: Your next question is from the line of Maheep Mandloi with Mizuho. Please go ahead. Maheep Mandloi: [inaudible]. Koti Vadlamudi: Most of these are projects already awarded from 2024, so we are not seeing margin impacts contemplated for projects booked post-2024 delivering in 2027–2028. Operator: Your next question is from the line of Manish Somaiya with Cantor Fitzgerald. Please go ahead. Manish Somaiya: [inaudible]. Koti Vadlamudi: On Utilities margins moving from 9.8% toward the 10% to 12% range, power delivery provides optimism. We are executing well with current customers and seeing opportunities to be more efficient. We also have new opportunities with new customers, and based on market demand, pricing and mix allow us to deliver higher-quality margins. MSA backlog increased nicely quarter over quarter in Utilities, providing tailwinds enhanced by our operational improvements. Ken Dodgen: Seasonality helps—Q1 and Q4 are shoulder quarters. Getting out of the gate earlier in Q1 is helpful to the upside. Our percentage of project work has started to gain traction; if that continues, it could help margins as well. Lastly, storm work during the year can provide additional upside. On operating cash flow, Q1 was heavily impacted by timing of payables and the timing of our check run—about a $100 million swing. That is mostly noise and will likely reverse some in Q2 or Q3 depending on month-end timing versus AP runs. Upfront mobilization payments also impacted BIE/contract liabilities sequentially given the cadence of new contract signings. As the verbals Koti referenced turn into signings and mobilization over the balance of the year, that will drive cash. We are holding firm on our expectation for operating and free cash flow for the year; Q1 impacts were mostly timing. Koti Vadlamudi: On capital allocation, our strategy is unchanged. We have $150 million of remaining share repurchase authorization. We are investing organically to capitalize on secular tailwinds, remaining very disciplined on leverage, and we will pursue strategic inorganic opportunities that can be catalysts for accelerated growth, evaluating them opportunistically based on market dynamics. Operator: Next question is from the line of Adam Bubes with Goldman Sachs. Please go ahead. Adam Bubes: [inaudible]. Koti Vadlamudi: In our existing portfolio, data center-related work tied to enabling infrastructure has been very solid. We booked over $400 million in Q1 related to that work compared to something over $800 million to $850 million for all of last year. Paynecrest gets us inside the facility, and roughly 40% of its portfolio is directed toward hyperscaler data center opportunities. At that percentage, that is about $112 million of the portfolio. We are building them into our plan, and recent hyperscaler CapEx announcements give us a lot of optimism as Paynecrest is a key supplier for one hyperscaler customer, creating opportunity to overdeliver versus our valuation case. On risk profile for combined-cycle and simple-cycle gas generation versus core industrial, execution fundamentals are similar. We conduct rigorous reviews based on scope and design maturity. Combined-cycle is more complex and longer in schedule; we are seeing more simple-cycle opportunities driven by timeline-to-market. Our resume includes both. We typically do not put the turbines on our paper, which drives our contract value down, but we have strong OEM relationships and frequently pair with them as part of the EPC offering to improve predictability of orders converting. Operator: And at this time, I would like to turn the call back over to Koti for closing remarks. Koti Vadlamudi: Thank you. First, I would like to acknowledge and thank our employees at Primoris Services Corporation who enable us to deliver critically needed infrastructure solutions for our clients. Despite the challenges we had in renewables, I want to emphasize the strong fundamentals across our portfolio. We have intentionally shaped our business toward secular tailwinds in our end markets, setting us up for a strong second half and, more importantly, for 2027 and beyond. Thank you for joining us today, and we look forward to updating you as we progress. Operator: Ladies and gentlemen, that concludes today’s call. Thank you for joining. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the HelloFresh SE Q1 2026 Results. [Operator Instructions]. Let me now turn the floor over to your host, Dominik Richter, CEO of HelloFresh. Dominik Richter: Good morning, ladies and gentlemen. Thank you for joining our Q1 2026 earnings call. Before my colleague, Fabien, takes you through our detailed financials, I want to spend a few minutes addressing our current standing, the progress we've achieved over the past 12 months and what this first quarter reveals about our trajectory for the remainder of the year. To be direct, we are in the midst of a deliberate transformation of the business. This process involves clear trade-offs, which are visible in our reported results today, but constitute a conscious choice to allow the business to be set up for long-term success. Over the past year, we've fundamentally overhauled our customer acquisition strategy, marketing spend and product proposition. We've made the conscious choice to walk away from unprofitable volume, tightened our marketing ROI thresholds and redirected capital from acquisition into product quality while restructuring our fixed cost base. None of this was accidental. It was a sequenced effort to fix the foundation even if it comes with a near-term trade-off to reported growth, but will allow for better revenue quality in the long run. The central question is whether this logic is working? I believe the evidence is clear that it is, and we've seen success in those metrics that are most associated with the long-term health of the business. First, let's take a look at our Meal Kits Products segment. One year ago, meal-kit revenue was declining at roughly 14.5% in constant currency in Q1. In Q1 2026, that decline narrowed to 8.5%, marking our fifth consecutive quarter of sequential improvement. The trajectory is moving clearly in the right direction. On efficiency, we have delivered structural improvements. Fulfillment costs as a percentage of revenue improved by 0.8 percentage points year-over-year. We reduced absolute marketing spend by EUR 62 million to about 21.8% of revenue. That's not a onetime squeeze, but a permanent shift in our operating cost discipline. Regarding the product, we've executed the most significant investment cycle in our history. Under the ReFresh, we have substantially broadened menu choice, doubling the recipes we offer in markets like the U.S. or the Nordics, while upgrading ingredient quality and expanding protein variety across all geographies. The sum of these investments leads to a materially better product value proposition, which will only compound from here as more and more initiatives come to life. That's the backbone of our strategy to drive higher customer lifetime value. Crucially, this means the quality of our revenue has improved. Our tenured customers are ordering more frequently and they're ordering higher baskets. Group level average order value rose EUR 4.2 in constant currency with meal kits specifically up 4.5%. Revenue retention and thus customer lifetime values of our tenured cohorts have been improving and trend at the best levels ever seen in the business. These are not temporary effects but rather the response of a healthy customer base to a fundamentally better product and a stronger value proposition. The sum total of these changes have to date most positively affected our tenured customers, which was clearly our primary focus area. However, it's not yet been enough to fully offset the impact of front-loaded product investments, inflation and the volume-led operational deleveraging. We expect the trend improvement for meal kits to continue going forward and also to see more proof of a return to eventual revenue growth by H2 when we will have the benefits of our product investments and the outstanding parts of the efficiency program materialize more forcefully in our P&L. I also want to address ready-to-eat and specifically factor U.S. directly. Again, our primary goal for 2026 is to return the RTE product segment to full year profitability on the basis of product excellence and strong operations. We are on a good trajectory to achieve this. The operational setbacks we faced in the U.S. last year, which impacted customer experience and retention, are now fully resolved. The underlying indicators have turned strongly. NPS is now trending at the highest level since 2023. Our tenured active customers grew double digits in Q1. A direct consequence of better product excitement among them and validation of our strategy to add more variety into the menus. RTE adjusted EBITDA losses also narrowed by about EUR 18 million in Q1. That's a 40% improvement year-over-year. This represents a very encouraging trend line in our P&L and is the result of improving both the unit economics and a more disciplined marketing investment approach. The remaining challenge now is rebuilding the active customer base, which reduced in the last 9 months due to those earlier mentioned operational issues and our subsequent response to not invest aggressively behind a product and supply chain that needed fixing. While conversions are improving, switching the acquisition engine back on does not happen overnight. It rather requires multiple touch points with consumers. New customer volume in Q1 was not yet enough to fully offset the gap in active customers accumulated over the past 12 months, which has come as a result of the aforementioned weaker retention and reduced new customer volume. However, we are now restarting the growth engine on top of operational confidence and strong ROI discipline. Outside the U.S., our RTE businesses in Australia and Canada continued to post healthy double-digit growth. Furthermore, our new production facility in Germany has opened and will soon be fully operational, providing the dedicated capacity needed to scale factor also in Europe in the second half of the year. In addition, we are excited about our product and menu expansion road maps, which should help to drive positive outcomes with regard to retention and order frequency of our tenured RTE customer base. We expect the combination of all of these improvements to flow through our P&L more visibly in the second half of the year. With that, let me come to the highlights of Q1. Revenue for the quarter was approximately EUR 1.7 billion, a 7.7% decline in constant currency, which was in line with our expectations. Meal kit revenue trends improved for a fifth consecutive quarter in a row, while RTE revenue trend showed a stable trend versus what we saw in Q4. Adjusted EBITDA came in at about EUR 24 million. To put this in context, severe winter storms in the U.S. and Europe, including a once in 75 years event in the U.S., disrupted our logistics and impacted adjusted EBITDA by approximately EUR 25 million. This is a one-off event that does not change the underlying trajectory of the operating model. Excluding this weather impact, our underlying adjusted EBITDA run rate was closer to EUR 49 million. This gives a much more accurate read of where the business structurally sits today. Fabien will bridge these numbers in more detail. Contribution margin for Q1 sat at 25.6%. We saw strong operational improvements on the fulfillment side, which were offset by our investments into better product value for consumers. That's a deliberate strategy, which will help us to divest from marketing and improve customer retention and order frequency in future quarters. Critically, we generated EUR 49 million in positive free cash flow, our fourth consecutive quarter of positive free cash flow despite the EUR 25 million impact from the adverse weather events. Finally, we're reconfirming our full year 2026 guidance, constant currency revenue decline of 3% to 6% and an adjusted EBITDA in the range of EUR 375 million to EUR 425 million. The delivery will be second half weighted. We front-loaded the ReFresh investments because we saw clear evidence that they were working. These costs hit the P&L now by the revenue benefits compound as retention and order frequency improve. In H2, the investment drag will moderate and structural savings from our efficiency program will flow through more fully. There are also variables we do not fully control such as consumer sentiment in North America and inflationary pressures. However, the leading indicators we track about the health of the business and our customer base, such as the customer order patterns I referenced and cohort retention, all point in the right direction. 15 years in, our mission to change the way people eat is more relevant than ever. By focusing on product quality, customer loyalty and cost discipline, we're building a business that creates lasting value. We're not only optimizing for the next quarter. We're building a company that earns its place on the dinner table every single week. Thank you. I will hand over to Fabien now. Fabien J. Simon: Thank you, Dominik, and good morning, everyone. Let me take you through the financial details of the quarter before we open for questions. You would have noticed that we have only a handful of slides this quarter, but I will make sure that I bring the necessary level of detail to understand how the trends that Dominik just described are showing up in our financials. So starting with revenue. The group net revenue was EUR 1.68 billion in Q1, a 7.7% decrease in constant currency. If you recall, in the previous quarter, Q4 2025, that figure was 9% negative in constant currency. But definitely, this represents another step in the right direction as we anticipated. As of next quarter, we will start reporting a full P&L split by product category. So allow me to already discuss with you the drivers for each of our key product categories now. Meal kits delivered close to EUR 1.2 billion in revenue, 8.5% lower than last year in constant currency. As Dominik noted, this is the fifth consecutive quarter of sequential improvement in constant currency rates. The makeup of this number is defined by the trajectory of orders and of AOV. Order growth in meal kits, while still negative, also improved sequentially for the fifth consecutive quarter. What we are seeing today is our tenured customer base ordering more on a per customer basis. On the other side, the cumulative impact of the marketing reduction over the past 18 months means that orders from recent customers are still down comparatively and more than offsetting the resilience in our tenure base. Average order value for meal kit was up 4.5% in constant currency, supported by fewer discounts and some marginal price increase and some positive mix. Ready-to-eat delivered EUR 466 million, which is lower than last year in constant currency by 6.9%. This is made up of average order value up by 1.4% in constant currency and lower order by about 8%. So let's pause for a second to understand the underlying drivers of order decline, which I believe is not necessarily fully understood by the market. First and most importantly, the cumulative impact of the preceding 9 months of operational issues precluded us from acquiring as many new customers as we would have liked while we were fixing those issues. Second, some underperformance in conversion in Q1 this year as we start to ramp up quality conversion, and we optimize our channel, our product and our marketing messages. Nevertheless, the tenured customer for ready-to-eat in Q1 displayed double-digit revenue growth, which is a great trajectory. But basically, because the category is in early stage, the conversions still represent an outside part of the revenue dynamics. So the takeaway on revenue is that the direction of travel on Meal Kits is improving as anticipated. On ready-to-eat, the slope of improvement is not yet visible in the revenue because the customer base entering this year was smaller than a year ago. The improvement will materialize progressively through the second half of the year as we rebuild the customer base on top of improving profitability. For contribution margin now. The contribution margin, excluding impairment and share-based compensation was 25.6%, down 1.4 percentage points year-on-year. I want to be specific about what drove that decline because the composition matters to understand how our strategy is being implemented. The first factor is the severe winter storms. EUR 25 million of nonrecurring disruptions that hit primarily in North America. I mean, I don't need to remind anyone, certainly not our U.S. listeners that the winter storm front in the U.S. was widely reported to be the heaviest winter storm in 75 years. This event affected ingredient delivery, wastage, increased credit and refund cost and disrupted last mile delivery operation. This is a weather event that has no bearing on the underlying structural margin trajectory. The second factor is deliberate. We have accelerated product investment ahead of the revenue curve, investment in higher quality protein, expanded meal choice significantly or onboarding of new ingredients have been rolled out across countries. Just to give an example, our customer in the Nordics can have 100 different recipes in their weekly menu, roughly doubling the size of the menu in 6 months. But these are recipes that now, for the most part, have a minimum of 200 grams of vegetables and fruits and better quality and better variety in their protein source. These investments increased gross cost in the near term. The returns come through higher retention, better frequency of orders and larger basket, i.e. better customer lifetime in subsequent period, especially as some of this investment compound and turn HelloFresh meals into being perceived as a higher value options. In this particular case of Nordics, I explained before, we registered a very encouraging positive total revenue growth in Q1 already. Overall, we still expect the impact of the product investment cycle in 2026 to take up approximately 150 basis points of gross margin, net of the impact of price increases. On the positive side, our efficiency program continued to deliver. Fulfillment costs declined 0.8 percentage points of the share of revenue when we exclude the impact of impairment and share-based compensation. This is a direct output of the network optimization and productivity improvements we have been embedded into the operating model. These savings are structural in nature. Marketing spend came in at 21.8% of revenue in Q1, down 30 basis points year-on-year with absolute spend reduced by EUR 62 million with only an 8% reduction in relative term in constant currency. So the marketing efficiency model we established in mid-2024 with tighter ROI thresholds, the elimination of unprofitable acquisition channels and a more disciplined and product-led approach to acquiring high-quality customers is now the baseline and it is embedded in how we operate. We do not expect to revert to prior spending levels, but we also do not expect to reduce marketing in 2026 in the same way we did in 2025. And this dynamic is particularly clear when you look at the meal kit product category, where absolute spend was down only slightly year-on-year and as roughly flat as a percentage of revenue. What is critical now from a marketing perspective is that the value of the product investment land well. This is not an overnight type of occurrence as word of mouth, public reviews, top of funnel and performance marketing, all need to work in unison to crystallize those advantages and become top of mind for new consumers. On ready-to-eat, spend was down. And it was down substantially year-on-year in both absolute and relative terms and this reflects 2 things: First, we are lapping an elevated Q1 2025 in terms of investment when we were running significant brand campaigns for Factor. Second, we have been deliberately conservative on acquisition spend while rebuilding the operational foundation. Now that the operational issues are behind and we were able to also invest in the product propositions, we will lean back into acquisitions progressively, but we will do so from a position of disciplined ROI, not volume at any cost. Remember, our primary goal for 2026 is to drive Ready-To-Eat back to sustainable profitability and establish the right foundation for long-term profitable growth. Group EBITDA was EUR 23.6 million absorbing, as I mentioned, EUR 25 million of weather-related disruption. [indiscernible] that, nonrecurring item, the underlying group adjusted EBITDA run rate was EUR 49 million. By product category, Meal Kit adjusted EBITDA was EUR 105 million, representing a margin of 9%. This reflects the weather impact, which fell disproportionately on North America and the front-loaded product investment cost. The weather adjusted Meal Kit adjusted EBITDA margin would be closer to 10.3%, still below last year 11.4%, primarily due to the deliberate product investment pull forward and the impact of volume-led operational deleverage. And that, as Dominik said, that is a trade we have made. Q1 is typically the quarter with the lowest margin. So we are confident we can finish the year with double-digit adjusted EBITDA margin for this product category. On Ready-To-Eat, the adjusted EBITDA loss narrowed to EUR 27.6 million from EUR 45.9 million in Q1 2025. I mean this is a EUR 18 million improvement or a 40% reduction of the loss. This is, in my view, the most compelling trend in the P&L right now. And the improvement has come from marketing efficiency, operational cost recovery and the resilient economics on the active customer base. And obviously, we want to maintain this momentum in the subsequent quarters. All-in costs of EUR 48 million are up modestly year-on-year, reflecting continued investment in IT and tech inflations, while personnel expenses has gone down. Free cash flow for Q1 was EUR 49 million. It reduced by EUR 18.8 million year-on-year, which is entirely explained by 2 items: Lower adjusted EBITDA, primarily weather-driven; and higher CapEx. Q1 CapEx was EUR 44 million, up from EUR 34 million a year ago. The majority of that increase reflects the Factor Europe facility investment in Germany. I mean this is a growth CapEx with a clearly identified strategic return. And going forward, we expect CapEx to normalize within our full year guidance range as the year progresses. The free cash flow this quarter was also supported by the positive inflow of operating working capital which was approximately EUR 30 million better than last year, of which 1/3 is structural and 2/3 is, phasing and therefore will be unwinds for you. On the outlook, I want to reconfirm what we had previously communicated for the group for 2026, which is constant currency revenue growth of minus 3% to minus 6%. Adjusted EBITDA in constant currency of EUR 375 million to EUR 425 million. I also acknowledge that if you take into consideration the result we are presenting today and the directional guidance I will communicate for Q2, we are looking at a second half weighted delivery, and I will explain that. Q2 still has 2 months to go, obviously. But for now, we expect the top line for the group to remain relatively stable in terms of rate of decline driven by some underperformance in Q1 conversion, which impacted -- the impact of the product investment in top line is also expected to be more tangible in the second half of the year. On the bottom line, we expect Q2 to be between EUR 30 million to EUR 40 million below Q2 2025. This is driven by primarily the fact that investment in product has been accelerated between H2 2025 and H1 2026. With the data we are seeing in terms of how product investments are resonating with existing customers and the learning from the peak period, we are expecting to hit the guidance for 2026. With that, I will open the line for questions. Thank you. Operator: [Operator Instructions] We have the first question coming from Joseph Barnet-Lamb from UBS. Joseph Barnet-Lamb: A couple of questions from me, please. You referenced pricing a few times in the release. I'm interested if you could give us some more color on what's driving the uptick in pricing? Is it just reduced discounting, pricing up as a response to inflation or some form of pivot in underlying approach to pricing? And then maybe a second question, you sort of referenced no improvement in underlying trends year-on-year in Q2. I'm interested as to why that's the case? I mean you referenced that the benefits of investment will kick in more in H2 than in H1. But regardless of investment, if you didn't have investment, comps are getting easier, would you not expect the underlying trend to be improving regardless of the timing and benefits of your investment program? I'm just interested as to why things are not getting better in Q2 versus Q1? Fabien J. Simon: [indiscernible] one and Dominik maybe can answer on pricing, or otherwise, I will. So on Q2. So I understand your question was more what is the fabric of our Q2 year-on-year? What I would say is most of what I've been describing for Q2 is something that we have been already anticipated where we gave the guide -- guidance for the full year. So it's not totally a surprise. What you see year-on-year is, I would say, 3 key components. You have the [indiscernible] as we expected, which we see impact on the P&L. And on the other side, you will see investment in products to increase the value propositions to our customers, which is hitting the P&L as we have been scaling that up from H2 to H1, which, of course, is giving a negative comparison to last year. But we still have the operational leverage, especially on meal kit. And I would say, last year, we were having a very meaningful reduction of marketing to offset that, which we don't want to do this year. And it is a choice we have been looking for supporting long-term growth. As a reminder, total company last year, we have been reducing marketing spend by more than EUR 200 million with an increase in ready-to-eat. So you can imagine the magnitude of the reductions we have had in meal kit, which is not happening this year, which is why you have an uptick of a lower EBITDA. But on a like-for-like basis, it is roughly where we expect it to be, which means that from Q3 already, we are expecting year-on-year improvement on our adjusted EBITDA trajectory. But what's important to notice as well, despite the numbers that we have just been talking about, we are expecting in Q2 on ready-to-eat most likely to be already on a positive trajectory as we continue to improve, and we will keep on a very solid double-digit adjusted EBITDA margin. Dominik Richter: Other question was on pricing. So the way I would be -- so on pricing, I wouldn't say there's a massive shift in strategy. There's 2 things that I would like to call out. Number one, yes, we have reduced some of the incentives. So that is then coming through in higher net AOVs. And secondly, we've taken sort of like some pricing action, but mostly in line with inflation, sometimes a little bit over inflation, but also giving more value to customers. So you see the net impact in our COGS line, but the gross impact of investments has actually been higher than what you in the COGS line because we've also got some pricing changes, but not across all geographies, et cetera. So that's not the hugest impact of what you see. The incentives definitely play a part here. Joseph Barnet-Lamb: And if I can have a quick follow-up, Fabien, on your point about Q2. You were breaking up a little bit, but it sounded to me like you were basically saying that it's due to sort of like a progressive reduction in marketing, leading to a compounding effect on your cohorts effectively. But firstly, is that what you were saying? And then secondarily, given the product investment, I would imagine that your lifetime value of your customers would be going up. And as such, I'm not entirely sure why marketing continues to reduce. Is it because you're seeing CACs trending up and as such, you're progressively reducing marketing further to compensate for that to get your CAC versus LTV lining up? Or is there another driver behind that, that I'm not quite understanding. Fabien J. Simon: I was maybe -- sorry, maybe I apologize if I was not clear on breaking up on my earlier comment. I was referring to still the dynamic of operational deleverage we still have on meal kit because we are still on negative order year-on-year. But last year, some of these declines were offset by a very meaningful reduction of our marketing spend. I was reminding how much we reduced overall marketing spend last year by about EUR 200 million and even more than that if we take meal kit alone, which do not have this year because we want to ensure we can support long-term conversion momentum. And on product investment, we -- it is clear that today, what we see is already a positive trajectory on tenured customers, which are ordering more than before, which is a very good news. What we don't see yet is the impact on ability to drive new conversions because we know this will take time. And that's why we believe that we probably need a still few quarters to be able to show that in the P&L and it's what we have anticipated from Q3 onward. Operator: And the next question comes from Nizla Naizer from Deutsche Bank. Fathima-Nizla Naizer: Great. I have 2 questions as well, please. First, just to clarify Dominik, did you mention in your comments that you would expect a return to overall revenue growth for meal kits in H2 based on the trends you all are seeing? Or just would that still be more for 2027 type of outlook? Any color on that return to growth trajectory based on the trends you all are seeing, whether it was for meal kit or for the group in H2 would be great? And second, one of the questions we're getting is on the health of the consumer, particularly in the U.S. with the worries around energy prices and cost of living going up. So just wanted to understand how you all are seeing an impact on that, whether you're offsetting it by other means? And if all of this is now baked into the outlook that you reconfirmed today, some color on that would be great. Dominik Richter: Sure, Nizla. So let me be clear. What I said is that in H2, you should see evidence more clearly for an eventual return to growth, also in line with Fabien's answer just now. So given sort of like the massive year-over-year reduction in marketing in Q1, some of that carries over into Q2, so where you don't see sort of like the revenue growth inflecting in Q2, but you should see more evidence for an eventual return to growth in the second half of the year. That's what I was referencing. On your question with regards to consumer health in U.S., I would say it's definitely not the sort of like best environment that we've been in. There's obviously definitely also on the part of consumers like a lot of fear of inflation coming back and other things. That's also why we want to be very strict in our ROI thresholds that we target with new customers and not overshoot, especially when a lot of the impact of our strategy is basically for consumers to order more over time. We want to make sure that as we switch back on the acquisition engine that we are cautious and do not invest aggressively into a consumer sentiment that is very much weakening when a lot of the return should come from better lifetime retention, better frequency, higher AOVs, et cetera. So I would say we don't see it massively right now, but we definitely see some of the indicators. We see a lot of the research et cetera, coming, and we want to be cautious in that environment. Operator: And the next question Comes from Andrew Ross from Barclays. Andrew Ross: A couple for me, please. So first 1 is to come back on the Q2 guidance where, to be clear, I think you're guiding to revenue declining in constant FX, similar to what it did in Q1. And to be clear, are you saying that meal kits should also decline at a similar cadence in Q2, like we did in Q1? If that is the case, can you just remind us again why has been no sequential improvement in meal kits in Q2? I hear you in terms of having had less marketing last year, maybe that's flowing through in cohorts. But historically, you've always pointed to each quarter about year-on-year trajectory meal kits gets a couple of points better. And you'd always kind of point to that continuing sequentially throughout this year. So why is meal kits not improving in Q2 is my question? And then the follow-up to that is, you said on the Q2 guidance that most of the softer outlook was anticipated when you reported for Q4. What was not anticipated? And can you give us some sense as to what's happening in April? Fabien J. Simon: Andrew, on the outlook -- so you had 2 questions was more around top line, the other one more around the bottom line. I think on the bottom line, I've answered already the question, which is we are expecting, as I've said, a double-digit adjusted EBITDA for meal kit, but lower than last year because of the phasing of product investment and the operational leverage where we don't have a similar level of marketing reductions than last year. I think it's pretty simple. On the top line, indeed, we are expecting a similar rate than what we have seen in Q1. With meal kit, and it's probably similar across the category with meal kits around same level, maybe slightly better because if you strip out the fact that we are going to stop delivering to Italy and Spain in Q2. They were still in our Q1 number, but they will not be in Q2. So if you factor on that we might have another slight improvement, which, of course, we would like because then we'll be able to say 6 consecutive quarters of improvement. But it's not always completely linear by quarter, but it's what we are expecting for Q2, while on ready-to-eat, we know it's going to take a bit more time, as Dominik described, and we think Q3, Q4 will be more defining trajectory for our ready-to-eat segment. Andrew Ross: Okay. That's helpful. And then on the second question in terms of what you had not anticipated in terms of the Q2 outlook when you reported the Q4 results? Dominik Richter: So I think I was answering to Nizla's question before. Obviously, since we've reported that, everything going on in the Middle East sort of like inflation, customer sentiment, those are things that I think at this time, we're not sort of like as clear, I think there's still obviously, a lot of distribution of outcomes over the course of the year. But those are definitely things that let us also take somewhat more conservative stance and making sure that we only invest behind strict ROI discipline as we restart the acquisition engine. Andrew Ross: So you are seeing some softening in trends on the back of Middle East conflict, or it's more in anticipation, but you could see some softening? Dominik Richter: That's not something that we see right now. But in anticipation, also in anticipation, obviously, if sort of like inflationary pressures kick in or not, I think if you have sort of like any more uncertainty, then obviously, it's the prudent approach to take a more conservative stance even though right now in the business, I don't really see it. I do see it as leading indicators from consumer research, et cetera. I don't see it in the data right now. But against that environment, we feel it's prudent to have a strict and disciplined ROI approach. Andrew Ross: Okay, cool. And one more follow-up, I really do apologize. But just on this Q2 outlook for meal kits not being better Q1. I hear you on the impact of shutting down Italy and Spain, but didn't Q1 also have a negative impact from weather? I appreciate those not necessarily the same magnitude, but I still would have expected that Q2 would improve. In this is obviously a very important number for investors who are looking for stabilization in trends in the meal kits, but it's not continuing to improve. I guess, is a big focus. I just want to make sure we're 100% clear on this. Fabien J. Simon: Yes. So let's be clear on meal kits. We are expecting further improvement as the year pass, but of course, the improvement is not always linear, and I don't want to come to too much detail, but sometimes you have a big quarter [indiscernible] where you have not fully on the same month as mostly go. There we are on track with what we were expecting. And that's for me the most important message. Operator: That concludes our Q&A session, and I will hand back to Dominik Richter for some closing words. Dominik Richter: Thank you so much for attending our call. I think to sum up, we feel that the primary objectives that we're focused on making sure that our tenured customers are happy that they're ordering more that we can basically price better with them because they get better value in the product. I think all of those metrics are pointing in the right direction. We obviously still need to work hard now to get the acquisition engine back on. We will do that in a -- with a strict ROI focus, especially within the environments that we're in and some of the uncertainty over the course of the year when it comes to macroeconomic environment, consumer sentiment, et cetera. But we do feel that those are metrics that we're focused on that are the defining metrics for a long-term, healthy business are very much trending in the right direction and we look forward to updating you in August about the progress that we will achieve in Q2. Thanks a lot.
Operator: Welcome and thank you for joining the First Quarter 2026 Earnings Conference Call for Herbalife Nutrition Ltd. During the company's opening remarks, all participants will be in a listen-only mode. Following the opening remarks, we will conduct a question-and-answer session. As a reminder, today's conference is being recorded. I would now like to turn the call over to Erin Banyas, Vice President and Head of Investor Relations, to begin today's call. Please go ahead. Erin Banyas: Thank you, and welcome to everyone joining us. With us today are Stephan Paulo Gratziani, our Chief Executive Officer, and John G. DeSimone, our Chief Financial Officer. Before we begin today's call, I would like to direct you to the cautionary statement regarding forward-looking statements on Page 2 of our presentation and in our earnings release issued earlier today, which are both available under the Investor Relations section of our website. The presentation and earnings release include a discussion of some of the more important factors that could cause results to differ from those expressed in any forward-looking statement within the meaning of the Private Securities Litigation Reform Act of 1995. As is customary, the content of today's call and presentation will be governed by this language. In addition, during today's call, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures exclude certain unusual or nonrecurring items that management believes impact the comparability of the periods referenced. Please refer to our earnings release and presentation materials for additional information regarding these non-GAAP financial measures and the reconciliations to the most directly comparable GAAP measure. And with that, I will now turn the call over to our CEO, Stephan Paulo Gratziani. Stephan Paulo Gratziani: Thank you, Erin. Thank you all for joining us today. We delivered a strong start to 2026, with first quarter net sales and adjusted EBITDA exceeding guidance as we continue to build momentum. Importantly, these results reflect the underlying stability of our business and reinforce our confidence in the strategy we are executing. We are building a more connected, personalized approach to health and wellness by bringing together innovation, science, and the strength of our distributor network to better serve customers around the world. On April 14, as part of our debt refinancing, we released preliminary net sales growth expectations that exceeded the high end of our guidance on both a reported and constant currency basis. We also indicated that reported adjusted EBITDA was expected to be at or above the high end of our previously issued guidance. Our final reported results are in line with that release. Let's review a few of the financial highlights from the quarter. We delivered net sales of $1.3 billion, up 7.8% year-over-year and up 5.4% on a constant currency basis, exceeding guidance on both measures. This was our third consecutive quarter of year-over-year net sales growth on both a reported and constant currency basis. India achieved record quarterly net sales for the second consecutive quarter. Adjusted EBITDA was $176 million and above guidance, and we generated $114 million of cash from operations in the quarter. In addition to our first quarter results, we successfully refinanced and strengthened our capital structure in April, which we expect will result in approximately $45 million in annual cash interest savings. We executed this transaction in a highly volatile market and geopolitical environment. We achieved our pricing objectives, extended our maturity profile, and meaningfully reduced our borrowing costs while also enhancing our financial flexibility. This outcome reflects the financial and operational results we have delivered over the past two years. As we build on this momentum, we remain focused on executing against our vision, with personalization at the center of our strategy. Personalization has always been a foundational strength of Herbalife Nutrition Ltd., with our distributors delivering tailored recommendations through direct relationships and a deep understanding of individual goals. What is evolving is the level of precision we can now bring, which is enabled by enhanced data insights and technology. This evolution is especially important as consumer expectations continue to rise, driven by greater access to AI, wearables, and at-home diagnostics, which are increasing demand for guidance that is not only personalized, but also more actionable and continuous. We are evolving from personally curated recommendations to an approach that combines both personally curated and formulated solutions, extending our ability to deliver individualized outcomes at scale through better tools, better data, and expanded manufacturing capabilities, all delivered through our distributors. This builds on four core actions that have long guided our business: what to measure, including key health metrics like weight and muscle mass; what to take, which is products from our expanding portfolio; what to do, including daily habits like hydration and exercise; and who to do it with, which is our distributors who provide guidance and support through a variety of DMOs as they go to market. These actions have successfully built our business over the past 45 years. Our global network includes over 2 million distributors, more than 60 thousand nutrition clubs, and millions of customers across 95 markets. This reach is our differentiator and superpower. Building on that foundation, our recent acquisitions are enabling a more connected, personalized, and data-driven approach that is enhancing these four core actions, making them more precise, scalable, and actionable. On March 26, we announced an agreement to acquire substantially all of the assets of Vionic's core personalized nutrition business, which we completed in April. Vionic is an established UK-based business with an existing supply chain. Its patented product personalization engine uses an individual's health background and a proprietary database of biomarker data to develop personalized nutritional supplement formulas. This acquisition further accelerates our pathway into personally formulated products. In late June, our distributors will begin offering Vionic's personalized nutritional supplements to customers across 11 European countries. The U.S. will follow in July, with additional markets later in 2026. I'd like to take a moment to explain how our recent acquisitions work together to support the four core actions I mentioned earlier, with Protocol as a central operating system. Each acquisition plays a distinct role, and combined, they create greater value than any one capability alone. Let me walk you through how each contributes. Link Biosciences is a formulation and manufacturing engine. It translates insight into products by enabling us to manufacture personalized nutritional supplements in a powder format at scale, directly connecting data and recommendations to the finished product. Vionic accelerates our speed to market with a personally formulated vitamin and mineral complex, in a granule format, while broadening availability through a more accessible price point. Prüvit provides the opportunity to expand our portfolio into the ketone category with a channel-exclusive offering aligned with growing consumer interest in performance, energy, and metabolic health. It is an exciting addition to the portfolio; we will have more to share this summer. And Protocol brings it all together by providing the experience and intelligence layer. It digitizes and scales the four core actions I mentioned earlier—what to measure, what to take, what to do, and who to do it with—bringing greater precision to how distributors support and engage their customers through a more connected, data-informed experience. It translates consumer inputs and health data into actionable guidance that supports more consistent behavior change over time. In March, we expanded the Protocol beta program to include select 10 EMEA markets. That broader deployment is providing valuable feedback that is helping refine the roadmap, platform capabilities, and the digital experience. To enable integration of Vionic into Protocol, and incorporate feedback from the broader beta group, we are extending the beta program, with the next release planned for the North America Extravaganza in July. That release will include a new user experience, enhanced features, and additional capabilities that support our broader strategy. Part of that broader strategy is a multiyear rollout of new packaging across our global product portfolio. The rollout began in March, and we expect it to be substantially completed by 2027. For context, slide 8 highlights our packaging currently in market, and slide 9 highlights our new modern packaging design. Grounded in consumer insights and analytics, the new packaging reinforces scientific credibility and trust at every touch point. At a portfolio level, a consistent science-led visual system simplifies navigation and helps distributors and customers confidently build personalized product combinations. The new labels also reinforce product purpose and efficacy, strengthening confidence and differentiation, which are foundational in a competitive global marketplace. In April, we kicked off our first Extravaganza events of the year, which started in India, where we hosted three consecutive events across Delhi and Bengaluru with approximately 46 thousand attendees. We saw firsthand the strong energy and engagement across the market. These events are a critical part of how we operate. It is where we communicate our vision, build skills, share best practices, and reinforce strategic priorities in ways that directly shape distributor execution. They also drive momentum at the local level, leading to stronger engagement, more consistent business activity, and improved retention. We look forward to that momentum continuing as we kick off our summer Extravaganza events in China, Eurasia, South America, Asia Pacific, Europe, and North America. Before I turn it over to John to walk through the quarter in more detail, I want to take a step back and reflect on what we have accomplished over the past two years. Herbalife Nutrition Ltd. today is a fundamentally stronger company than it was two years ago. We have stabilized net sales and returned to growth, expanded adjusted EBITDA margins, strengthened our balance sheet by repaying nearly $540 million of debt since 2024, reduced our total leverage ratio from 3.9x in 2023 to 2.7x at the end of the first quarter, completed our debt refinancing, unlocking approximately $45 million in annual cash interest savings, and completed four strategic acquisitions. Importantly, we have done all of this with a disciplined approach, improving operational efficiency while executing against our plan. We are about to reach a major milestone this summer—the launch of our next-generation personalized nutritional supplements. This further strengthens our confidence in the path ahead. Our continued progress reflects strong momentum and clear direction as we advance towards our vision to become the world's premier health and wellness company, community, and platform. With that, I will hand it over to John to walk through the financials in more detail. Over to you, John. John G. DeSimone: Thank you, Stephan. Turning to our first quarter financial highlights on slide 11, we delivered another strong quarter, with net sales and adjusted EBITDA both above our guidance ranges, led by continued strength in India. First quarter net sales were $1.3 billion, up 7.8% versus 2025 and above the high end of our guidance range of 3% to 7%. This was our third consecutive quarter of year-over-year growth and our strongest year-over-year growth since 2021, building on the momentum we saw in 2025. On a constant currency basis, net sales increased 5.4% year-over-year, also exceeding guidance. We have now delivered year-over-year constant currency growth in eight of the last 10 quarters. Our first quarter net sales outperformance was driven primarily by India, where net sales reached a record $275 million, up approximately 32% year-over-year, marking the second consecutive quarter of record sales. We believe demand in the market remains strong following the reduction in the GST rate on the majority of our products in late September 2025. I will provide more details on our regional performance later in the call. Adjusted EBITDA was $176 million, above the high end of our guidance range of $155 million to $175 million. Adjusted EBITDA margin was 13.3%, down 20 basis points year-over-year, but up 240 basis points on a two-year stacked rate, including approximately 70 basis points of FX headwinds versus last year. CapEx was $11 million for the quarter, at the low end of our $10 million to $20 million guidance range, primarily due to timing with some spending shifting into the second quarter. Capitalized SaaS implementation costs were $10 million. Gross profit margin was 77.9% in the quarter, down 40 basis points year-over-year. This reflected approximately 50 basis points of input cost inflation, primarily from lower absorption rates; 30 basis points of unfavorable sales mix; 20 basis points from other unfavorable cost changes; and 50 basis points of FX headwinds. These factors were partially offset by 70 basis points of pricing benefits and 40 basis points from lower inventory write-downs. First quarter net income attributable to Herbalife Nutrition Ltd. was $62 million, with adjusted net income of $69 million. First quarter adjusted diluted EPS was $0.64, including a $0.03 FX headwind versus 2025. Our adjusted effective tax rate was 27.3%, compared to 21.8% in 2025, which resulted in an approximately $0.04 unfavorable impact to adjusted diluted EPS. The higher rate in 2026 was primarily driven by a decrease in tax benefit from discrete events compared to 2025. For full year 2026, we continue to expect our adjusted effective tax rate to be approximately 30%, in line with 2025. We delivered strong cash generation in the first quarter, which is typically our lowest cash flow quarter in past years due to timing of our annual distributor bonus payments and employee performance bonus payments. Operating cash flow was $114 million, compared to relatively neutral cash flow in 2025. Consistent with last year, we paid approximately $75 million of annual distributor bonuses in the quarter. However, employee performance bonuses were paid in April, rather than in the first quarter. Credit agreement EBITDA for the first quarter was $194 million and our total leverage ratio was 2.7x as of March 31. Beginning this quarter, we are introducing net leverage ratio as an additional metric to provide greater transparency into our leverage profile and delevering progress. We define net leverage ratio as net debt divided by trailing twelve-month credit agreement EBITDA. At the end of the first quarter, our net leverage ratio was 2.1x, and we are establishing a target to reduce net leverage to below 2x by the end of this year. We believe this metric provides a more complete view of financial flexibility because it reflects debt relative to earnings while also incorporating cash on hand. For additional details regarding the adjustments between adjusted EBITDA and credit agreement EBITDA, as well as the calculation of net debt, total leverage ratio, and net leverage ratio, please refer to the presentation appendix and the earnings press release. As Stephan noted earlier, in April, we completed our $1.45 billion senior secured refinancing. I will provide more details on that in a moment. Turning to slide 12, reported net sales increased nearly $100 million in the quarter, or 7.8% year-over-year, while constant currency net sales increased 5.4%. Volume increased 4.1% worldwide, marking our third consecutive quarter of year-over-year volume growth. Pricing provided an approximately $40 million benefit in the quarter, while country mix was an approximately $26 million headwind to net sales. FX provided an approximately $29 million benefit, or a 240 basis point tailwind. Turning to slide 13, we have the regional net sales results for the quarter. As we noted in our April 14 pre-release, results were mixed across the business in the quarter. Strong growth in Asia Pacific and Latin America offset softer performance in EMEA and North America, while China continued to be a headwind. In Asia Pacific, reported net sales increased 17% year-over-year, while local currency net sales increased 21%, driven by approximately 22% volume growth and favorable year-over-year pricing, partially offset by unfavorable sales mix and FX movements. As I mentioned earlier, India delivered record quarterly net sales for the second consecutive quarter, with reported net sales up 32% year-over-year and local currency net sales up 39%. Growth was driven by a 37% increase in volume and favorable sales mix. Pricing was neutral, as we have not taken a price increase since November 2024, and FX was a meaningful headwind. We continue to believe market demand remains strong following the GST rate reduction on a majority of our products. Importantly, India has long been one of our strongest growth markets. While year-over-year reported net sales growth began to moderate in late 2024 to mid-2025, momentum began to build again, supported by distributor leadership training in 2025. We expect the GST tailwind to continue through September, with momentum extending beyond September although at a more moderate level. Latin America delivered its third consecutive quarter of double-digit reported net sales growth, with net sales up 17% year-over-year and local currency net sales up 7%. Results were driven primarily by favorable year-over-year pricing and sales mix, along with a significant FX tailwind, mainly from the strengthening of the Mexican peso, partially offset by a 2% decline in volume. Within the region, Mexico delivered another quarter of growth, with reported net sales up 22% year-over-year and local currency net sales up 5%, driven primarily by favorable year-over-year pricing. In EMEA, reported net sales increased 1% year-over-year, benefiting from FX tailwinds. Constant currency net sales decreased 6%, reflecting an 11% decline in volume that more than offset favorable year-over-year pricing. In North America, net sales declined 3% year-over-year, reflecting a 5% decline in volume, partially offset by favorable year-over-year pricing. As noted in our April 14 press release, U.S. net sales were negatively impacted by unusually severe weather in January and February, which led to temporary closures of distributor-owned nutrition clubs, disrupted distributors' daily consumption sales, and, in turn, reduced distributor product purchases from the company. Net sales were also impacted by higher levels of shipments in transit at quarter end compared to the prior year, with the related revenue deferred to the second quarter under our revenue recognition policies. Excluding these factors, North American net sales would have been slightly up year-over-year on both a reported and constant currency basis. We continue to expect full-year net sales growth in North America in 2026. In China, reported net sales declined 12% year-over-year, while local currency net sales declined 16%, reflecting a partial benefit from foreign exchange. The decline was primarily driven by an 18% decrease in volume, partially offset by favorable sales mix. Turning to slide 14, we see the key drivers of the $11 million, or 6.5%, year-over-year increase in first quarter adjusted EBITDA. Adjusted EBITDA was $176 million for the quarter, with a margin of 13.3%. On a constant currency basis, adjusted EBITDA was $180 million. Looking at the bridge, we first see the drivers of the year-over-year change in gross profit, including our third consecutive quarter of volume growth, along with pricing benefits, partially offset by unfavorable sales mix and input cost inflation, primarily due to lower absorption rates. Salaries were an approximately $2 million headwind, largely reflecting merit increases implemented in late Q1 2025. First quarter adjusted EBITDA included $5.5 million of China government grant income. Because this grant is typically received once annually, the year-over-year variance is timing-related, as the prior year grant of $4.8 million was recognized in 2025. Lastly, foreign exchange was an approximately $5 million headwind to adjusted EBITDA, and a 70 basis point headwind to adjusted EBITDA margin. Moving to slide 15, I will provide an update on our capital structure. We ended the quarter with $451 million of cash, up nearly $100 million from 2025. During the quarter, we made the scheduled $5 million amortization payment on the Term Loan B, and the revolver was undrawn as of March 31. At quarter end, our total leverage ratio was 2.7x, and net leverage was 2.1x. In April, we completed our $1.45 billion senior secured debt refinancing. We were pleased to execute this transaction in a dynamic market environment while achieving our pricing objectives, meaningfully reducing our borrowing costs, extending our maturity profile to more than seven years, and enhancing our financial flexibility. We also have no material maturities until 2028. The refinancing included $800 million of 7.75% senior secured notes due May 2033, a $225 million Term Loan A, and a $425 million revolving credit facility, with both the Term Loan A and revolver maturing in April 2031. At closing as of April 29, $200 million was outstanding under the 2026 revolving credit facility, with approximately $180 million available to borrow. As I noted, the refinancing meaningfully reduced our borrowing cost. The coupon on the senior secured notes was reduced by 450 basis points, and the spreads on the revolver and term loan were reduced by 300 basis points and 375 basis points, respectively, to 3%. Based on the total senior secured debt outstanding immediately before and after the refinancing, and current applicable interest rates, we expect the refinancing to result in approximately $45 million in annualized cash interest savings. Because the refinancing was completed during 2026, those cash interest savings will only be partially reflected this year. The $45 million represents the annualized benefit based on current conditions. That estimate may change as we pay down debt or as variable interest rates move, but it is reflective of our current expectations for the annual savings from the refinancing. Overall, these actions further strengthen our balance sheet and support our continued focus on deleveraging and financial flexibility. Looking ahead, we are targeting net leverage to be below 2x by 2026 and remain on track to reduce outstanding debt to approximately $1.4 billion in 2028. Separately, let me briefly touch on Vionic. As Stephan noted in his opening remarks, on April 30, we completed the acquisition of substantially all of the assets of Vionic's core personalized nutrition business, as contemplated by the agreement we announced on March 26. Base consideration was $55 million payable over five years, including $10 million payable subsequent to closing. The agreement also provides for up to $95 million in contingent payments tied to certain future Vionic product sales performance. We also obtained a call option to acquire Vionic Lab, a separate platform focused on small molecules and peptides. Importantly, this acquisition is consistent with our disciplined approach to selectively pursuing targeted capabilities that complement our business and can be scaled through our global reach. Turning to slide 16, I will review our outlook for the second quarter and full year 2026. We are continuing to provide net sales and adjusted EBITDA guidance on both a reported and constant currency basis, with reported guidance based on average daily exchange rates from the first two weeks of April 2026. Broadly speaking, since we provided our full-year guidance in February, overall FX impact has moved unfavorably, reducing the tailwind benefit to net sales. For the second quarter, we expect foreign exchange to be a modest tailwind to net sales and neutral to adjusted EBITDA due to timing. On a reported basis, we expect net sales to increase 1.5% to 5.5% year-over-year, including an approximately 50 basis point currency tailwind. On a constant currency basis, we expect net sales to increase 1% to 5% year-over-year. We expect second quarter adjusted EBITDA to be in the range of $150 million to $170 million on both a reported and constant currency basis. This outlook includes an approximately $10 million year-over-year headwind to adjusted EBITDA, or approximately 80 basis points of adjusted EBITDA margin, from two items. Approximately $5 million reflects the timing of the China government grant. We have historically received that grant once annually; in 2026, it was recognized in the first quarter, compared to 2025. The other $5 million relates to the September 2025 India GST rate change. As previously discussed, while the GST rate on most of our products we sell was reduced to 5%, the GST rate we pay on services remained at 18%, which created a mismatch between the GST we collect and the GST we pay, resulting in incremental G&A expense. We have partially offset that impact through a reduction in the sales commission percentage paid to our distributors, reflected in selling expenses. The net impact of those two items is an estimated $5 million headwind to second quarter adjusted EBITDA. Second quarter capital expenditures are expected to be in the range of $15 million to $25 million, above 2026 primarily due to timing as some spending shifted from the first quarter into the second quarter. For the full year, we are increasing the midpoint of our constant currency net sales guidance range while also narrowing the reported and constant currency net sales guidance ranges. The FX tailwind to full-year net sales guidance has been reduced to a 50 basis point benefit from 100 basis points assumed in our previous guidance. For adjusted EBITDA, we have narrowed the ranges on both a reported and constant currency basis, while increasing the constant currency midpoint. We are reaffirming our capital expenditure guidance. For the full year, we expect reported net sales to increase 1.5% to 5.5% year-over-year. On a constant currency basis, we expect net sales to increase 1% to 5% year-over-year. We expect full-year adjusted EBITDA to be in the range of $675 million to $705 million on both a reported and constant currency basis. Based on India's first quarter sales performance and our outlook for the balance of the year, we now expect India GST-related net incremental cost to be an approximately $20 million to $25 million headwind to full-year adjusted EBITDA and an approximately 40 to 50 basis point headwind to adjusted EBITDA margin. Our guidance also includes a preliminary estimate of the impact of higher oil prices. We continue to expect 2026 capital expenditures of $50 million to $80 million. In addition, we expect capitalized SaaS implementation costs of $35 million to $55 million, which are incremental to CapEx. Lastly, we continue to expect our full-year 2026 adjusted effective tax rate to be approximately 30%. Before moving to Q&A, I want to close my opening remarks with one final comment. As Stephan said earlier, Herbalife Nutrition Ltd. is a fundamentally stronger company today than it was two years ago, and we remain focused on driving shareholder value. We returned to net sales growth and expect year-over-year growth to continue the remainder of the year. We strengthened our distributor network through enhanced training and other targeted initiatives, including the Herbalife Premier League, which was launched in March 2024. At that time, we had experienced 12 consecutive quarters of year-over-year declines in new distributors. Since that launch, however, the trend has improved meaningfully, with new distributor growth up 13% on a two-year stack basis in Q1. And as we have now moved beyond the two-year anniversary of the Premier League launch, this metric becomes less relevant going forward. We have also expanded our Q1 adjusted EBITDA margins by 240 basis points since 2024, and we have reduced our total leverage ratio from 3.9x at 2023 to 2.7x at the end of the first quarter, driven by $540 million of debt reduction primarily through cash generated by the business. And lastly, as I have said, we completed our debt refinancing in April, unlocking approximately $45 million in annual cash interest savings. This concludes our opening remarks. We will now open the call for questions. Operator: Thank you. To ask a question, please press 11 on your telephone keypad. To withdraw your question, please press 11 again. Our first question will come from the line of Chasen Louis Bender with Citi. Your line is open. Chasen Louis Bender: Great. Thanks. Good afternoon, guys. Stephan, I wanted to first ask about Protocol. Now that the distributors and their customers have had some more time with Protocol in the U.S. beta group, could you discuss a little bit more the behaviors you are seeing from that group and how they are shaping up relative to your expectations? For example, are you seeing distributors able to sell more Herbalife Nutrition Ltd. product to their customers, and on the customer side, what are you seeing from the activity and the duration with which customers are interacting with the app and inputting their health data? Stephan Paulo Gratziani: Yeah, thanks for the question, Chasen. As you know, we launched beta last year, and the objective of beta is really to get distributor feedback and make sure that it is really fitting with their business flows and how they go out and talk to customers and engage with them. In terms of the distributors and their response, the amount of feedback that we get from different models and leaders that operate in different regions—especially now that we have expanded it to the 10 European markets—is helping us to formulate features, how people are coming into it, and how distributors will work with their customers. At the same time, there has to be enough there for the distributors to actually bring in the customers. We are really in this beta phase, and we did it on purpose. We have paused beta one, beta two; the phasing is because the more information that we have and the more people providing feedback, the more we can adjust it to make sure it goes across different DMOs with different leaders and the way that they operate. I would say that we continue this phase. For us, this was not a company that is going direct to consumer that has the relationship directly. Our entire business is based on distributors and their engagement with customers. So we are in the phase still, and we have enlarged the beta phase as we have gotten more countries in, to make sure that we bring the functions that are necessary to allow the impact and bring the value that we need to. So the beta phase continues. John G. DeSimone: Let me just chime in for a second. Like Stephan said, it is beta. We are seeing performance, getting feedback, enhancing it, and we have an enhanced version coming up with Extravaganza. What we want investors to know: this is an important part of our strategy, but we have not rolled into our forecast any direct revenue from this. So even though we are going to launch Vionic and we are going to launch Protocol, it is still going to be in the beta form. Any results end up being more opportunity to this year than risk to this year because we have not rolled that into the numbers yet. Stephan Paulo Gratziani: Let me just add: Protocol overall is not just a digital application to engage with customers. It really is designed as an end-to-end solution. We believe that the future is in the “what to measure,” meaning that people are going to want to measure more things like bringing their wearables in to inform blood biomarkers, which are going to get launched at Extravaganza, and those are going to come in. Then, personally formulated—or the next generation of personalized nutrition—through Vionic, for example. What ends up happening is it is the overall value proposition which gives it value. That is why we talked about all of the pieces individually being valuable, but it is all the pieces together that make it incredibly valuable. I think the most important thing—the core fundamental of our business—is distributors need to be able to go out into the market and have conversations, and the people that they are talking to, with what they are going to be offering them, say, “Wow. You can do all of this? I am interested.” If you were to ask 10 people on the street, would you rather have supplements that are more personalized for you, or would you rather buy supplements that are formulated for many, I believe that most people would respond, “I would be interested in the more personalized ones.” That is the opening of the conversation, but you also have to be able to deliver the products for it. We are really excited to get to Extravaganza and to be launching these 11 markets in EMEA in June and North America in July, to be able to bring this to market. The pieces are coming together, testing is coming. We are still in beta because there are still functionalities and features that we need to build in. But we are also launching this next generation of personalized supplements, so the pieces are there. This journey for us is really about making sure that our distributors have what they need in hand to go have conversations, bring more people into the company, keep them longer, increase LTV, increase the amount of people that are getting referred, and ultimately increase the amount of people who want to join the business and duplicate a business. Chasen Louis Bender: My second question is on India. Obviously very strong growth following the GST change. I am curious—given what you have seen—how has your thinking evolved on potential price reduction programs in other markets? And just as a housekeeping related to that, what are you assuming in guidance for India constant currency in the rest of the year? I know you mentioned you are expecting continued momentum, but should we expect that, or does your guidance contemplate the similar 30-plus percent growth in the rest of the year? Thanks so much. John G. DeSimone: Yes, Chasen. I will take this. Let me break it into pieces. There is a lesson in India. We had effectively a price decrease due to the GST reduction, and that created a lot of momentum. India had started building momentum just prior to that. A couple things I want investors to know. One is that momentum has been incredibly strong. We are going to annualize the GST in September, but we do not think that means we are not going to grow after. We think the momentum carries forward. Granted, we will be comping quarters that have the GST impact, so the growth rate will moderate, but that momentum we expect to continue. That gives you a little flavor of our thinking of India. India did beat our expectations in Q1. Going forward—if I may break this into buckets—for Q2 through Q4, so the rest of the year, we basically have not changed our sales expectations from where we were in February. They have come up a little, but we had some softness in the quarter in EMEA. We are going to run some tests based on what we learned in India, and hopefully that can work. We also had a price increase in Mexico, plus there was an incremental tax in Mexico, that had a little bit of a volume impact in Mexico on the negative side. That also supports the thesis we are working with the distributors on—that price matters. I think there is a lot of opportunity for us to affect volume in the future by modifying price and modifying the commission structure. So we are running tests. We have been running tests. We are now running more tests based on the results we have seen. Chasen Louis Bender: Got it. That is helpful. I will take the rest of my questions offline. Thanks so much, guys. Stephan Paulo Gratziani: Thanks, Chasen. Operator: Thank you. One moment for our next question. Next question will come from the line of Karru Martinson with Jefferies. Your line is open. Please go ahead. Karru Martinson: Good afternoon. You referenced higher oil costs. I was wondering how that is flowing through to the consumer, especially here in the North American market? John G. DeSimone: We are not flowing it through. We are absorbing it right now. At this point, for the rest of this year, that is what is assumed. We did say it is not material to the year, so we are going to cover it ourselves. We have not raised prices because of it. That does not mean it did not have an indirect impact—or does not have an indirect impact—on the consumer in general, but it does not have a direct impact on our price. Karru Martinson: Okay. So did you see a shift in the ordering pattern when the Iran conflict started and gas prices started going up, or is that too soon to tell? John G. DeSimone: It is too soon to tell, but we did have—as I said—the U.S., we can explain what happened. There were some timing differences, and there were some nutrition club closures during some really bad weather that we can quantify. We made that available to investors. I think the U.S. is on track. EMEA—Europe—had some weakness, and it is too early to tell if that was tied to the economics from the geopolitical situation or not, but there was definitely some weakness in Europe. Karru Martinson: Okay. And just lastly, when we look at China, it has been a work in progress for a while now. How should we think about that, and could you remind us where it stands today as a percentage of your sales? John G. DeSimone: It is really small. It is under 5% of sales—about 4%—so it is relatively small. It does not really contribute to profit in any meaningful way. What I have told investors over the last few quarters is we have a lot of strategies we are going to implement in China. I would wait and see. At this point, we are not rolling in the benefits of those strategies. We are going to wait until we see the benefits. Think of China long term as a huge opportunity for us. We are super underpenetrated. The model does well in China for some of our competitors. The products do well in China. We have not found our footing yet. We are working on it. I am confident over the long term we will. You will not see it rolled into our forecast until we see it coming through in results. Stephan Paulo Gratziani: And, Karru, on distributor leadership, we have spoken about it in the past. Historically, it has been really isolated, and we started at the beginning of this year to allow distributors and leaders from Greater China to come into the market. It is the first time they have ever had that opportunity. We see a continuing trend of more of them being interested, and at this Extravaganza that is coming up this month, there are a few hundred—approximately 500—that are looking at potential building business in China. We are seeing it as really positive from that standpoint, but as you said, it is a work in progress. We will update you over time. Thank you. Karru Martinson: Thank you very much. Appreciate it. Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Nicholas Sherwood with Maxim Group. Your line is open. Please go ahead. Nicholas Sherwood: Hi. Thank you for taking my questions. Kind of going back to the Protocol launch, have you seen any use of the platform in nutrition clubs and any feedback of how it works in that space? Stephan Paulo Gratziani: Yeah, Nicholas. Super early. In nutrition clubs, especially here in the U.S., it is really a consumption-based business, and so it is one of the flows and integrations that we are working on because it is obviously a very large and important part of our business. There are millions of people walking in annually into a nutrition club to buy a shake or a tea, and we want to have an easy entrance into Protocol and getting exposure to being able to track and have physical results and move from a transactional to more of a transformational business. So it is one of the areas of focus for us, and it is a major DMO integration—early days. Nicholas Sherwood: That is helpful. And then looking at the packaging redesign, what sort of early metrics did you see coming out of testing the new design, and what have you seen from the early stages of the rollout of that new packaging? Stephan Paulo Gratziani: The first product was just rolled out in India, and it is very, very early. Overall, as we went through the process, distributor feedback and research were very positive. To see in the real world how it impacts is going to take time, but the initial feedback and research are very positive—again, very early. Nicholas Sherwood: Okay. And then my last question is, can you provide any color on the transition of preferred members to the new e-commerce platform, and how do you expect preferred members to interact with Protocol or get added to that platform in the future? Stephan Paulo Gratziani: I think you are referring to DS Commerce. That started to happen with a pilot group at the beginning of the year, and then it was just opened up. It is very recent, so very early to talk about it. John G. DeSimone: If I could step back for a second because we had a lot of questions—just to make sure we are aligned on where we are with a lot of these initiatives. We have launched them in beta form. We are getting the feedback. You get a lot of functionality, including the commerce app where people can buy on the app—or at least have the appearance of buying on the app if it takes us somewhere else. There is some functionality that we are launching where you will start seeing the benefits. Stephan Paulo Gratziani: Correct, John. One thing I think it is early to highlight, but we think it is quite a big deal, is that as a company, we have not really had a subscription business. Product purchases have been—some of them are continual—but we really implemented subscription recently. One of the early indications on the preferred customer on the new commerce platform is that the uptake on subscriptions is very positive. It is still early, but that is a very positive outcome from what we are seeing—early but exciting. It is also one of the things in terms of the launch of Vionic in Europe: we are going to be having a subscription product for the first time in the history of the company. So we are very excited about that. Nicholas Sherwood: Alright. Great. Thank you for answering my questions. I will return to the queue. Stephan Paulo Gratziani: Thanks, Nicholas. Operator: Thank you. One moment for our next question. Our next question comes from the line of John Baumgartner with Mizuho Securities. Your line is open. Please go ahead. John Baumgartner: Good morning. Thanks for the question—or, I should say, good afternoon. First off, going back to personalized nutrition, there is a lot of great detail here into the data expansion and products. I am curious—has there been any evolution in your thinking regarding segmentation, the levels of offerings, how you may tier those out, different levels of personalization? Have you heard any feedback from your distributors as to how they think the product-market fit is as you are going forward with this? Stephan Paulo Gratziani: Yeah, John. Thanks for the question. One of the reasons why we made the Vionic acquisition is for that reason. When we acquired Link, there is a manufacturing process to it: the equipment and the software take the inputs, create the formula, and then you manufacture the formula in powdered form. The price point for that is really more in a premium area. It also, quite honestly, has more functionality—because of the formatting, you can have other need states. Vionic gives us the opportunity—not only was it a company that existed with an existing customer base—but it had been in the business of formulating not only premium but also what we would consider a personalized vitamin and mineral complex at a lower price point, so a larger addressable market. That is part of the strategy: we want to hit different price points. We know our business around the world—from India to Switzerland—different demographics. The other aspect, besides making it more accessible to people—because this is a newer concept—is really what are the offshoots? Where can we go now that we have the capability of personalizing, and with all of the data and the customers for whom we have been personalizing, where does it lead us in the future? Specific product categories where personalization could make a lot of sense—for example, a probiotic that is more personalized than one you are buying off the shelf that has been formulated for everybody, or just for “men 50+,” for example. This is giving us more range and more demographics. I think where this leads in the future is that everything will become—and everyone will want—a more personalized version of whatever they are using today. It is absolutely part of the strategy. John Baumgartner: Thanks for that. And then coming back to EMEA, to drill down there a bit more, I am curious the extent to which there may be more structural change or softness in the direct selling market given the consistent declines you are seeing in sales leaders, or is it more of a productivity issue you think, or maybe some price adjustments can kickstart growth in that region? Stephan Paulo Gratziani: From a distributor lens—someone that worked in EMEA specifically, which was one of the areas that I spent a lot of time in—I think what has happened is the overall way people look at their health and wellness and make their decisions on what they are going to buy and where they are going to spend money is evolving over time. If you think historically, we started in 1980. The idea of a protein shake in 1980—and I will speak to myself—in 1991, when it came to France where I started, you had to convince someone that the idea of taking a shake instead of having breakfast was actually a thing. They would be like, “You are telling me I am going to mix this up, and I am going to drink this instead of having my coffee and croissant, and that is breakfast?” Today, we do not live in a world where a protein shake is novel and innovative. It is more of a commodity. It is an accepted form. I think part of what is happening is as the markets evolve and as technology evolves, the offer also needs to evolve. That is why I am very strong on, as a company, the superpower that we have of these 2 million distributors that are having conversations with tens of millions of people on a daily, weekly, and monthly basis—interacting and helping them with their health goals—that the conversation around personalized nutrition in this next generation is absolutely where the market is going, and we want to lead in that market. We can say, “How can you optimize your current product? How can you optimize with your DMOs? How can you bring more people and keep them longer and have them buy more and refer more people and want to do the business?” Fundamentally, if you have something novel and innovative to go to market with, and people are saying, “This is where things are going in the future. I want to be a part of it. I want to buy it. I want to use it. I want to tell people about it, and I want to sell it,” that is what we are building for. We do all the work in every area—train them, do everything we need to do—but we also work on the core offer. That is what we are doing. John Baumgartner: Thanks. And just a bit of a random question—looking at the U.S. market, I am curious to the extent to which you are seeing any benefits or traction from participation in the diabetes prevention program. I know it is not spoken about a lot, but just curious if there is participation and any learnings there thus far? Stephan Paulo Gratziani: We had started that as a pilot, and to be honest with you, I do not have the answer because I have not followed it that closely. My guess would be it has not had a material impact. Good follow-up. Thank you. Operator: Thank you. As a reminder, if you would like to ask a question, please press 11. Our next question comes from the line of Douglas Matthai Lane with Water Tower Research. Your line is open. Please go ahead. Douglas Matthai Lane: Yes, hi. Good afternoon, everybody. On the Vionic nutritional supplements being offered in Europe beginning in late June and then the U.S. in July, are they the same product offerings in both markets, and what actually are the product offerings that you are rolling out? Stephan Paulo Gratziani: They will be essentially the same. Obviously, different markets have different regulatory aspects to it. Essentially, Doug, think of this as your personalized vitamin and mineral complex stack. I do not want to get into too many details, but a man versus a woman, height, weight, age, objectives, personal conditions—then you put in biometrics, potentially blood biomarkers—and it would be clear that you probably would not need the same amount of vitamins and minerals in your individual compound as everyone else. That is the core offer of Vionic. The other thing—everyone is using supplements. If you ask how you actually buy supplements, even a vitamin and mineral supplement, most people are going down the aisleway at the grocery store or in the pharmacy, or their doctor said something, or someone recommended something to them—they buy it and use it. They might have been using it for a year, two years, three years, five years. We believe that personalization means not only should you have your formula as close to your individual needs as possible today, but also next month—when you have lost five pounds, when you have changed some things in your daily habits and in your diet—and over time as you age and your circumstances change. The capability to flex that on a monthly basis for someone and to personalize that is innovative and makes sense in the world that we live in today. No one is doing this at scale around the world, and so this is our opportunity. We also know that you can get people into the conversation and they look at Herbalife Nutrition Ltd. and say, “This is unique what you are doing.” We have an incredible portfolio—we are doing $5 billion in revenue currently—that is not Vionic. It is an opportunity to have people go beyond just this personalized vitamin and mineral complex. For us, this is not just a door opener. It is something that people are going to want, and we are going to be able to deliver it—especially through 2 million distributors that are having conversations with people every single day. More attraction to Herbalife Nutrition Ltd., a value proposition we think is unique, an opportunity in subscription, and an opportunity for the introduction to the entire portfolio so that we become that solution for people for their health and wellness. Douglas Matthai Lane: Now, Vionic has been around for a little while and has been producing product. Can I get Vionic anywhere else at this point? Stephan Paulo Gratziani: You cannot. As of the transaction, this is going to be sold through Herbalife Nutrition Ltd. distributors. Douglas Matthai Lane: So will it be rebranded under some sort of Herbalife sub-brand? What will that look like? Stephan Paulo Gratziani: We will do the reveal at Extravaganza, so I do not want to give it away, but the brand is definitely staying. Douglas Matthai Lane: Okay, fair enough. When can we see Link Biosciences product out in the marketplace? Stephan Paulo Gratziani: Link Biosciences will be Q1 of next year. Douglas Matthai Lane: Got it. And are you going to operate these four acquisitions as independently as is, or what is the plan structurally on how you are going to run these four acquisitions on personalization? John G. DeSimone: I will jump in. First, they all work together. I think you heard Stephan talk about Vionic and Link and the different versions of personalized nutrition, and they can work together. Protocol supports that—actually, it supports Protocol. The fourth acquisition, which is Prüvit, is a product line. Because there is a separate product associated with that, that may be a little distinct. But overall, those four are all connected. Douglas Matthai Lane: Okay, fair enough. And lastly, John, now that you have completed the debt refinancing, is there any change to your capital allocation priorities? John G. DeSimone: There is not. My number one priority is still to get our gross debt down to $1.4 billion by 2028, which would get our net debt below $1 billion. Douglas Matthai Lane: Okay, fair enough. Thanks. John G. DeSimone: Thanks, Doug. Operator: Thank you. I would now like to hand the call back over to Stephan Paulo Gratziani for closing remarks. Stephan Paulo Gratziani: Thank you, and thanks, everyone, for joining us today. We had a great quarter. We completed our debt refinancing. As Doug just mentioned, we have made four acquisitions. We are executing on our vision. Forty-five years of incredible history are behind us, but the future is even more exciting. As a company, we are evolving. We are advancing how we deliver what we do best—greater precision, greater scale, greater impact—and we are focused on the vision. We are well positioned to deliver what we believe is the next generation of personalized nutrition. Thank you for joining today, and we look forward to sharing continued progress next quarter. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.
Operator: Good day, and welcome to the Accuray Third Quarter Fiscal Year 2026 Financial Results Conference Call. All participants will be in listen-only mode. 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 Stephen Monroe, Vice President of Financial Planning and Analysis. Please go ahead. Stephen Monroe: Thank you, and good afternoon, everyone. Welcome to Accuray Incorporated's conference call to review financial results for the third quarter of fiscal 2026, which ended 03/31/2026. During our call this afternoon, management will review recent corporate developments. Joining us on today's call are Stephen LaNeve, Accuray Incorporated's President and Chief Executive Officer, and Ali Pervaiz, Accuray Incorporated's Chief Financial Officer. Before we begin, I would like to remind you that our call today includes forward-looking statements. Actual results may differ materially from those contemplated or implied by these forward-looking statements. Factors that could cause these results to differ materially are outlined in the press release we issued just after the market closed this afternoon, as well as in our filings with the Securities and Exchange Commission. We base the forward-looking statements on this call on the information available to us as of today's date. We assume no obligation to update any forward-looking statements as a result of new information or future events except to the extent required by applicable securities laws. Accordingly, you should not put undue reliance on any forward-looking statements. A few housekeeping items for today's call. All references to a specific quarter in the prepared remarks are to our fiscal year quarters. For example, statements regarding our third quarter refer to our fiscal third quarter ended March 31. Additionally, there will be a supplemental slide deck to accompany this call which you can access by going directly to Accuray Incorporated's Investor Relations page at investors.accuray.com. As you review our prepared remarks and guidance today, please note that our outlook represents our current estimates and reflects the operating environment as we understand it today, including, among other things, current tariff impacts and geopolitical conditions. As always, the situation remains dynamic and we will continue to update investors as visibility improves. With that, let me turn the call over to Accuray Incorporated's Chief Executive Officer, Stephen LaNeve. Stephen LaNeve: Thank you, Stephen. Good afternoon and thank you for joining us. Since joining Accuray Incorporated last October, I have spent time with teams across the company and in our key markets. What stands out is the strength of our technology, the commitment of our people, the conviction health care providers and patients have in our solutions, and the scale of the opportunity ahead of us. Turning to the quarter, total revenue was approximately $105 million, up 3% sequentially but down 7% year-over-year. In the third quarter, we had product shipments planned to certain customers in the Middle East, North Africa, and Pakistan that have been delayed indefinitely due to increased geopolitical disruption in the Middle East, which is also impacting our service revenue in those regions. We do not know how long this regional dynamic might continue. Additionally, our business in China continues to face headwinds that we discussed during our last earnings call which pertain to geopolitical tensions and ongoing tariff uncertainty. These are markets that remain strategically important to Accuray Incorporated over the long term, but the current environment has added volatility and uncertainty that is largely outside of our control and difficult to predict. That said, restating our strategy, we are prioritizing investment in innovation, product reliability, service solutions, workflow efficiency, and partnerships that expand our reach and strengthen our platform. Additionally, we are relentlessly focused on executing on our transformation program initiatives that did not take effect until the middle or end of the third quarter, which, coupled with the geopolitical factors I have mentioned, have masked their impact to date. While we remain confident in our ability to execute against our transformation plan, the current geopolitical environment, including the conflict involving Iran and its ripple effects across the Middle East, as well as my earlier comments about our business in China, has created significant unpredictability for both the product and the service sides of our business. Given such uncertainty, we believe the responsible approach is to withdraw our financial guidance at this time. We will provide an update on the business when we report fiscal fourth quarter results. Now turning to our transformation plan and the progress we have made. We launched a comprehensive strategic, operational, organizational transformation plan. This plan was designed to sharpen accountability, tighten cost control, and accelerate execution, while positioning Accuray Incorporated for sustainable, profitable growth over the long term. The foundation of this plan was to establish clear product and service strategies supported by a set of critical enablers we believe are necessary to execute at a higher level. The first of those enablers was rightsizing our cost structure while improving efficiency through better processes and the use of our ERP system and business intelligence tools. This was paired with an organizational realignment that centralized key functions, outsourced non-core activities, and reinforced accountability, speed, and commercial focus across the business by reducing approximately 15% of our workforce. At the same time, we reallocated engineering resources toward higher ROI programs, particularly those that integrate third-party solutions and more directly reflect the voice of the customer. Taken together, these actions were designed to structurally improve operating profitability by approximately $25 million on an annualized basis, with roughly $12 million expected to benefit fiscal 2026. As of the end of the third quarter, we have already achieved approximately $10 million of those improvements, and we are well on track to exceed the $12 million we originally targeted for fiscal year 2026. We continue to believe that at least $25 billion of these improvements should be realized in fiscal year 2027. We remain encouraged by the pace, the quality of execution, and the sustainability of these actions to date, and we will provide an updated view on these annualized improvements on our fourth quarter earnings call. To put some color around what this looks like in practice, let me briefly highlight a few initiatives that are already underway. First, we are expanding and diversifying our service portfolio to better monetize our installed base and enhance customer value. During the quarter, we launched new training and educational solutions, which can be included in service agreements or sold standalone. Additionally, we will launch packages to add software solutions to our service agreements, which we believe strengthens recurring revenue opportunities and improves customer engagement over time. Our strategy is to better leverage our substantial and growing installed base and to drive significant value creation through our service business. Second, we are making meaningful progress toward a more disciplined distributor partnership model. In markets where distributors are essential to our reach, we are implementing clear performance standards, improved transparency, stronger alignment, and better support models to drive consistent, high-quality execution. During the quarter, we advanced this effort with several concrete actions, including the appointment of a Vice President of Distributor Partnerships, a new and strategically important role for Accuray Incorporated focused on elevating distributor performance and accountability globally. Third, we are implementing systems, processes, and controls to help ensure we are fully and appropriately compensated for the work our service teams deliver every day. During the quarter, we have made enhancements to our service systems, which are designed to improve cash conversion and margin quality. Fourth, we continue to optimize pricing across our product and service portfolio to better reflect the clinical and economic value our technology and our service solutions deliver. This work is designed to support competitive wins at appropriate margins and is expected to translate into stronger sales quality and margin expansion over time. Finally, an essential element of the transformation is strong commercial leadership. I am very excited that Paul Maielli has joined Accuray Incorporated as Chief Commercial Officer. Paul brings more than two decades of experience leading and scaling global capital medical device businesses across the Americas, EMEA, and APAC regions. His track record strongly aligns with Accuray Incorporated's priorities in terms of building effective commercial operating models, reactivating the installed base, expanding service and solutions monetization, and accelerating capital equipment sales, specifically in the areas of imaging, navigation, and robotics. In prior roles, his leadership helped drive the reversal of revenue decline trends and helped deliver double-digit annual growth. Paul and his team will play a critical role in strengthening our top line, improving profitability, and supporting sustainable, long-term value creation. With our internal transformation well underway, I would like to now turn to strategic partnerships, which is an area that is playing an increasingly important role in shaping Accuray Incorporated's future. A core principle of our transformation is focus. We are being very deliberate about where we invest our internal resources and where partnering allows us to move faster, scale more efficiently, and deliver greater value to our customers. Over the past several months, we have made meaningful progress aligning with partners that strengthen our execution today and fortify our long-term position as an innovative leader in radiation medicine. One of the most exciting areas of progress is how we are leveraging partnerships with the goal to convert one of Accuray Incorporated's most distinctive capabilities—real-time adaptation to patient and tumor motion during treatment—into a durable clinical evidence engine. Radiation medicine is entering an era where precision is increasingly defined not just by the treatment plan created in advance, but by what happens during treatment itself. Recent high-impact prostate SBRT data have reinforced that delivery-side factors, intrafractional motion management, can meaningfully impact outcomes. Accuray Incorporated's installed base gives us access to one of the largest repositories of real-world motion-tracked treatment data in the industry, spanning hundreds of thousands of treatment fractions across multiple disease sites. By pairing these insights with a multicenter registry sponsored by the Radiosurgery Society, we are working to define the clinical value of real-time correction, inform future product development, and help shape emerging standards of care. Importantly, this effort strengthens our differentiation, supports our product roadmap, and reinforces our focus on clinically meaningful innovation. Our new partnership strategy is built around creating an ecosystem of aligned partners that amplifies our strengths. We are building a constellation of strategic collaborations with many leading organizations, including the University of Wisconsin–Madison, Tata Consulting Services, as well as many others. Each brings distinct capabilities across imaging, software, workflow innovation, clinical research, treatment continuity, and operational execution. Together these partnerships allow us to deliver more comprehensive solutions to radiation medicine teams while improving speed to market and capital efficiency. This partnership-driven model is an important pillar of our transformation and a key component of how we intend to create enduring value for customers and shareholders alike. In addition to the momentum we are seeing across our transformation and partnerships, we are very excited about the upcoming European Society for Radiotherapy and Oncology conference in Stockholm later this month. ESTRO is an important global forum for radiation medicine and a key opportunity to engage directly with our customers. At ESTRO, we plan on highlighting a series of practical, customer-driven product enhancements and new partnerships that reinforce our commitment to clinical excellence, workflow efficiency, and continuous innovation. As I have said before, these are areas where we believe Accuray Incorporated can make the biggest difference for patients and where we can meaningfully differentiate ourselves in the market. In summary, while the external environment remains challenging, the transformative progress we are making across execution, innovation, and partnerships gives us confidence that we are building a stronger, more resilient Accuray Incorporated for the future. With that, I will hand it over to Ali to take you through our financial results and key financial metrics. Ali Pervaiz: Thanks, Stephen, and good afternoon, everyone. I would like to begin by thanking our global cross-functional teams for their continued dedication and hard work as we execute on our transformation plan. Turning to the third quarter results, net revenue for the quarter was $104.8 million, which was down 7% versus the prior year and down 10% on a constant currency basis. On a sequential basis, revenue increased 3%. Product revenue for the third quarter was $49.7 million, down 13% versus the prior year and down 15% on a constant currency basis, representing the majority of the year-over-year decline. Similar to earlier in fiscal 2026, most of this came as a result of ongoing macroeconomic headwinds in China and, more recently, geopolitical tensions in the Middle East. Service revenue for the third quarter was $55.1 million, down 1% from the prior year and down 5% on a constant currency basis. As a result of our global installed base and service network being negatively impacted by Middle East tensions, we had a $1.2 million negative impact to service revenue. The company's contract capture rate, defined as a percentage of active systems covered by a service agreement, continues to be at nearly 90% across our active installed base. As Stephen discussed, optimizing pricing to reflect our true clinical and economic value has been a key piece of our transformation plan. This includes a significant focus on pricing on service contract renewals. While the pricing secured in renewals spans over the next two to three years, we did experience $0.6 million of price favorability within service revenues in the third quarter. Product gross orders for the third quarter were approximately $49 million and represented a book-to-bill ratio of 1.0 in the quarter, with a trailing twelve-month ratio of 1.2. We ended the third quarter with a reported order backlog of approximately $356 million, defined to include only orders younger than thirty months. Our overall gross margin for the quarter was 24.1% compared to 27.9% in the prior year. This decline was primarily due to service margins, which were 26.1% compared to 33.3% in the prior year. Driving this decrease was higher net parts consumption of $3.2 million, which negatively impacted service gross margins by approximately 600 basis points. As we have mentioned in prior quarters, the timing of parts consumption can fluctuate quarterly depending on the volume and extent of service requirements. In the third quarter, our higher-than-anticipated service parts consumption also required higher-than-average logistics and duties costs. Additionally, tariffs adversely impacted service margins by $0.8 million, or 150 basis points. Product gross margins in the third quarter were 21.9% compared to 22.7% in the prior year. The year-over-year incremental cost from higher tariffs was $2.6 million, which adversely impacted product gross margins by approximately 530 basis points. Tariffs have been quite fluid recently, and although IEPA tariffs have been invalidated, we continue to monitor how the tariff landscape evolves over the near term and how that impacts our profitability and cash flow. Operating expenses in the third quarter were $34.4 million compared to $30.6 million in the third quarter of the prior fiscal year. The current-year third quarter includes $6.5 million of nonrecurring expenses, which includes severance costs and other costs directly related to our restructuring and transformation plans. Additionally, the prior-year third quarter benefited from a $3.2 million reversal of unrealized accrued compensation from fiscal 2025. Adjusting for these discrete items, third quarter fiscal 2026 operating expenses decreased $6 million, or 18%, versus prior year, which illustrates that the cost actions taken as part of our transformation have taken hold. As stated above, during the third quarter, we recognized $6.5 million of nonrecurring restructuring expenses. As our transformation plan progresses, we expect restructuring costs to sequentially decrease from these third quarter levels in future quarters, with a significant portion of the restructuring costs recognized by the end of the fiscal year. Operating loss for the quarter was $9.1 million compared to income of $1 million in the prior year. Adjusted EBITDA for the quarter was $3.8 million compared to $6 million in the prior year. We describe the reconciliation between GAAP net income and adjusted EBITDA in our earnings release issued today. Turning to the balance sheet, total cash, cash equivalents, and restricted cash as of quarter end amounted to $44.4 million compared to $47.9 million at the end of last quarter. The restricted cash related to required postings for cash flow hedging and tariffs amounted to $0.4 million in the current quarter as compared to $6.6 million at the end of last quarter. Net accounts receivable were $64.6 million, up $3.6 million from the prior quarter, largely due to higher sequential quarter revenue. Our net inventory balance was $156.6 million, up $5.7 million from the prior quarter. At the end of the third quarter, we had $5 million outstanding on our revolving credit facility. As Stephen noted earlier, we continue to execute our transformation strategy and remain ahead of plan to achieve the $12 million improvements we had originally forecasted. By the end of the third quarter, we had already realized approximately $10 million of these transformation-related improvements, which were largely achieved through workforce and discretionary spend reductions, as well as pricing realization. And with that, I would like to hand the call back to Stephen. Stephen LaNeve: Thank you, Ali. I remain excited about the opportunities ahead for Accuray Incorporated and continue to have strong conviction in the differentiation of our technology and the value it brings to customers and patients. We believe the impact of our strategic focus and the transformation plan we initiated will become increasingly evident over the coming quarters, with 2027 and 2028 financial performance expected to reflect the benefits of the actions we are taking today. As we look ahead, we believe our progress should be measured against a clear set of priorities. Number one, driving top-line growth with our product and service business lines through a focused commercial strategy. Number two, relentlessly executing on our transformation plan to improve gross margins and strengthen EBITDA through tighter cost management. And number three, prioritizing innovation grounded in voice of customer as part of our product and service development programs. We will now open the call for questions. I will turn the call back over to the operator for Q&A. Operator: We will now open the call for questions. The first question comes from Marie Thibault with BTIG. Please go ahead. Marie Thibault: Just wanted to ask about the decision to remove guidance. I know that the Iran war started after your last quarterly earnings call, but your prior commentary had pointed to a close understanding of timelines in these various regions. Why not just revise the guidance to remove some of those specific customers or those revenue installs in those regions? Why remove entirely? Stephen LaNeve: Thank you, Marie. This is Stephen. I appreciate the question, and obviously, we have spent a lot of time thinking through this very carefully. As we noted in our remarks earlier, the shipments to customers in the Middle East, North Africa, and Pakistan particularly have been delayed indefinitely due to these tensions, and that directly impacts both product revenue and all the associated service revenue. Just given the dynamic nature of these disruptions and the difficulty in predicting when these installations will resume, we collectively thought it was more appropriate to withdraw guidance. EMEA is the largest region for Accuray Incorporated, and within EMEA, the Middle East and North Africa are the fastest-growing subregions. Given the interdependencies that exist between other regions around the world, we felt this was the most prudent course of action. Marie Thibault: Okay. And then I know you are ahead of schedule on some of your cost-cutting efforts, but it looks like adjusted EBITDA came in well below what we were expecting and certainly does not really keep you on track for your prior outlook. I understand that has been removed. What is going on there? I think that excluded things like the restructuring charge. So what is going on there? And is there a way to see improving profitability despite some of this macro uncertainty? Ali Pervaiz: Hey, Marie, it is Ali. Thanks for the question. We are really excited about the fact that the transformation is moving along well, and we are ahead, just like you said. In terms of the savings, we have made a lot of progress to date. You heard about the workforce reductions and the reorganization that we have done. We have made a lot of progress in terms of overall cost and spend rationalization, and we will continue to execute on the transformation. The main pillars associated with the transformation relate to continuing to focus on our service business, making meaningful progress in our distributor partnership model, and focusing on optimizing pricing. All of those are going to take some time to come into play, and the timing of those is really hard to anticipate. We think we are still going to see a solid annualized benefit in fiscal year 2027. Marie Thibault: Thank you, Ali. You took my question out of my mouth. I was going to ask about the timing of some of those potential benefits. I will hop back in queue. Thank you. Stephen LaNeve: Thank you. Operator: This concludes our question and answer session. I would like to turn the conference back over to Accuray Incorporated's President and Chief Executive Officer, Stephen LaNeve, for any closing remarks. Stephen LaNeve: Thank you all for joining our call today, and we look forward to speaking with you again in the summer when we report our fiscal 2026 fourth quarter earnings results. This concludes our earnings call. Thank you again. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Talos Energy Inc. First Quarter 2026 Earnings Call Conference. Following the presentation, we will conduct a question and answer session. This call is being recorded on Wednesday, 05/06/2026. I would now like to turn the conference over to Clay P. Jeansonne. Please go ahead. Clay P. Jeansonne: Thank you, operator. Good morning, everyone, and welcome to our first quarter 2026 earnings conference call. Joining me today to discuss our results are Paul Goodfellow, President and Chief Executive Officer, and Zachary Dailey, Executive Vice President and Chief Financial Officer. For our prepared remarks, please refer to our first quarter 2026 earnings presentation that is available on the Talos Energy Inc. website under the Investor section for a more detailed look at our results and operations. Before we start, I would like to remind you that our remarks will include forward-looking statements subject to various cautionary statements identified in our presentation and earnings release. Actual results may differ materially from those contemplated by the company. Factors that could cause these results to differ materially are set forth in yesterday's press release and our Form 10-Ks for the period ending 12/31/2025 filed with the SEC. Forward-looking statements are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we may present GAAP and non-GAAP financial measures. A reconciliation of certain non-GAAP to GAAP measures is included in yesterday's press release, which was furnished with our Form 8-Ks filed with the SEC and is available on our website. And now I would like to turn the call over to Paul. Paul Goodfellow: Thanks, Clay, and good morning to everyone joining us on the call today. To start, I want to thank our employees for their hard work, dedication, and unwavering commitment to safety and environmental stewardship in delivering the results Zachary and I have the privilege of discussing today, especially during these dynamic times. Before turning to our results, I would like to briefly provide some context on the current energy market. Recent geopolitical tensions have reminded global markets of a couple of fundamental truths. Energy security is not guaranteed, and reliable and affordable hydrocarbons remain essential to meeting the world's energy needs. We believe Talos Energy Inc., as part of the vibrant U.S. energy industry, plays a clear and increasingly important role in delivering reliable Gulf of America oil that the world requires. Our strategy is designed to build Talos Energy Inc. into a leading pure play offshore E&P company by delivering high-margin production through disciplined execution, a resilient cost structure, and building a long-lived portfolio that creates durable value across the cycle. Today, I would like to focus on three key takeaways from our results, where outstanding execution across the business drove another quarter of strong financial outcomes, generating adjusted free cash flow of $113 million on production of approximately 89 thousand barrels of oil equivalent per day. First, our disciplined operational performance remains a foundation of our financial results. During the first quarter, we delivered oil production of approximately 64 thousand barrels per day and total production of approximately 89 thousand barrels of oil equivalent per day, which just exceeded first quarter guidance. This outperformance was driven by strong new well productivity at Cardona, continued solid base performance, and high facility uptime. I am extremely proud of our team and want to recognize their tireless focus on operational excellence and identifying opportunities to maximize value across our asset base. This mindset is core to pillar one of our strategy and ultimately leads into pillar two by driving production and profitability. My second key takeaway is that execution is off to a strong start in what is an active drilling and completion year for Talos Energy Inc. In addition to efficient execution and strong performance at Cardona, we drilled and completed the CPN well in quarter one, with first production on track for the third quarter. Execution at CPN was best in class, highlighted by the fact that the well was completed with zero completion-related nonproductive time, an outstanding achievement and a testament to the high-performance team here at Talos Energy Inc. The plan for remediation work to begin on the Genovese well is on track for quarter two with a return to production midyear, slightly ahead of schedule. Lastly, on the execution front, drilling is underway at the Monument project operated by Beacon Offshore, with first oil on track by late 2026. Our relentless focus on improving the business every day has strengthened our position as a low-cost E&P operator in the Gulf of America while also delivering top-decile EBITDA margins across the sector. Over the last three years, as industry cost structures in the Gulf of America have increased, Talos Energy Inc.'s proactive cost management and production growth have resulted in a reduction in unit operating costs. In fact, for 2025, which is the most recent available full-year dataset, our operating costs were approximately 30% lower on average than the offshore peer group. Our advantaged cost structure combined with our oil-weighted production drives top-decile EBITDA margins in the E&P sector. My third and final key takeaway is that we continued this trend of low cost and high margins into the first quarter. Total company lease operating expenses were approximately $16 per barrel of oil equivalent in quarter one, which was in line with our 2025 average. It has also been an impressive start to the year for our optimal performance plan, with greater than 40% of the 2026 target already achieved. These results are broad-based, with free cash flow enhancements driven by operating cost reductions, margin improvement, and capital efficiency, which spans operations, development, and P&A activities. We expect to build on the outstanding first quarter performance and carry that momentum forward into the second quarter. We expect to spud the Daenerys appraisal well later in the second quarter. The primary objectives are to test the northern portion of the prospect and further evaluate reservoir and fluid properties. The well has been designed to penetrate multiple prospective intervals, with optionality to accommodate future sidetracks, enabling further appraisal and development. We are ready to start execution as soon as the rig returns from the current operator's well. We expect to have the well drilled and evaluated by the end of the year. Exploration is a core element of our strategy falling under pillar three: building a long-lived, scaled portfolio that supports sustainable growth. To deepen our exploration inventory for the future, we have been proactive with recent seismic investments, giving Talos Energy Inc. the most advanced reprocessed data across our core areas. This approach to leveraging modern technology enabled a successful December 2025 lease sale, with all 11 leases now awarded. The eight identified prospects among those leases, several of which span multiple blocks, represent more than 300 million barrels of gross unrisked resource potential across amplitude-supported Miocene and Wilcox opportunities. While the work is underway, and is still early, our objective is to advance these prospects toward drill-ready status, allowing them to compete for capital in 2027. For me, the bottom line is simple: a strong execution quarter delivered solid financial outcomes. With that, I will turn it over to Zachary to walk through our first quarter financial results along with the full-year and second quarter guidance. Thanks, Paul. I will focus my remarks this morning on our first quarter financial performance. Zachary Dailey: Which was underpinned by the strong operational execution Paul just discussed and our unchanged, disciplined capital allocation framework. I will also touch on our latest hedging activity before wrapping up with guidance and then opening it up for Q&A. Starting with the quarter, we invested just under $120 million of exploration and development capital and delivered oil production at the high end of our guidance range, with total oil equivalent production exceeding guidance. This strong execution across the business translated into $293 million of adjusted EBITDA and $113 million of adjusted free cash flow. Importantly, these results were achieved at a low reinvestment rate of approximately 41%, reflecting the capital efficiency of our development program and our ability to convert consistent operating performance into strong financial outcomes. While we expect the macro and commodity price environment to remain volatile, Talos Energy Inc. has the financial strength and flexibility to execute on our strategic priorities across a range of commodity price scenarios. Our 2026 plan features development projects with breakevens in the $30s and $40s, with a corporate free cash flow breakeven in the low-$50 WTI range. And although oil prices have moved higher since the Iran war began, our capital allocation priorities and our 2026 budget remain unchanged. We will continue to allocate capital in a disciplined, balanced, and focused manner, guided by the framework that underpins execution across all three of our strategic pillars. This consistency is especially important during periods of volatility, and we believe adherence to our capital allocation framework positions Talos Energy Inc. to deliver strong financial outcomes and long-term value creation through the cycle. As a reminder, our capital allocation framework calls for returning up to 50% of annual free cash flow to shareholders, and the first quarter represented another quarter of consistent execution on this front. We returned $38 million, or 34% of adjusted free cash flow, to shareholders through share repurchases. Since announcing our return of capital framework in 2025, Talos Energy Inc. has returned approximately $135 million to shareholders through repurchases, resulting in an approximately 7% reduction in our outstanding share count. Turning to the balance sheet, our liquidity remains strong and leverage is low, resulting in financial strength that underpins our ability to execute across all three of our strategic pillars. During the first quarter, cash on hand increased while net debt declined sequentially, further enhancing our financial position. In addition to approximately $1 billion of liquidity, we have no near-term debt maturities and have recently extended our credit facility, which now matures in 2030. Together, our balance sheet strength provides flexibility to invest in the business through the cycle, return capital to shareholders, and advance both our development and exploration priorities while maintaining financial discipline. Now let me share a few thoughts on hedging and provide an update on our recent activity. The end of the first quarter was marked by elevated oil price volatility, driven by geopolitical developments and broader macroeconomic uncertainty. In that environment, we remain disciplined and selectively opportunistic, acting consistently within our established hedging framework to support free cash flow while preserving upside. While we added some 2026 oil hedges at the beginning of the Iran war, our primary focus during the quarter was to begin layering in required oil hedges for early 2027, a time period in which Talos Energy Inc. was unhedged before the war began. These initial positions were added to establish protection around future free cash flow, maintain exposure to additional upside, and satisfy credit facility requirements. We view this early positioning in 2027 as prudent and well timed given the current level of market volatility and uncertainty in longer-dated oil prices. It is also worth highlighting that approximately two-thirds of our oil is sour and that we benefit from a balanced oil marketing portfolio with access to multiple physical crude pricing benchmarks. Beginning with April pricing, we saw strength in a number of Gulf Coast sours relative to historical levels, which, all else equal, should support near-term price realizations. Overall, our hedging activity during the quarter reflects a measured and steady approach, using periods of volatility to strengthen cash flow resilience and reinforce our ability to execute consistently across the cycle. For the forward outlook, all of our full-year 2026 operational and financial guidance ranges we released in late February remain unchanged. For the second quarter, we expect oil production to be in the range of 63 thousand to 67 thousand barrels of oil per day and total production to be in the range of 88 thousand to 92 thousand barrels of oil equivalent per day. Additional details describing our guidance can be found in our presentation, which is available on our website. In closing, the business is off to a very solid start to the year. With a clearly defined strategy, an advantaged cost structure, and top-decile margins, we have the financial strength and flexibility to execute on our strategic priorities while remaining anchored to our disciplined capital allocation framework. With that, we will open the line for Q&A. Operator: Thank you. In a moment, we will open the call to questions. The company requests that all callers limit each turn to two questions from each analyst, one question and one follow-up. If you would like to ask a question, please press star 1 on your telephone keypad. It may be necessary to pick up your handset before pressing the star keys. One moment, please. Your first question comes from Greta Drefke with Goldman Sachs. Please go ahead. Greta Drefke: I was wondering if you could just update us with your latest thoughts around how different uses of free cash flow compete across holding cash on the balance sheet, leaning into share repurchases like you did this past quarter, or potential M&A here? Paul Goodfellow: Yes, thanks, Greta. Good morning. Look, I would say nothing changes. We have a very clear framework in terms of how we think about capital allocation that we have been working within over the last year, where we have seen prices rise and decline during that timeframe. That is really focused on investing in the business, making sure we maintain the strength of the balance sheet, absolutely returning cash to shareholders, but also giving ourselves the opportunity to invest in the future of the business to make sure that we have length in the portfolio. We have said that investment needs to make Talos Energy Inc. better and not bigger, and so it is not investment for investment's sake. In the same way as you see us investing in projects in 2026 and going into 2027 that have low breakevens and high returns and can deal with the volatility that we see in the macro, that is how we look for that fourth component as well. We will balance that as we go through 2026 and 2027, with no change to the overall framework in which we are thinking and operating and planning. Greta Drefke: And then just for my second question, on the longer-term outlook: if we are in a higher-for-longer oil price environment, albeit very volatile, as you are thinking about organic growth opportunities like you mentioned, is Talos Energy Inc. considering leaning into any incremental organic growth projects in 2027 or 2028 to potentially turn economic given where the oil forward curve is today relative to a few months ago? Paul Goodfellow: I would reiterate what we spoke about before, which is we look for projects that have low breakevens, and Zachary mentioned that in the comments. We are not going to chase an oil curve. We will look for projects that have resilience through the cycle. As we mentioned, we were very successful in the first lease sale that was held in 2025. All of those leases, the 11 leases, have now been awarded to us, and we are working those diligently to allow the majority of those to compete for capital in 2027, but that is normal course. It is not in reaction to where the price is today. If you look at the shape of the curve, it is still incredibly backwardated. Yes, the long end is slightly higher than where it was pre the Iran war, but it is nothing that would fundamentally change our view on how we invest in projects and the thresholds that we have for those projects to be considered to compete for capital. Operator: Thank you very much. Paul Goodfellow: Thank you. Operator: Thank you. The next question comes from Analyst with BMO. Please go ahead. Analyst: This is Ajay Bhukshani on for Phil. Thanks for taking our question. As we think about the upcoming appraisal well at Daenerys, you do a good job of listing out the objectives, but what are some of the key risks here? And assuming you accomplish these objectives, how does this inform your resource potential estimates, or is further appraisal needed to really dial this in? Paul Goodfellow: Thank you. The reason that we are drilling the appraisal well at Daenerys is to try and derisk the range of uncertainties that we have. The clear risks, as there are with any exploration or appraisal well, are whether the main objectives we are looking for are present, do we see the reservoir characteristics that we are looking for, do we see the fluid characteristics that we are looking for, and how does that all then get folded into the overall resource size and estimate and quality that can inform the next steps. Clearly, there are always mechanical risks when you are drilling deep subsalt wells such as this, but we are incredibly fortunate at Talos Energy Inc. to have one of the best drilling and completion teams in the industry. They have demonstrated that time and time again with what they have done on the first Daenerys well, on Sunspear, on Cardona, and CPN. We plan accordingly, really thinking about the risks and how we mitigate those. Outside the mechanical risks, it really is looking at derisking the reservoir and fluid properties and characteristics. From that point, we will make the determination of what further appraisal, if any, is needed. It depends on where those results come in, which, as we have mentioned, we expect to spud that well once we get the rig back from the current operator in the second quarter, with results, all being well, available before the end of the year. We will clearly be able to update you then. Analyst: Very helpful. Thank you. And for my next question, can you just talk about what you have been seeing on crude differentials through 2Q so far? There is a strong global bid for waterborne medium sour barrels. Also, what is the typical breakdown as far as barrels and key price hubs for Talos Energy Inc.? Zachary Dailey: Ajay, this is Zachary. I appreciate the question. The diffs that we have experienced in April and May have been positive to HLS. About two-thirds of our crude is sour, with a little bit higher sulfur content than a sweet barrel, so they price at Mars, Poseidon, and Southern Green Canyon. We have seen an uplift in those sour diffs in the first part of the second quarter. All else equal, that should help realizations in Q2. Hope that helps. Analyst: Thanks, very helpful, and congrats on the good quarter. Zachary Dailey: Thank you. Operator: The next question comes from Analyst with Pickering Energy Partners. Please go ahead. Analyst: Hey, good morning. Thanks for taking our questions. It does seem like the oil market might be going through a structural shift that could result in a higher mid-cycle price. Under that context, how does the Talos Energy Inc. business strategy change, if at all, in a higher pricing scenario? And if it does not change, what levers can you pull to capitalize on higher prices? Paul Goodfellow: Thanks, Michael. I think it does not change. We have a very robust strategy in terms of the three pillars that we are driving against. We have a disciplined capital allocation framework in which we will look at how to deploy capital, and that is where our focus will remain. We are laser-focused on improving our business each and every day, driving continuous improvements, and we have continued to see evidence of that through the first quarter. We are equally focused on the second and third pillars in terms of driving production profitability and building a longer-lived, scaled portfolio. There is a lot of activity going on in those spaces. Until something gets to the finish line, it is difficult for us to talk about that. Bottom line is that our strategy does not change. If anything, potential structural changes through the cycle reinforce the strategy that we have and the need for the capital discipline that we are driving. Zachary Dailey: I might just add to what Paul said. To your second point on how you capitalize on higher oil prices: we expect to be 73% oil in 2026, which drives those top-decile margins that we are very proud of. Similar to the prior question, strong differentials are a near-term benefit with the sour crude we produce. Analyst: I appreciate the context. One related area we are trying to understand is how these oil prices affect the offshore rig market. With the West Bella contract rolling and with the upcoming Daenerys appraisal as well as other prospects, presumably Talos Energy Inc. has been active in this market recently. Paul, I would be curious to hear your views in the high-spec drillship market. Are you seeing a tightening? Do you feel that there is enough availability? And maybe you could offer your opinion on how leading-edge dayrates in the Gulf have evolved over the last twelve months. Paul Goodfellow: Thanks. The trends we are seeing are the trends that were suggested six to nine months ago, which was some potential capacity in 2026, but the market tightening in 2027. I think that is what you are actually seeing, maybe a slight acceleration of that tightening given what has happened in oil prices over the last two months. It is also important to remember that, for deepwater projects and deepwater wells, the cycle time is much longer from decision to having the well online. I still think for operators like ourselves there is a degree of caution in terms of making sure the projects that we move forward with have low breakeven prices. We have been in the market with a tender for deepwater rig activity in 2027. We have had a number of high-spec rigs bid into that, and we will be making our decision in the coming weeks and months as to which rig or rigs we take on in 2027 and beyond. We are looking at our needs beyond just the very near term and starting to think more strategically about deepwater rig needs. It is also important that we have the ability to intervene quickly on wells should they have a problem, such as the Genovese well that we identified at the back end of last year. Leveraging technology and using an intervention vessel platform to do intervention work versus only relying on the high-spec rigs gives us another degree of flexibility as we think about the type of vessel and therefore the cost of the vessel to do the work that we need to do. In fact, that is one of the reasons why the Genovese well is on or slightly ahead of plan at the moment, because of our ability to execute that work off an intervention vessel versus a high-spec rig. I hope that gives you some color. Analyst: That is great. Thanks for your time. Paul Goodfellow: Thank you. Operator: The next question comes from Timothy A. Rezvan with KeyBanc Capital Markets. Please go ahead. Timothy A. Rezvan: Good morning, folks. Thank you for taking our questions. First one, maybe this is for Zachary. On the balance sheet, Talos Energy Inc. has $1.25 billion of second-lien notes out there. The company is in much better financial health than when those were issued. They are trading above par, and some are callable now, and I know the call steps down in 2027. Just curious where that is on your radar screen this year. And maybe for Paul, is that part of that $100 million cash flow uplift, getting those refinanced? Thanks. Zachary Dailey: Thanks for the question, Tim. Good morning. You pretty much nailed the state of affairs on the ’29s. It is front and center on our minds. The high-yield market is very tight, and it is a good place to be for companies like Talos Energy Inc. I would say we have lots of flexibility in our balance sheet and our capital structure right now to support the strategy that we have laid out to the market and go out and execute the plan. I do not want to get into too many specifics, but suffice it to say that it is definitely front and center and we are in a good spot. Paul Goodfellow: The simple answer to the second part of your question, Tim, is any refinancing benefit we would get is not considered in the $100 million of additional free cash flow. That is centered around the operational, capital, and supply chain efficiency world in terms of the execution of the plan today. But as Zachary said, the actions we will take around those bonds are very much front and center in our thinking at this point in time. Timothy A. Rezvan: Appreciate the details. As a follow-up, also on the capital allocation theme, Talos Energy Inc. has repurchased shares for five straight quarters. It seems to be a consistent part of your use of free cash flow, but we also, going into today at least, have shares pushing two-year highs. Should we think of that as maybe you toggle that up or down, but you expect that to be a consistent part of the program, greater than zero but opportunistic? Just trying to understand how you think about repurchase intensity with shares back at ’16. Paul Goodfellow: We think about it within the framework that we laid out. We have said we are investing in the business today, we are going to maintain the strength of the balance sheet, we are going to look for accretive opportunities to support and build the business, and we are going to return capital to shareholders through share buybacks. It is a balance of those four. That is what you have seen us do over the last four quarters, and thank you for the recognition of that in terms of the consistency of executing against the strategy that we have. That is how you will see us think about it going forward, not only in this quarter, but the quarters to come. Zachary Dailey: Tim, Paul is exactly right. I will just add that in Q1 it was about 34% of free cash flow allocated to repurchases. Within the financial framework that we want to stay consistent to, we have the flexibility of up to 50%. At any one point in time, we will be toggling in that range. As we highlighted in the prepared remarks, we have reduced the outstanding share count by about 7% over the last twelve months since the strategy was rolled out. We do want to stay consistent, but we do have flexibility within that framework. Timothy A. Rezvan: That is all I had. Zachary Dailey: Thanks, Tim. Operator: Thank you. The next question comes from Paul Diamond with Citigroup. Please go ahead. Paul Diamond: Thank you. Good morning, all. Thanks for taking the call. Just a quick one on Katmai/Tarantula. I know that there was some recent debottlenecking there. Looking at it longer term, do you see there continuing to be capital going out beyond, you know, I know it is flatlining through 2027, but going out beyond that? Paul Goodfellow: Thanks, Paul. The Katmai field is doing incredibly well. The operations team there continues to focus on safe, efficient operations and maximizing throughput. That is what we have seen as we have gone through the first quarter of this year, a continuation of what we were doing in 2025. We have said there are a number of opportunities around the Katmai field—Katmai North as well as some of the leases that we acquired in the last lease sale. As we think about maturing those, we will also consider what further debottlenecking or expansion of that facility is needed. For where we are today, we see that nice plateau, and that is where we will sit. The next level of expansion would be looping of the pipeline, which would give us additional capacity. To do that, we would want to have additional volumes coming in from near-field wells. Those are the wells the team is maturing at the moment to compete for capital in 2027. Paul Diamond: Makes perfect sense. Just a bit of housekeeping on the optimal performance plan. You talked about $100 million in savings, with about 40% achieved. How should we think about the vector of that plan? Does the low-hanging fruit come first and the rest is somewhat linear, or is it more chunky? What is the timeline on completion? Paul Goodfellow: Great question. The plan is a continuation of what we laid out last year. We set an interim target, which the teams did incredibly well to exceed in 2025, and there is an element of those that recur from 2025 to 2026. There is some lumpiness as it comes through. I would think of the vector overall as, between where we are now and the $100 million at the end of the year, we have a high degree of confidence in delivering that $100 million, and we will be looking for ways to exceed it. We are not changing that target at this point in time. Zachary Dailey: I would just add that the real prize here is instilling a culture of continuous improvement, which has been a cornerstone of Talos Energy Inc. for a long time, but now with a bit more framework and structure. That will continue well into the future. Operator: The next question comes from Michael Stephen Scialla with Stephens. Please go ahead. Michael Stephen Scialla: Good morning, guys. It looks like you will have some growth heading into 2027 with Monument coming online at the end of the year. I realize there is a lot of variability and unpredictability with your business, but can you say if you are anticipating year-over-year growth next year, barring a collapse in 2027 oil prices, or is it too early to go out that far? Paul Goodfellow: In simple terms, it is too early to go out that far. There is a lot of uncertainty in terms of the work that we have to do this year still. The Monument project has started and, with our partner Beacon Offshore as the operator, operations so far are going well, but there is a long way between now and actually getting production from those wells. There is a range of uncertainty, although the area in which Monument sits is a prolific area if you think about the Shenandoah hub, which is where it will tie back to. We also have a fairly significant redevelopment program at Brutus coming through in the second half of the year that we are getting ready to start up now, and other activities as well. We are investing this year in good-quality, low-breakeven projects that give us stability for the future, but it is too early to put a number on a vector relative to where we are in 2026. Michael Stephen Scialla: Understood. Could you talk more about the 11 new leases that you got in the lease sale that you said unlock eight new prospects? It looks like some of that is in the Wilcox and that inventory is expanded. Maybe your thoughts on the confidence in that play and what you are seeing with those new leases? Paul Goodfellow: You are right. We were successful in getting 11 leases where we have identified eight prospects, and some of those span a number of blocks. We focused them around two key areas for us—around the Katmai area and around the Daenerys location. We focused them on plays where we have deep skills, including amplitude-supported Miocene, Wilcox, and some in the Paleogene. We are now going through the seismic work. We preinvested in seismic so that we could mature those prospects and have them compete for capital in 2027. We are focused specifically in the Wilcox in a proven part of the play where we see opportunities with tieback potential, but also with upside to be standalone and hub class. Those are some of the criteria that we looked at the leases through, and we will continue to look at opportunities in future lease sales. The preinvestment in really advanced, reprocessed proprietary seismic around those key areas and fairways is important. Operator: The next question comes from Nathaniel Pendleton with Texas Capital. Please go ahead. Nathaniel Pendleton: Good morning. Congrats on the strong results. You just mentioned the Brutus wells. Can you talk about the potential you see for similar recompletion activity across your portfolio? And how do those types of opportunities compete for capital when you are looking at potentially doing a dedicated drilling program as you look out to 2027–2028? Paul Goodfellow: What we are doing at Brutus is really bread and butter for Talos Energy Inc., which is our ability to take these mid- to late-life assets, identify opportunities that have maybe been overlooked, and then execute those very efficiently and effectively to maintain the volumes and throughputs of those hosts. This is the second or third incarnation of redevelopment that we have done at Brutus, and we have had similar activities at other hubs. It is important that we have high-quality seismic over those locations, so we can look at near-field opportunities from an infrastructure point of view. They need to compete in terms of breakevens and returns relative to other opportunities that we have in the portfolio. It is also important that we are balancing the focus on larger-scale opportunities in the exploration phase with high-quality development that can maintain the high oil component of the portfolio that we are delivering at the moment—north of 70% oil cut. The Brutus program specifically will be targeting more oil opportunities than gas. In fact, some of the wellbores it will use are wells that have been gas wells coming to the end of their life, and we will use those wellbores to add additional oil into the portfolio. Nathaniel Pendleton: Got it. Appreciate the detail there. As my follow-up, I wanted to zoom out and discuss M&A. Can you talk about the opportunity you see in the Gulf of America in smaller asset-level acquisitions versus corporate M&A potential? And do you have any interest in shallow-water assets versus deepwater? Paul Goodfellow: Our focus is to become a leading pure play offshore E&P player. From a Gulf Shelf perspective, we have a large legacy position, and we will continue to operate and execute those as efficiently and effectively as we can through to end of life, being a responsible operator as we take those through to abandonment and decommissioning when the time is right. In terms of asset-level opportunities, there has been a history of asset activity within the Gulf of America. We would expect that to continue to some degree. What has happened over the last two months post the Iran war run-up in prices has created a bit of a bump in the road in terms of how buyers and sellers think about price points. I think we are getting to a new norm and an understanding of how to deal with that. There will be a continual degree of opportunities that come forward, maybe not at a super high level, as current incumbents look to optimize their full portfolios as any company, including ourselves, would do. Operator: The next question comes from Phu Pham with Roth Capital. Please go ahead. Phu Pham: Hi. Good morning, everyone. My first question is about the cost savings. You executed $72 million in 2025, and the company expects to realize in total $100 million in 2026. The slide shows you have executed greater than 40% of the 2026 target. Is that 40% of the $100 million in total for 2026? Can you quantify that a little bit? Paul Goodfellow: Thanks, Phu. The $100 million for 2026 was a new $100 million starting at zero. We have executed just above 40% of that $100 million. The $72 million was the number in 2025 attributable to activities in 2025. Some of the solutions we put in place are repeatable, and we would expect to see those continue into 2026, but the target we set for 2026 was a new $100 million target and that was built into our plan. Phu Pham: That is very helpful. My second question is about the Genovese well. Can you provide an update? I think originally we expected to bring it back in the third quarter 2026, but now it is midyear. Can you provide more exact timing for the wells? Paul Goodfellow: The team has done a great job of procuring all the equipment that is needed, including the insert safety valve, which is now here in the Gulf with us; working with the operator to make sure we have access to the control system of the well; and accessing a platform in terms of an intervention vessel. We are working toward execution. I cannot be more specific than midyear because there is still uncertainty in terms of when we actually get the vessel and the exact date we can go onto the well, working with the operator. As is the culture of Talos Energy Inc., the team has worked incredibly hard to look at every lever we can pull to get that as early as we can while still executing it efficiently. Our prime driver is to execute efficiently to get that well back online, which at the moment we see slightly ahead of the third quarter target that we gave when we first shared the Genovese update last quarter. Phu Pham: Alright. Thank you. Paul Goodfellow: Thank you. Operator: The next question comes from Noel Augustus Parks with Tuohy Brothers. Please go ahead. Noel Augustus Parks: Hi. Good morning. I was wondering about exploration in the industry. We have heard so much, especially over the last couple quarters, about onshore exhaustion and more capital heading out to deepwater globally. With exploration drilling starting to get rolling more and more, it is nowhere near its past peaks. Is there anything that you see in the Gulf that you think is particularly exciting to the point where you could be enticed to maybe take a non-op role in someone else's exploratory prospect? Is the quality of what is out there something you are excited about or more routine? Paul Goodfellow: The first thing I would say is if we were not excited about the opportunities, we would not have taken the 11 leases that we did in the first big lease sale in December 2025. We have had a strategy of not just looking for exploration, but looking for exploration opportunities that can raise the volume picture that we have. As I have said in the past, in that first lease round we now have access to some 300 million barrels of gross unrisked volume opportunity, and the individual opportunity size has gone up by roughly 50% relative to what we had prior to that. Clearly, we prefer to be an operator. We think we have great skills in operating, but if partnering opportunities are out there, we will look at those if it is the right type of subsurface opportunity that fits our skills. Our continued investment in seismic is another point—if we were not excited by the opportunity set and potential, we would not be investing in high-quality, state-of-the-art, reprocessed proprietary seismic that allows us to develop those opportunities. Clearly, we are happy to be a non-operator with the right operator, as you see with the Monument development that we are doing now. Noel Augustus Parks: Fair enough. A general macro question: when we look at the volatility we have had in oil prices in the last couple months, from your long experience, any thoughts on the 2027 strip and whether there is a big leg up ahead or whether we have seen about as much as it is going to do unless there is a huge swing one way or the other? Paul Goodfellow: The only thing that we focus on at Talos Energy Inc. is making sure that our unit development costs, drilling costs, and lifting costs are as low as they can be and that we do that as safely and efficiently as we can. Regardless of where strip goes, we know that we have a robust set of opportunities that we can execute against. We will not get caught up in trying to have our decision quality driven by what we think a strip price may or may not be. Operator: We have reached the end of the question and answer session. I will now turn the call over to Paul Goodfellow for closing remarks. Please go ahead. Paul Goodfellow: Thank you, and thank you all for joining today and for your continued interest in Talos Energy Inc. To close, the current geopolitical landscape reinforces our belief that the world will continue to need reliable and affordable oil supply to meet rising global demand well into the future. We believe that Talos Energy Inc. is well positioned as a low-cost, high-margin oil producer, executing a well-defined strategy to become a leading pure play offshore E&P company and play a meaningful role in meeting that opportunity. Thank you all. Operator: This concludes today's conference, and you may now disconnect your lines. Thank you all for your participation.
Operator: Thank you for standing by, and welcome to H&R Block, Inc.'s Third Quarter Fiscal Year 2026 Earnings Conference Call. Currently, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. To remove yourself from the queue, press star 11 again. I would now like to hand the call over to Jessica Hazel, Vice President, Investor Relations. Please go ahead. Jessica Hazel: Thank you. Good afternoon, and welcome to H&R Block, Inc.'s fiscal 2026 third quarter financial results conference call. Joining me today are Curtis Campbell, our President and Chief Executive Officer, and Tiffany L. Mason, our Chief Financial Officer. Earlier today, we issued a press release and presentation which can be downloaded or viewed live on our website at investors.hrblock.com. Our call is being broadcast and webcast live and a replay of the webcast will be available for 90 days. Before we begin, I would like to remind listeners comments made by management may include forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties, and actual results could differ from those projected in any forward-looking statement due to numerous factors. For a description of these risks and uncertainties, please see H&R Block, Inc.'s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q as updated periodically with our other SEC filings. Please note some metrics we will discuss today are presented on a non-GAAP basis. We have reconciled the comparable GAAP and non-GAAP figures in the appendix of our presentation. Finally, the content of this call contains time-sensitive information accurate only as of today, 05/06/2026. H&R Block, Inc. undertakes no obligation to revise or otherwise update any statements to reflect events or circumstances after the date of this call. I will now turn the call over to Curtis. Curtis Campbell: Good afternoon, and thank you for joining us. This quarter, we delivered strong results ahead of expectations across all key metrics. Those results demonstrate that our strategy is translating and that the quality of our business continues to improve. Based on our year-to-date performance, we are raising our full year outlook. This tax season provided early evidence that our strategy focused on expert-led, technology-enabled experiences is showing up in measurable ways, not just in our financial performance, but also in how clients are choosing us: engaging with our experts, experiencing more technology- and AI-enabled service. Those outcomes reflect capabilities we built steadily over the last year and that we further sharpened this season through strategic experimentation, targeted decisioning, and disciplined execution, all centered on the clients we serve. Our progress this year reinforces that H&R Block, Inc. is uniquely positioned to meet clients where they are, bring their trust to expert judgment, and give them the confidence to navigate the complexity of tax preparation and tax planning. Coming out of the season, it is clear that our focus on assisted is delivering tangible results. A key question surrounding H&R Block, Inc.'s performance has been when we stabilize assisted channel market share. Well, this season we did. After two years of improving share trends, net progress translated into meaningful inflection in tax season ’26, as we maintained assisted share, holding our position in a highly competitive environment. Importantly, our assisted channel market share performance was favorable each week throughout the entire season. That consistency matters. It reflects stronger execution from the start of the season through the peak. We continue to see our value proposition resonate most in client segments with a strong desire for confidence, trust, and judgment. Clients with more complex needs are choosing to engage with H&R Block, Inc. at higher rates, and our omnichannel model is designed to serve those clients with the right combination of human expertise and technology. I will speak more to that in a moment. This season's performance underscores the quality, consistency, and strategic focus of the assistance we provide, supporting a more durable business. Our disciplined execution also translated into better outcomes for clients, including evolved experiences that deliver clear expectations, fewer friction points, and more consistent delivery whether our clients engage with us digitally or in person. Those experience improvements drove stronger conversion, higher retention, and better product attach rates, reinforcing both the quality of the experience we are delivering and that our clients are responding to it. One example of how we improved conversion this season was the introduction of a personalized pre-appointment experience that set clear expectations, reduced unnecessary steps, and guided clients to a more streamlined path into the appointment. By addressing friction early in the journey, clients came into appointments better prepared and more confident, which translated into higher conversion rates. Along with conversion, we also saw meaningful retention improvement this season, with Second Look a clear proof point. Last quarter, I shared our plans to meaningfully automate and scale Second Look while we view it as an important driver of client loyalty over time. I am pleased to share that new clients who received Second Look last tax season returned at a 600+ basis point higher rate compared to new clients who did not receive Second Look, reinforcing its role in building trust, confidence, and a quality experience from the very start of the relationship. We are now using AI-based technology to scale Second Look and embed it more consistently into the new client experience so more clients can benefit. By automating the initial review of prior-year tax transcripts, we can focus tax pros’ time on returns with the greatest opportunity while still delivering timely, actionable insights for more clients. This capability allows us to expand Second Look in ways that were not previously feasible and extend its positive impact even further. I have also emphasized our focus on eliminating and/or automating inefficient work so that our tax pros can focus on what matters most to clients, and that is the relational and trust-building experience that differentiates H&R Block, Inc. As part of that effort, this season we equipped all of our offices with client experience monitors, allowing clients to learn about and explore add-on products in a simple, self-guided way without the need for tax pro intervention. Our tax pros are naturally focused on accuracy, advice, and building trust with clients, so simplifying choices, improving clarity, and digitally engaging clients through the client experience monitors proved very successful. Coming out of the season, we saw a 550 basis point increase in product attach, and clients reported greater comfort with the process. Recent tax law changes also contributed to positive client outcomes this season. Average refund amounts for H&R Block, Inc. clients increased by approximately 11%. We saw approximately 7% growth in clients who received a refund and more than a 25% decline in clients who owe the IRS. Those recent tax changes also created new opportunity to help clients access meaningful benefits. A clear example is five thirty eight Trump accounts where we helped enroll more than 2 million accounts, representing over 90% of eligible clients whose children qualify for the $1 thousand fee contribution. Together, these results underscore the role we play in helping millions of clients navigate complexity, support important financial goals for their families, and strengthen their financial confidence. We are also seeing our strategy translate clearly in the segments that are most critical to the long-term health of the business. That impact is most evident with more complex clients where confidence, trust, and judgment play a central role in the decision to engage. As our execution and customer experience improved, we have seen a greater mix shift towards higher-complexity clients this year, reinforcing that our model resonates most where expertise truly matters. As we have said before, not all market share is created equal, particularly in the DIY channel. Customer lifetime value matters more to the financial health of our business than raw volume. Our focus remains on attracting and retaining clients who are more likely to build long-term relationships with us rather than optimizing for lower lifetime value, transitory filers. This season’s results reflect deliberate progress in this area, improving both durability and economics within our business. The gains we are seeing reinforce our focus. They are proof points that disciplined execution and deliberate choices are translating into higher-quality, more durable growth. This season reinforced that the winning model in an AI-driven future is expert-led, technology-enabled experiences, particularly in a high-stakes, highly regulated environment like tax preparation. As AI adoption increases, accuracy and confidence matter more than ever, and clients continue to value the trust, judgment, and accountability that come from working with a tax expert. Our model is well positioned in this environment, and our approach continues to receive external recognition. CNET not only named H&R Block, Inc. the best online tax product, but also recognized H&R Block, Inc.'s AI-powered tax platform with its Best Use of AI award. That recognition highlights how we pair advanced technology with trusted expertise to deliver better experiences for our clients. And we saw this expert-led, technology-enabled positioning reinforced through client and tax pro behaviors and outcomes this season. Let me touch on a few examples of how this came to life. This year, we rolled out Sidekick, our AI-enabled tax pro assistant. Through our collaboration with OpenAI and grounded in the expertise of H&R Block, Inc.'s Tax Institute, we created a unique AI tool that allows tax pros to query and research complex tax topics. Sidekick received positive feedback and saw strong adoption all season, underscoring the power of embedding AI-assisted support directly into the expert workflow while professional judgment remains critical and amplifies impact for clients. Similarly, within the paid DIY filing experience, AI Tax Assist provided clients with real-time, expert-informed answers, and it is becoming increasingly effective as we incorporate learnings from each season. This tax season, AI Tax Assist supported 4.1 million client messages and responses, representing an 88% increase year over year. We gave you these examples along with the AI-enabled scaling of Second Look I discussed earlier to illustrate how we are applying AI in practice, drawing on the capabilities we develop in-house and with select external partners. They reinforce that our strategy is not about replacing expertise with technology, but about using technology to scale expertise, strengthen trust, and deliver more consistent, higher-quality outcomes for our clients whether they work with our tax pros or choose to self-prepare. I have shared the evidence of our strategy at work this season, reflected in stronger conversion, higher client retention, better client experiences, and improvements in the quality of our business. What I want to focus on next is what I believe will continue to drive results next season and for years to come. At the core is how we operate. We have embedded a disciplined learning mindset into how we run the business, focused on identifying what drives meaningful impact, learning from what happens in the wild, and scaling what works. This is not about one-off initiatives. It is about building repeatable execution that compounds over time. Our approach is intentional and focused on removing friction and elevating outcomes for the clients we serve. Not every experiment will earn the right to scale. Some experiments will fail. But every experiment must generate learnings that sharpen execution and accelerate our velocity. We ran more than 150 experiments this season, which is exponentially higher than in prior years. I have talked about several already, and I will not go through all of them, but I do want to highlight one that illustrates how this discipline translates into real impact. One of those meaningful areas of progress this season has been AI automation. We are accelerating our testing and use of more advanced AI tools across tax preparation with a clear goal: eliminating manual data entry, which is a non–value-added step for both clients and tax pros. These efforts are designed to handle more of the mechanical work behind the scenes—the data collection, data entry, and calculations—while keeping tax pros firmly in the role of review, judgment, and advice. By reducing time spent on manual tasks, we can free up capacity for tax pros to generate deeper insights and enable higher-value client conversations. This combination creates a structural advantage relative to purely digital models, particularly in a category where mistakes carry real consequences and confidence matters. Results from our AI-enabled automation experimentation this season have been strong. Although there is still more to learn, we are encouraged by what we are seeing, with a clear path to further scaling over time and expanding our ability to help and empower financial freedom for millions of Americans. I have covered a significant amount of information today and shared examples of how we are operating with discipline, testing in real-world conditions, learning quickly, and scaling what works. The takeaway is that this is how we compound progress over time and continue to raise the consistency, quality, and durability of our business. What we saw this tax season reinforces that our strategy is delivering results while also making clear that we are just getting started. There is significant opportunity ahead to raise the bar in execution, deepen our impact with more complex clients, and further scale the capabilities driving consistency and quality across the business. Our omnichannel model is designed to extend that execution across client needs and the ways clients choose to engage. I also want to mention I am excited about the leadership team we have in place. They bring a strong combination of deep industry experience and fresh perspectives, and I am confident this team will continue to execute with discipline and momentum as we move forward. As we look ahead, our priorities are clear. We will continue to elevate the client experience, serve more complex clients, expand our small business opportunity, and apply AI and technology to scale trusted expertise and deliver consistent expert-led outcomes at a level independents cannot match. I will now hand the call over to Tiffany. Tiffany L. Mason: Thank you, Curtis, and good afternoon, everyone. In the third quarter, we delivered strong year-over-year growth across our key financial metrics, with revenue up 5%, EBITDA up 6%, and adjusted EPS up 12%, reflecting performance above expectations. Based on our year-to-date results, including a strong tax season, we have raised our full year outlook. In the third quarter, we delivered revenue of $2.4 billion, an increase of 5.3% over the prior year. This increase was primarily driven by higher NAC and volume in U.S. assisted tax prep, growth in international revenue, and an increase in refund transfer volume. As Curtis noted, our assisted channel market share trend improved meaningfully this season, marking the third consecutive year of improvement in our core business. We were able to maintain our market share position this season through better execution in a highly competitive environment. In the DIY channel, not all market share is created equally because of the free and paid dynamic, and we have made a strategic choice to prioritize lifetime value. While our assisted volume growth outpaced DIY, key underlying health metrics improved across the business. We drove improved conversion rates in both channels year over year, supported by lower friction and better client experiences. We delivered higher retention rates among prior clients, and our mix continued to shift toward more complex returns, particularly with $100 thousand+ AGI clients. Adjustments were made without impacting clients’ value perception. Taken together, we believe these results reflect a healthy and improving business. Total operating expenses for the quarter were $1.4 billion, a 4.8% increase over the prior year. This increase was primarily due to higher field wages as a result of higher assisted revenue. As we have experienced the last few years, a significant amount of volume is processed in the final weeks of the season, which puts pressure on labor capacity resulting in overtime. Additionally, as we serve increasingly more complex clients, we have an opportunity to allocate return volume more effectively across our tax pro population. Third quarter EBITDA increased 5.9% over the prior year to $1.1 billion. Our effective tax rate was 16.5% compared to 24.6% last year. During the quarter, we recognized a one-time non-tax benefit related to the resolution of an IRS examination that we have previously discussed. This $84.1 million benefit reduced income tax expense and provided a $0.65 benefit to earnings per share. Net income from continuing operations was $848.8 million, an increase of 17.4%, and earnings per share from continuing operations were $6.61, an increase of 24.2%. Adjusted net income was $773.7 million, an increase of 5.8%, and adjusted earnings per share were $6.02, an increase of 11.9%. The increase was a result of fewer shares outstanding from share repurchases and higher net income. Our disciplined approach to capital allocation continues to create meaningful shareholder value. We generate significant, stable annual cash flow and expect the same for this fiscal year. We use this cash flow to invest in the business, grow the dividend, and return excess capital to shareholders through share repurchases. In the first nine months of the fiscal year, we generated operating cash flow of $586.7 million. During that period, we have returned $560.9 million to shareholders in the form of dividends and share repurchases, with Board approval to repurchase an incremental $100 million of stock in the fourth quarter under our previously disclosed $1.5 billion repurchase program. We have approximately $700 million remaining under that program. Turning to our full year outlook, based on strong year-to-date performance, we are raising our guidance for fiscal 2026. As reflected in today's earnings release, we now expect revenue in the range of $3.91 billion to $3.92 billion, EBITDA in the range of $1.025 billion to $1.035 billion, an effective tax rate of approximately 14%, and adjusted diluted earnings per share in the range of $5.10 to $5.20. Our updated outlook reflects the strength and consistency of our execution every quarter of fiscal 2026. And with the tax season now complete, we have also incorporated full season results, peak period labor costs, and a planned shift in marketing expense that aligns with later-season filing dynamics. We were pleased with our third quarter operational and financial results, yet the more important takeaway is what they reflect about the trajectory of our business. We are creating a more durable, expert-led, technology-enabled model, providing assistance to our clients wherever and however they choose to engage with us. That positions us to generate more cash flow and deliver greater value for shareholders. With that, I will turn it back over to Curtis for closing remarks. Curtis Campbell: Thank you, Tiffany. This quarter reflects continued progress against our strategy and improved execution across the business. As the results show, better client experiences, stronger retention, and a continued shift towards more complex clients are contributing to a more durable business. I want to thank our tax pros, associates, franchisees, and partners for their continued dedication to serving clients with expertise and with care. And importantly, I want to thank our clients for their continued trust and confidence in H&R Block, Inc. At the core of what we do, H&R Block, Inc. is in the business of trust, and we do not take that responsibility lightly. It remains central to everything that we are. We will now open the call for questions. Operator: You may press star 11 to ask a question. Press star 11 again to remove yourself from the queue. Our first question comes from the line of Kartik Mehta of Northcoast Research. Your line is open, Kartik. Kartik Mehta: Hey. Good afternoon. Curtis, I wanted to just look at assisted market share and your perspective on that this tax season. I know the tax results you give are from July 1 through April 30, but if you looked at the tax season from January 1 through the thirtieth, kind of the IRS data that is out now, how would you characterize market share for H&R Block, Inc. this season on the assisted side? Curtis Campbell: I am happy to talk about our results this season. Let me touch on that, Kartik, and thank you for the question. I hope you are doing well. We had a really strong season in assisted this year, and just a reminder, assisted gained share in three of the last five tax seasons. This tax season, tax law changes, as you know, resulted in an increase in the number of taxpayers receiving a refund. If you take a look at the information from the IRS, it also resulted in an increase in the average refund amount by 11% and a decrease in the amount of balance dues by a little over 20%. All those things are strong positives for most taxpayers. Now keep in mind—and most people know this to some extent—higher refunds were enabled by the fact that payroll providers and employers did not adjust the withholding tables by the time the tax changes from the one big beautiful bill came out late last year. Oftentimes as well, tax law changes are believed to drive tailwinds for assisted, especially with their potential negative impacts to taxpayers. In this case, this tax season, taxpayer impacts were super positive. There was very little additional boost or tailwind to the assisted market. As we start to think about next year, employers and payroll providers are working on updating their withholding tables, so there could be an adjustment back to a normal. We might see refund amounts decrease and balance dues increase. Tiffany L. Mason: I would just punctuate too, we were really pleased with the team’s performance this tax season and really pleased with the fact that after two years of making progressive improvement in our assisted channel market share, we were able to hold flat market share relative to industry growth. So really pleased with the team’s performance. Kartik Mehta: And then just, Curtis, on your Tax Pro product, I know you tried something a little bit different there. How do you think of the success of that business and maybe what kind of conversion rate you were able to have because of the program? Curtis Campbell: Yeah. And, Kartik, when you say our tax pro product, what specifically are you talking about? Kartik Mehta: Well, I apologize. Tax Pro Review is the DIY product that allows a tax preparer to review the tax return. Curtis Campbell: For sure. So we saw nice progress there. That has been an offering for us for many years now. We continue to lever that up. We saw really good results from a conversion perspective for those paid filers that utilize Tax Pro Review, as well as other promos that we ran this year. I will take it all the way back to one of the talking points in my prepared remarks. I talked a lot about assisted. It is really important for us from a strategic standpoint to lean into assisted and those filers that are looking for that from us from a trust, confidence, and judgment perspective. We saw really strong performance in TPR, as well as other promos. We will continue to learn just like we do every year. Kartik Mehta: Perfect. Thank you. Really appreciate it. Curtis Campbell: Thanks, Kartik. Operator: Our next question comes from the line of Scott Schneeberger of Oppenheimer & Co. Your line is open, Scott. Scott Schneeberger: Thanks very much. Good afternoon, all. Just following up on Kartik’s question. I think there is a little confusion. Maybe, Tiffany, could you discuss this year and the last two years of the market share progression in assisted of H&R Block, Inc. versus itself? I think it is a different dynamic versus the industry, but versus itself is what I think you are outlining. Could you quantify it each of the last three years so we can gauge the progression? Tiffany L. Mason: Yeah, Scott, I can. We saw improved market share performance in each of the last three seasons. We were down in market share in the assisted channel in tax season ’24. We made improvement in tax season ’25. I am not going to give you basis points because that is proprietary information, but we were down in each of the last two years, but the trajectory was improving, and we are flat relative to the industry in tax season ’26. So we made sizable progress from last tax season to this tax season. I want to make sure that as you are looking at data, I can help reconcile some of this confusion because if you are looking at our operating statistics table, which is in the slide deck that we posted on our Investor Relations website just before the call, that data runs from July 1 until April 30. So that reflects full year-to-date performance. Obviously, the information that you are looking at from the IRS is publicly reported data that is one week in arrears. So that data is as of April 24, and it only reflects the tax season. So those are two different points in time with two different starting points. And then the third thing I will say is our data also on the operating statistics table includes all filing data, not just e-file, which is what the IRS reports, but it would also include things like paper filings and entity filings, for example. But what I will tell you is when we share our market share statistics, we do it on the same basis that the IRS reports. So we are talking about e-file data, like-for-like versus the IRS, and that data suggests that our market share is flat for the season, which we are really proud of. Scott Schneeberger: Thanks, Tiffany. And just a clarification: when you do the comparison, are you measuring from summer last year? Any commentary on extensions and what impact that had in the back half of last year, assuming that is the time frame that you are capturing in this measure? Tiffany L. Mason: The operating statistics table that you are looking at is from last summer through the tax season, but when we give our market share commentary in our prepared remarks, it is just like the IRS reports. So from January 1 through the end of the tax season, our market share is flat in the assisted channel. That is great news. To your point about extension data for this tax season, extensions are up, so we should continue to have good performance through this coming extension season. Scott Schneeberger: Looking forward. Okay, gotcha. And I understand. Were you using the most recent IRS we see public or the prior week that captures the last week before the deadline? Tiffany L. Mason: Our commentary was based on the same information you can see in the public data, which is as of April 24. That is the last time the IRS reported publicly. Scott Schneeberger: Gotcha. Okay. Thanks. That is really helpful. And then on the buybacks, the strategy with the buybacks—obviously there is a very opportune share price at H&R Block, Inc., probably behind the decision. Often, you have not done it in this time period. Some commentary on that and how that might impact your normally elevated repurchase activity in the fiscal first half of your new fiscal year? Tiffany L. Mason: Scott, thanks for the question. We are really pleased that the Board approved an incremental $100 million share repurchase, of course subject to market conditions, for the fourth quarter of this fiscal year. As I said in my prepared remarks, we did $400 million in the first half of the fiscal year, so assuming we can get it done in the fourth quarter, that will bring our full-year fiscal 2026 share repurchase to $500 million. A fantastic result. We will be able to take advantage of what has been some dislocation in the stock price, and that should be a great result for us this fiscal year. It has, right now, no bearing on fiscal 2027. But I also cannot project any expectations. We obviously have not guided fiscal 2027, and anything that we do in fiscal 2027 is still subject to Board approval. So more to come as we get to next quarter and guide for the next fiscal year. Scott Schneeberger: Okay. Fair enough. Thanks, Tiffany. I will turn it over. Tiffany L. Mason: Thank you. Operator: Our next question comes from the line of George Tong of Goldman Sachs. Please go ahead, George. George Tong: Hi. Thanks. Good afternoon. You made the decision to prioritize lifetime value with DIY. It is understandable that online free DIY volumes fell this year, but I also noticed that online paid DIY volumes fell too. Can you talk about the dynamics here and what is behind that? Curtis Campbell: Yes, George, thank you for your question. Let me emphasize first that not all DIY market share is created equal, and our focus is on attracting and retaining more complex clients with higher lifetime value rather than pursuing transactional, low-lifetime-value clients. That applies to certain categories of paid and, of course, the free. If I take a look at the data for this season, our DIY mix between free and paid improved by 140 basis points. We saw really strong year-over-year growth in AGI bands over $100 thousand. It is very positive and a part of our strategy. When I think about DIY, I do want to call out that it is an important entry point within our model. We do not manage the business to optimize for DIY volume in isolation. At the end of the day, our approach is focusing on clients that are looking for the right level of assistance that we can deliver through our omnichannel model. George Tong: Got it. So it sounds like it is a decision to selectively go after customers that can eventually upsell themselves and de-emphasize paying clients that do not have much monetization opportunity. Curtis Campbell: For sure, because we have to look at our customer acquisition cost versus lifetime value. That is a really important equation for the business. In my prepared remarks, I talked a lot about assisted and our strategy. I talked about the evolution of us leveraging AI to automate the transactional aspects of tax preparation to focus on the relational pieces. It is really important for us strategically to focus on clients that align with that. George Tong: Understood. And then as a follow-up, on the assisted side, I noticed that the franchise operations volumes fell this tax season. Can you elaborate on that—if you think that is a structural dynamic that will persist over the medium term, or if that is something that happened this year? Tiffany L. Mason: Yeah, George, thanks for the question. Let us unpack franchise for just a minute. A couple of things to point out. If you are looking at the decline in royalty revenue year over year, we do have the franchise buyback strategy. I would say the decline in royalty revenue is largely a result of our buyback strategy. Year to date, we have done about 150 franchise acquisitions. However, if you set those acquisitions aside and you just look on a like-for-like basis this year versus last year at our franchisee base, the franchise footprint is underperforming our company office footprint by about 2%, and that was entirely driven by volume. If you think about the initiatives in our company offices, both in driving conversion of our WIP and in driving higher retention through some of our strategic initiatives, we are seeing our company offices perform a bit better. I do not think there is necessarily a structural difference, but I do think there are some local market differences as we compete head to head with independents across our geographic base in the U.S. Curtis Campbell: Okay. George Tong: Got it. Very helpful. Thank you. Operator: Thank you. Star 11 on your telephone if you would like to ask a question. Our next question comes from the line of Alexander Paris of Barrington Research. Please go ahead, Alex. Alexander Paris: Thank you, and congrats on the beat and raise in the quarter. Most of my questions have been asked and answered. Just a quick follow-up on the last one. Tiffany, you mentioned you did approximately 150 franchise buybacks this year, year to date. What was the number last year for either the nine months or the full year? Was it 124? My notes show that. Tiffany L. Mason: You got it, Alex. It was 124. You got it right on the dot. And thank you for the congratulations. We appreciate it. Alexander Paris: You got it. And then with regard to the raised guidance, were there any divergences from the underlying assumptions that you had for the season? For example, you talked about industry growth of 1%, and a healthier balance of volume, price, and mix. Did anything come in materially better or worse than you had expected going into the season? Tiffany L. Mason: Alex, I would say a couple of things. None of the underlying assumptions really changed. Industry growth rate is coming in right where we expected. I do want to highlight the pursuit of the healthier balance with price, volume, and mix. If we think about our performance in the assisted channel—and you can see it in that operating statistics table—volume is up 2.1% and NAC is up 3.9%. This is probably the healthiest balance we have seen in some time, so we are really proud of that. NAC, in particular, if you unpack that, we took a low single-digit price increase, we used channel, and the rest of that is mix. Again, really nice balance, and that is playing out the way that we had expected. If I think about the inflection from the tax season (Q3 into Q4), the only things I would point out would be the shift that you can see in marketing. We made an intentional shift to match the timing of our marketing spend with the way that the season was unfolding and the way that we continue to see filers come later and later into the season. So there is a little bit of shift in marketing dollars from Q3 to Q4. That is something to think about as you plan the rest of the year relative to our results. And the other would be the same thing with field labor. As we see peak volumes in April, which hits our Q4, you are going to see those peak labor costs as well. Otherwise, no dramatic difference in what we had planned at the start of the year. Curtis, maybe you want to spend a few minutes talking about strategy. Curtis Campbell: For sure. Alex, thanks for the question. Let me double down a little bit on strategy. I know I talked about this in the prepared remarks. I will talk specifically about AI. It is our belief that H&R Block, Inc. is uniquely positioned to win in an AI-driven tax industry. We can seamlessly blend AI capabilities with our 70 years of human expertise and accountability in a way that we believe independents cannot. We view two components of tax preparation. There is the actual data collection, data entry, and calculation portion—we often call that the mechanical portion, component one. Then you have component two, which is the relational experience where trust, accountability, and judgment live. That is really important and a part of our strategy. We believe as AI automates the mechanical work of tax prep, differentiation is going to shift away from those mechanical pieces towards the relational pieces that matter most to clients—trust, judgment, and accountability. In the high-stakes world of taxes—this is the biggest paycheck of the year for most Americans—when taxpayers get this wrong, bad things happen. Typically, taxpayers do not want to get it wrong, and history shows us that. Over the last 30 years, the percentage of taxpayers seeking assistance has remained fairly constant through the transition from paper to box software to cloud to mobile to machine learning to Gen 1 AI. More than half of taxpayers continue to seek assistance, and it is not for calculations. It is for confidence, guidance, and accountability that comes from working with a tax pro. As we think about an AI-driven future, we believe the premium on trust increases. The winners are going to be those that can seamlessly blend AI speed with consistent human expertise, and that is why you heard me emphasize earlier our expert-led, technology-enabled focus. It is at the core of what we are doing at Block. With our go-forward strategy, we believe H&R Block, Inc. is structurally advantaged in this environment. With 70 years built on trust, judgment, and accountability—and decades of real client scenarios and data—we are using AI to amplify expertise, not replace it. So we think that we are well positioned from a strategic standpoint to continue to win. Thank you for the question, Alex. Alexander Paris: I appreciate the color. And then my last question is regarding the long-term algorithm. As I start to think towards fiscal 2027 and beyond, the long-term growth algorithm has historically been 3% to 6% revenue growth, adjusted EBITDA growing 1.5x that rate, and EPS growing at a double-digit rate. Is that a reasonable proxy at this juncture going forward, or are there any thoughts or changes to that long-term algorithm? Tiffany L. Mason: No changes, Alex. We are committed to the long-term growth algorithm. If anything, as we start to get some proof points on the board around the strategy that Curtis just talked about—some of the things that we talked about in our scripted remarks today—we have even more conviction that that is the right ZIP code for us to be in. Alexander Paris: And the last question relates to a prior question regarding the incremental share repurchases expected in the fourth quarter. Does that have any impact on the dividend? I know the Board reviews the dividend only once annually, and we usually find out about it after the fourth quarter. But does the incremental $100 million have any impact or bearing on a decision whether to maintain, which would be the minimum expectation, or raise the dividend this summer? Tiffany L. Mason: Our capital allocation priorities are unchanged. Priority number one is to invest in the business, number two is grow the dividend, and number three is return excess capital to shareholders through share repurchase. As the Finance Committee of the Board meets this summer in advance of the August earnings call, they will think about our capital allocation in that order. Obviously, more to come, but there should not be any concern with any of the dividend protocol or anything thereafter. Alexander Paris: And for what it is worth, I applaud the decision of the Board to increase share repurchases in the fourth quarter given the dislocation in the stock price, driven largely by the AI boogeyman. It seems like AI is a significant tailwind potentially for you in terms of the efficiency of the tax pros and the client experience. Curtis Campbell: Thank you, Alex. We are going to give you a virtual high five. Thank you. Operator: Thank you. I would now like to turn the conference back to Jessica Hazel for closing remarks. Madam? Jessica Hazel: Thank you, everyone, for joining us today. We look forward to reconnecting with you again soon. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Greetings, and welcome to the Clean Harbors First Quarter 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael McDonald, General Counsel for Clean Harbors. Mr. McDonald, you may begin. Michael McDonald: Thank you, Christine, and good morning, everyone. With me on today's call are Co-Chief Executive Officers, Eric Gerstenberg and Mike Battles; our EVP and Chief Financial Officer, Eric Dugas; and our SVP of Investor Relations, Jim Buckley. Slides for today's call are posted on our Investor Relations website, and we invite you to follow along. Matters we are discussing today that are not historical facts are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Participants are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of today, May 6, 2026. Information on potential factors and risks that could affect our results is included in our SEC filings. The company undertakes no obligation to revise or publicly release the results of any revision to the statements made today other than through filings made concerning this reporting period. Today's discussion includes references to non-GAAP measures. Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of its performance. Reconciliations of these measures to the most directly comparable GAAP measures are available in today's news release on our Investor Relations website and in the appendix of today's presentation. Let me turn the call over to Eric Gerstenberg to stock. Eric? Eric Gerstenberg: Good morning, everyone, and thank you for joining us. Before we move into the results, I want to recognize our General Counsel, Michael McDonald, who will be retiring next month. Michael has been a trusted colleague and an integral part of the Clean Harbors team for more than 25 years, and his judgment and perspective have been invaluable. We thank him for his many contributions and wish him good health and happiness in the years ahead. Thank you, Michael. Starting off with safety. Our team delivered an extraordinary safety results in Q1 by achieving the lowest quarterly total recordable incident rate in our history at just 0.39. While we invest in better equipment, technology and company-wide programs to improve safety, you only get the type of results we are achieving with buying at the field level. We are continually setting a higher standard for our company and our industry. For any employees tuned in today, thank you for all the best you do and keep yourself safe and your colleagues safe. Turning to a summary of results on Slide 3. We kicked off 2026 with better-than-expected Q1 results, including higher profitability in both of our segments. Despite challenging weather conditions that impacted our collection and services business in February, we exceeded our EBITDA expectations and improved the company's adjusted EBITDA margin by 60 basis points from Q1 2025. Within the Environmental Services segment, we demonstrated our resiliency by delivering the segment's 16th consecutive quarter of year-over-year improvement in adjusted EBITDA margin and 18th straight quarter of EBITDA growth. At the same time, Safety-Kleen Sustainable Solutions segment benefited from our continued focus around charge for oil services and from a late quarter surge in base oil pricing that lifted its profitability. Turning to the segments, beginning with ES on Slide 4. Q1 revenue in this segment increased by more than $40 million due to growth in project services, including PFAS-related opportunities and a considerable amount of emergency response work. We also continue to see healthy demand for our disposal and recycling services. Technical Services revenue rose 5% and Safety-Kleen Environmental Services revenue grew 7%, driven by pricing and higher volumes within its core offerings. Incineration utilization, including the new Kimball incinerator was 80% versus 81% a year ago, reflecting scheduled maintenance days and weather-related impacts in both periods. Continuing the trend of the past several quarters, we generated a sizable increase in landfill volumes, which rose by 34% on strength of project work, including PFAS-related claims. Field service revenue grew 7% in the quarter as we responded to a steady stream of customer emergency events across the U.S., including a large-scale event that generated approximately $10 million in revenue. We opened 18 field service branches during 2025 and plan to open 10 more in 2026. While these new locations will take some time to grow their revenue base, our investment speaks to the opportunities we see in field services as well as our ability to cross-sell across other businesses. Adjusted EBITDA was up 6% in the quarter, with ES segment margin up 50 basis points due to pricing, higher volumes, workforce productivity and cost control initiatives. Overall, our ES segment achieved positive Q1 results despite certain market conditions in the quarter, including weather and regional softness in our Industrial Services business. We exited the quarter with considerable momentum for ES in March. Revenues were approximately 10% higher than the same month a year ago. Turning to Slide 5. We wanted to take a moment to highlight our PFAS management framework that we issued in early April. The purpose today is not to cover the individual details of the framework, but to reemphasize that we have an end-to-end cost-effective solution for PFAS in all of its forms and concentrations. Over the past several years, we've had many customers, government agencies and even community leaders approach us for advice on how to best address PFAS. For example, they call on us when they want us to clean up contaminated water, remove stockpiles of AFFF firefighting foam and need someone to respond to emergency situations like fire [indiscernible] spills or remediate a contaminated site. Customers have a lot of uncertainty around PFAS, and we believe our framework featured on this slide is beneficial to help them make smart economic decisions at all stages of the process. Our recommendations are based on years of institutional knowledge and the latest scientific data, including the PFAS incineration study we completed in conjunction with the EPA and the Pentagon. Our concentration-based framework provides the proper treatment and disposal pathway for a range of scenarios. This tiered approach provides the ideal way to address complex contaminants at reasonable costs. We are starting to see considerable regulatory movement around these forever chemicals. Both the Department of Water in March and the U.S. EPA in April have issued PFAS guidance that included incineration, hazardous waste landfill and water filtration as recommended methods of treatment and disposal. The market is still developing, but having both the Pentagon and the EPA issued guidance that endorses high temperature, permanent incineration and our other PFAS offerings is critical. Those endorsements of our proven capabilities add to the momentum we are already seeing in our PFAS sales pipeline. As PFAS remediation accelerates nationwide, our integrated framework provides a practical and scalable model for industry and government partners. Today, we continue to believe that Clean Harbors remains the only company that can offer a cost-effective end-to-end single-source solution that is commercially scalable for any PFAS need. With that, let me turn things over to Mike to discuss SKSS our reference related to AI and our capital allocation strategy. Mike? Michael Battles: Thanks, Eric, and good morning, everyone. Turning to SKSS on Slide 6. The year-over-year decrease in segment revenue was expected and reflects lower market pricing for base and blended products as compared to a year ago. This was partially offset by an increase in charge-for-oil revenue as well as rising base oil prices toward the end of the quarter. That base oil price increase and the work the team has done to manage our costs over the past year has led to a meaningful rise in profitability. Q1 adjusted EBITDA in SKSS grew 17% to $33 million with an impressive 320 basis point improvement in margin. We increased our CFO pricing sequentially from Q4 and more than doubled our rate from Q1 last year. We continue to provide high-level services to customers. And even with a higher CFO, we collected 53 million gallons of waste oil to keep our re-refinery running efficiently. At the same time, sales of base and blended gallons were consistent with the prior Q1. We incrementally grew both our direct lubricant gallons and Group III gallons sold versus Q1 a year ago. Those gallons carry a premium value and profitability compared to our other products. Overall, our SKSS segment delivered better-than-anticipated results. Turning to Slide 7. This morning, I want to briefly touch on the topic of artificial intelligence, an area of immense potential for us. Technology has been part of Clean Harbor's DNA and a competitive differentiator for decades. AI is the next practical layer of that. We have implemented AI type functionality for years, and we continue to see real opportunity to improve productivity, compliance, safety and customer service over time. We use AI in many areas, including waste classifications, invoice audit, ready-to-bill automation, document processing and field support tools. We are also evaluating opportunities in routing, scheduling and supply chain logistics. Our approach is disciplined, governed data, human-in-the-loop controls and clear operating use cases. People and technology creating a safer, cleaner environment has been our corporate slogan for many years. AI will continue to be a key element of our technology journey, and we expect our AI efforts to keep delivering meaningful financial returns for us in the years ahead. Turning to capital allocation on Slide 8. We continue to look for internal and external opportunities to generate the best return on our shareholders' capital. In recent years, we have executed well against all elements of our capital allocation framework, and we expect 2026 to be no different. We closed the DCI acquisition at the end of Q1, and we're excited about other attractive candidates that could materialize in the very near future. We're also investing wisely internally to accelerate our growth, including our previously announced back truck fleet expansion, SDA unit in East Chicago and other smaller revenue-generating opportunities that have recently developed. We ended the quarter with an ample cash balance and low leverage to execute both facets of our growth strategy. We also continue to view share repurchases as an attractive way to return value to our shareholders. Eric will detail our Q1 purchases, but we continue to see our shares as attractive at current market prices, given the favorable long-term outlook for our business. We exited Q1 with momentum in a number of fronts. Within our disposal and recycling network, we are seeing an improving U.S. economic backdrop to drive our base business, supported by growth opportunities stemming from reshoring, PFAS and project services. Within -- with a large number of maintenance days in our incinerators now in the rearview, we expect to deliver mid- to upper 80% utilization for the full year. SK Environmental should deliver another consistent year of profitable growth. Our Field Service business continues to strengthen its position as a trusted national provider for environmental emergency response. Our Industrial Services business continues to operate in a challenged market, but initiatives we are undertaking now should position us for growth and better margins as conditions improve. For SKSS, we are capitalizing on elevated pricing and demand dynamics associated with global market disruptions and a continued focus on maximizing profitability while enhancing long-term customer relationships. Overall, we expect another year of exceptional profitable growth, margin improvement and free cash flow generation. With that, let me turn it over to our CFO, Eric Dugas. Eric Dugas: Thank you, Mike, and good morning, everyone. Turning to Slide 10. Our quarterly results came in ahead of the expectations we outlined in February, driven primarily by SKSS outperformance and continued strong execution from the Environmental Services segment. Total Q1 revenue increased 2% to $1.46 billion, reflecting solid top line growth for the quarter. Following some weather-related impacts in February that Eric mentioned, the ES segment delivered a record revenue month in March. Q1 adjusted EBITDA increased 6% to $248 million. Our consolidated Q1 adjusted EBITDA margin was 17%, representing a 60 basis point improvement from the prior year period as both operating segments contributed higher margins. This margin expansion reflected a combination of our ongoing initiatives, including disciplined pricing, leveraging volume growth, effective cost controls around labor and cost internalization as well as network and transportation efficiencies. SG&A expense as a percentage of revenue in Q1 increased year-over-year to 14.2%, partially due to higher incentive compensation and insurance costs in the current period. For the full year, we still expect SG&A expense as a percentage of revenue to be in the high 12% range. Depreciation and amortization in Q1 was $116 million, up slightly from a year ago. For 2026, we expect depreciation and amortization in the range of $460 million to $470 million. First quarter income from operations was $119 million, up 7% from the prior year. Net income in Q1 increased 8% as we delivered earnings per share of $1.19. Turning to the balance sheet on Slide 11. We ended the quarter with cash and short-term marketable securities of approximately $670 million, providing ample flexibility to execute on the capital allocation priorities that Mike outlined. We closed the quarter with a net debt-to-EBITDA ratio of approximately 2x, while our debt currently carries a blended interest rate of 5.2%. Our balance sheet remains in terrific shape as we move into the more cash-generative quarters of the year. Turning to cash flows on Slide 12. Cash provided from operations in Q1 was $6 million. CapEx, net of disposals was $97 million, down roughly $20 million from the prior year. Included in this quarter's CapEx figure is approximately $15 million of cash investments in strategic growth projects, including the SDA unit and our vacuum truck fleet expansion. Adjusted free cash flow, which excludes spend from these strategic projects, was a negative $76 million in the quarter and in line with our expectations. As a reminder to folks, due to seasonality, negative adjusted free cash flow is typical in Q1 for our company. For 2026, excluding our expected $85 million of spend on the SDA unit and $25 million related to our fleet investment, we now expect net CapEx to be in the range of $350 million to $410 million with a midpoint of $380 million. This represents a $10 million increase versus the guidance we provided in February due to some investments related to attractive growth opportunities in select markets and geographies. We are acting these opportunities by making additional property investments and adding capabilities at certain sites where we see immediate returns. As such, these investments require a modest increase to our 2026 capital plan. During Q1, we bought back approximately 87,000 shares of stock at a total cost of $25 million or an average price of approximately $287 per share. At March 31, we had approximately $575 million remaining under our share repurchase authorization, reflecting the expansion of that program by our Board in February. Turning to our guidance on Slide 13. Based on current market conditions and our Q1 results, we are now guiding to a 2026 adjusted EBITDA range of $1.24 billion to $1.30 billion, with a midpoint of $1.27 billion or an increase of $40 million from our prior guidance. Given positive trends and market factors, which have developed late in Q1 and on into Q2, we now expect meaningful increases in both of our operating segments and are confident in our revised outlook. At the midpoint, this updated 2026 guidance now implies adjusted EBITDA growth of approximately 9% versus 2025. Looking at our annual guidance from a quarterly perspective, we expect second quarter adjusted EBITDA to grow 5% to 9% year-over-year on a consolidated basis. Looking at how our annual guidance translates into our reporting segments. At the midpoint of our guidance range, we now expect our 2026 adjusted EBITDA in Environmental Services to grow 5% to 8% for the year. We exited Q1 with increasing demand across disposal, recycling, remediation work and our SK branch offerings. Our facilities network is positioned to process record volumes this year with strong execution from our sales team in a market backdrop of reshoring activity, robust project work and expanded PFAS-related work. We also expect to see continued expansion in our Field Services business. This 2026 guidance midpoint now assumes that our SKSS segment delivers approximately $165 million of adjusted EBITDA, up approximately 20% from 2025 and higher than the $135 million we provided in February due to the increase in base oil prices. There is significant uncertainty around the duration of the overseas conflict and its impact on petroleum-derived products such as base oil. We believe $165 million is an appropriate assumption at the current time given the wide range of potential outcomes. Within corporate, at the midpoint of our guidance, we expect negative adjusted EBITDA to increase by approximately 3% to 6% compared to 2025. This modest growth is primarily driven by higher wages and benefits, costs to support business growth, increased insurance costs and acquisition-related impacts. Looking at it as a percentage of revenue, we expect Corporate segment results to be flat to slightly down from the prior year. For 2026, we now expect adjusted free cash flow in the range of $490 million to $550 million with a midpoint of $520 million. That represents a $10 million increase versus our prior guidance, reflecting the higher adjusted EBITDA we now anticipate this year and considering the revised CapEx assumptions. We're off to a strong start in 2026, and our Q1 performance has led us to raise our full year expectations for both operating segments. We expect the positive demand environment we are seeing today to support strong profitable growth through the balance of the year. We're encouraged by our growth trajectory and remain focused on executing against our long-term vision and goals as we move through the rest of 2026. And with that, Christine, please open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Noah Kaye with Oppenheimer. Noah Kaye: Great start to the year. I'm just trying to think about the growth profile across business lines here in the second quarter in the guide. Clearly, I think you mentioned improving trends, really accelerating trends across segments. In March, I think you said 10% year-over-year revenue growth within ES in March and base oil prices improving as well. So I guess if we just unpack kind of the midpoint of the EBITDA guide for 2Q, how do we kind of think about that, if possible, from a segment perspective? Because it seems like your exit trends imply a pretty good amount of upside to that. Eric Gerstenberg: Yes. Noah, this is Eric. I'll start. When you think of our different business segments, Clearly, as Mike pointed out, there's still a lot of fluctuation in what's going to happen with base oil, but we're cautiously optimistic that, that segment is going to continue to overperform. When we think about our Environmental Services segment, as we saw in Q1, our growth rates of our SKE business, our Technical Services business, our Field Service business, all are north of mid-single digits and higher. Industrial Services, we continue to be cautious about looking at how that business will perform, especially in light of how refineries these days and turnarounds are producing -- are trying to maximize the production of fuel and diesel and jet fuel. So that business, we expect to obviously have a stronger second quarter and third quarter, but probably pretty flat year-over-year. Eric Dugas: I think to address kind of the Q2 question you had, Noah, in terms of the segments, I agree with all of Eric's points. To put a little bit finer point on Q2, I think when you look at the Environmental Services segment, Q2 last year strong. Q1 this year, kind of in that 5%, 6% range, very similar growth pattern as we move into Q2 here for Environmental Services, a little better than what we thought 3 months ago. And so that's nice to see. On SKSS, obviously, the year-on-year growth in Q2 greater than that, probably in excess of 10% due to the increase in base oil pricing predominantly. Noah Kaye: That's super helpful, guys. I want to pick up on your comments around the field expansion, the branch expansion and the cross-selling opportunity there. Can you talk a little bit more about that? Like how do you generate cross-sell from the field expansion? How does it translate across the business? If you can give us some examples, that would be helpful. Eric Gerstenberg: Yes, absolutely. When you think about our Technical Services business going out and collecting waste and packaging and bringing it back, those same technical services customers have -- the larger ones have environmental needs to have us respond with Field Services to clean their production tanks, to perform vacuum services above and beyond those baseline disposal lines -- disposal and transportation lines of business. When you think about our Safety-Kleen Environmental customers, we're seeing the same things where those smaller customers, smaller locations still have tanks and still have emergency response events, still have fleets that need our Field Services, services to respond to their fleet emergencies or minor spills that they have as they transport goods throughout the country. So our job is to make sure that as we grow out our footprint that when we have a technical service branch footprint or SKE branch that we're complementing that by building out all of our Field Service branch capabilities in those same locations and growing our cross-sell with all of our lines of business. We have about 60 different lines of business that we service. And when you think of the number of technical -- the types of technical services customers, they consume about 20 to 25 lines of business. Safety-Kleen customers is about 5 to 6 of those business unit lines of business. Field Services complements both of those business units by responding to their needs, and that's why we continue to build out that field service footprint. It also, I would say, is that as we talk about field service branches, we're strategically trying to make sure that we are always the first call for any emergency response, large or small. And our team has been doing an excellent job of positioning us with emergency response agreements with large and small customers that we can be there from our needs. And those efforts, the team has done a great job there, and they're really paying off. And that's to come back around and to answer your question, Noah, our field service business is really complementing those other business units. Operator: Our next question comes from the line of Bryan Burgmeier from Citi. Bryan Burgmeier: Just on the '26 guide, the updated '26 guide, just curious if there's any impact from kind of rising diesel costs, maybe the impact to 1Q or 2Q as you kind of pass those costs along to customers or maybe that's kind of happening in real time? Just any thoughts on that would be helpful. Michael Battles: Yes, Bryan, this is Mike. I'll take a shot at that. The diesel, we have a recovery fee that covers many different things, including the price of diesel that gets reset monthly. And so we tend to offset the cost of the diesel prices with that recovery fee. It's really been a long-standing process we've had for many, many years. It's based on the underlying price of diesel, and I think it's been well understood and well accepted by our customers and it moves every month. So I think that the rising price of diesel as it relates to Environmental Services, the rising price of diesel has kind of an immaterial effect on our profitability, on our margins. It's almost a pass-through. On the SKSS side, obviously, it's very much more material. Bryan Burgmeier: Got it. Got it. Yes, that makes sense. And then I appreciate the kind of overview and your thoughts on AI. Just maybe from a high level, where do you see the greatest opportunity right now? Would you say it's maybe on top line, bottom line? Is it efficiency or safety? Just some general thoughts on where the opportunities lie. Michael Battles: Sure. I'll start. The -- when I think about artificial intelligence, it was interesting as we prepared for this call, we start wanting to talk a little bit more about AI. We went back and looked and we were actually talking about AI and robotic process automation back in 2017. So we've been actually having these types of technologies in our systems, in our processes. As we say, we think we're leading in technology in Clean Harbors and AI is just the next iteration of that. And again, we've been talking about it for many, many years. So all the things I laid out in my prepared remarks, they're all part of the reason why the margins have gone up 16 straight quarters for 4 straight years. They're all that and many other things we do as an organization, with that type of safety, compliance and profitability drivers, whether it be invoice audit automation, faster profiles, I mean the list goes on and on. I mean we're making a more concerted effort here in 2026, a little more money, not a lot more money, but there's many, many different projects out there that are -- that help us from a safety and compliance standpoint as well as profitability. And it's hard to put a real number on that, like how much is that related to it. It isn't a huge spend, but we do see it as a great opportunity. Operator: Our next question comes from the line of Jerry Revich with Wells Fargo. Jerry Revich: I'm wondering if you could just talk about the cadence of demand that you're seeing in Industrial Services, especially on the refining end market given the improved spreads. I'm wondering what you're expecting over -- as we head into turnaround season and what's the potential upside in that line of business now that the customers are a lot more profitable than a year ago? Eric Gerstenberg: Yes, Jerry, to start the year, we went out with our sales team, and they did touch points with over 12,000 customers that have both small and large type turnarounds planned for the year. And our overall turnaround count seems to be consistent with last year. However, with what's going on with the Iran conflict, we're also seeing that those refiners really want to run full out to make as much fuel and diesel as they can. And preliminary trends that we're seeing exiting first quarter seems to be that those are more of pit-stop-related refinery turnarounds shorter in duration. So while the count seems good, they have been shorter in duration, we've evident. We have had a few that have expanded in scope that we've seen, and we think that, that's primarily due to last year, they were also constricting their spend. But we're cautiously optimistic. We're staying close with our clients. We're making sure that we manage all their needs. Our specialty services is growing when we perform those turnaround services as well. So we'll continue, I think, 90 to 120 days from now, we'll have a better outlook of what we're seeing. Jerry Revich: Okay. And then, Mike, can we just circle back to your comments in the prepared remarks on the M&A pipeline. Can we -- to the extent you're comfortable, just talk about the sizes of potential deals that you're looking at? Is it one large deal? Is it multiple deals? And any color that you could share or willing to share on what are the key signposts from a timing standpoint that we should keep in mind? Michael Battles: Yes, Jerry. So when we think about M&A, it's been another busy year here at Clean Harbors. It's just like it was last year, which just weren't as successful. But we got the DCI acquisition over the goal line that closed here in Q1. And there's many other opportunities out there, all in our swim lane, primarily in Environmental Service that have permanent facilities that feed our network or have a large collection network. So these are many out there. I think some are very close to closing. Some are -- but there's plenty in the hopper, mostly smaller deals, tuck-ins type of transactions, but I think those have been plentiful this year. Operator: Our next question comes from the line of James Ricchiuti with Needham. James Ricchiuti: Just based on what you're seeing in the Industrial Services turnarounds in the energy market, which I think you just characterized as kind of like pit-stops in nature. Does that suggest something more meaningful in the back half we see some change in the overall pricing environment for a while? Eric Gerstenberg: We don't see a change from the pricing environment, no, but could suggest that in the back end that it might be a little bit more heavily loaded on turnarounds in Q3 and some bleeding into Q4. Obviously, as mentioned earlier, they're running hard right now. But we're staying close with those customers, making sure that we're available for all of their needs, and we'll be there to service them. Michael Battles: Yes, certainly hopeful that, that pattern comes to fruition, Jim. But just to be clear, kind of in the guidance as we have it laid out right now, we don't have large turnaround activity coming back in the second half. again, hopeful that, that happens. But the way we have it laid out right now is pretty flattish year-on-year. James Ricchiuti: Got it. And just with respect to the activity, the more positive trends that you're seeing in ES in March, can you give any color on -- and maybe more broadly in the quarter, which market verticals are you seeing changes versus your expectations, say, entering the year? I think you alluded to it. Eric Gerstenberg: Yes, James, we're seeing very strong trends with multiple verticals. Chemical, a little bit too early to tell. But in other areas such as health care and retail, we are driving expansion of those businesses. Pharma has been showing a lot of strength. Manufacturing, we're seeing volumes being really strong. So a number of areas in our verticals that are pushing volume growth across the network in both Technical Services as well as SK Environmental, other things like universities and household hazardous waste days, pretty confirmed good spending trends. The number of quotes overall that we're seeing across the business is continuing to grow substantially. Our pipeline is strong in various areas, including project services. So a number of verticals we're seeing expansion in. Michael Battles: Jim, the only thing I'd add to that is that you've been covering us for a long time. We've been doing this for a long time. And normally, we don't raise guidance after 90 days in the quarter, whether we -- unless there's an M&A or something like that. So the fact that we're raising guidance on both segments here just after just giving guidance 6, 7 weeks ago should tell you about our view as we think about the rest of the year. James Ricchiuti: Yes, it does. And I appreciate that additional color and congrats on the nice start. Eric Gerstenberg: Thank you. Operator: Our next question comes from the line of Larry Solow with CJS Securities. Lawrence Solow: I was going to follow up on that question just because I know you mentioned the economy, too, the backdrop seems to be improving, and you gave a little more color on that. Just a question I had was, has there been any hesitation from any customers through the kind of just the Iran conflict going on? Has that interrupted you guys at all? It doesn't feel like much. Obviously, we talked about the oil effects. But outside of that, has any customer behavior changed at all due to maybe inflationary pressures they're feeling. Obviously, your energy customers are kind of drinking from the fountain there from the hose, but just outside of those customers. Michael Battles: Larry, this is Mike. Thanks for the question. I guess I would say that we haven't seen a lot of disruption because of the conflict. As a matter of fact, one would think, logic would tell you that you're getting kind of more U.S. production, that should be, if anything, a short-term pop from a short term -- from a manufacturing standpoint, you want to be closer to your customers, you're worried about supply chain. I mean those types of things that happened during COVID, frankly, that may be happening again. And certainly, if you look at some of our larger customers and read their earnings releases and their transcripts, you come away with that impression that they are definitely -- whether or not the demand environment is changing, I don't know, but that's still kind of muted. But certainly, as the U.S. manufacturing should grow in the short term because of this conflict, if you're betting then. Lawrence Solow: Right. Okay. And then just a question more mid- to longer term on PFAS, and I appreciate all the color and the framework that Eric provided there. Just so the DOW, the EPA, obviously, they've given kind of guidance. It still feels like it's interim, though, right? Because they're not really establishing actual requirements. They're just kind of laying out the options, right, for removal. So are we still waiting for like a more finalized guidelines or requirements for customers that might actually accelerate growth over the next couple of years? Eric Gerstenberg: Larry, I'll start. So certainly, we've talked about in the past, the revenue that we did in 2025 was about $120 million plus, and our pipeline was continuing to increase by 20%. To start the year, based on the activity and the announcements over the past couple of quarters, we're seeing an accelerated pipeline. And our whole reasoning behind putting out that recommended guidance was because we see customers responding to that. When they have PFAS needs like changing out AFFF fire suppression systems or fire departments need to change out their fire trucks or an airport is going to be remediated because they're going to put a new runway down. We're using that guidance, and they're accepting it. And they accept it because of who we are and what we know and how we utilize our network in order to perform those responses. So I think the point is that we're seeing that framework being enacted, customers acting more and more responsibly, regulatory agencies acting more and more responsibly. There definitely seems like there's more momentum going into this year than a year ago at this time, too. So we're -- even though there hasn't been any formal specific guidance like what we put out, we're acting by that. We see the market acting by that when they need to deal with their situations. Operator: Our next question comes from the line of David Manthey with Baird. David Manthey: First off on the new guidance. So it looks like $30 million of the $40 million midpoint EBITDA increase is because of SKSS. And as you said, I mean, you don't normally raise guidance in the first quarter. So should we expect the benefit from spreads in SKSS to flow ratably second quarter through fourth quarter? Or are you thinking about this like, hey, we have visibility on the second quarter based on where spreads are now, and we'll assess the potential third quarter and beyond spreads when we report in second quarter in July or whatever. Eric Dugas: Sure, David, it's Eric. I'll take that one. I would say we have the better base oil pricing kind of spread ratably between Q2 and Q3. Certainly more insight into Q2 right now, given the uncertainty around how long oil stays high. So I would think about it kind of ratably through Q2, Q3. I think Q4 remains better just with a lot of the things that the business is doing as well. But in the current guidance, we kind of assume pricing maybe coming back down a little more towards normal as we get closer to year-end. David Manthey: Okay. That's helpful. And then as it relates to Kimball, I know initially, you were doing a lot of starting and stopping and doing some test burns and things. As we sit here today, is Kimball sort of running on a normal schedule? Is it taking what you would consider normal waste streams at this point? Eric Gerstenberg: Yes, David. Kimball ramp-up has gone extremely well. We more than exceeded our tonnage targets in 2025. We're out of the gates exceeding our expectations in 2026. The plant is running well. Team has done a great job, and we're on track with everything that we've laid out in the past from financially. When you think about 2025, our overall EBITDA contribution was about $10 million this year, add another $10 million to $15 million to that. But we're hitting our goals, our targets, and the plant is running very well. Operator: Our next question comes from the line of Adam Bubes with Goldman Sachs. Adam Bubes: How are you thinking about potential to maybe hold on to some of the charge-for-oil actions in a base oil up cycle? And is there a way you would advise us thinking about SKSS EBITDA growth on a percent higher base oil prices or maybe incremental margins are a way to frame that? Eric Gerstenberg: Yes, Adam, we -- the team throughout 2025, we were responding to some very challenging conditions with what was happening with base oil and did a great job of moving to a charge-for-oil basis. As we exit Q1, we're in that $0.60 range, and we look to continue to manage. We had lost some gallons, but we really want to continue to manage in a charge-for-oil scenario. It's a waste that needs continued processing and refinement. And we want to make sure that we continue to operate that way and operate efficiently even though the base oil market has been changing. Michael Battles: Adam, we worked really hard to change the industry from a pay for oil to a charge for oil and it's a long painful 18 months, and we're not that interested in giving it back. Obviously, we're going to need to be selective on that because we want to make sure we keep our gallons flowing into the re-refineries, but I think we'll be loathed to do that. Adam Bubes: And then can you just help us think about where your realized base oil price was in the quarter? And how is that compared to the exit rate? Michael Battles: I mean base oil prices, I don't have exact numbers to share with you, but base oil prices certainly went up as we got towards the end of the quarter. The conflict started in late February. We gave guidance in mid- to late February. The conflict started in late February, prices started ramping up, and that was part of the beat here in Q1. And frankly, the guide raise in Q2. Operator: Our next question comes from the line of James Schumm with TD Cowen. James Schumm: So maybe just a couple of clarification questions for me. So the SKSS guide, up 30%, we're spreading that over 2 quarters, Q2, Q3. So that's like $5 million additional or incremental per month over those 6 months? Or did you realize some benefit in Q1 and you're assuming a little bit of benefit in Q4? Just maybe some help there. Eric Dugas: I would describe it as this. We certainly realized some of the benefit in Q1. We talked about that kind of on the call. In Q2 and Q3, I would say kind of an equal amount of incremental benefit and then kind of back down to normal in Q4. Q4 has a small kind of year-on-year increase in our current assumptions. But as I alluded to a moment ago, there's -- and in my prepared remarks, a lot going on in the business, a lot changing even early as today, some news. We have some assumptions we're working on right now, and we're going to come back in 3 months' time and kind of update those. But I would think about it as the increase that's in the bank in Q1, spread pretty evenly between 2 and 3 for the rest of the $30 million and then kind of flattish to up a little bit in Q4. James Schumm: Okay. And then on PFAS, it sounds like you just kind of mentioned some -- maybe some accelerating momentum there. Is 20% the right growth rate to continue to think about this? Or does the accelerated pipeline maybe we should be thinking about like a 25% growth rate? Or is that too premature? Eric Gerstenberg: Yes. We -- it's more in the 25% to 35% range of what we're seeing initially here entering the year. So strong pipeline, number of samples that we're seeing to analyze for PFAS contamination that customers have been submitted have been up. The pipeline in both soil remediation, AFFF change-outs as well as industrial and municipal water treatment, all of those areas, we're seeing improvement trends as we begin here in 2026. Operator: [Operator Instructions] Our next question comes from the line of Tobey Sommer with Truist. Tobey Sommer: I'd love to get your perspective on the EPA guidelines, any differences that you've noticed between those fresh and the DoD and what you expect to hear from customers or, in fact, are already hearing. Eric Gerstenberg: Yes. No, we were really excited, obviously, to get -- to see over the goal line, the approving of incineration by the Department of War. Our teams have been working with already 700 different military installations to make sure that we're here for their needs. So all positive trends there. Just as you know, we spoke in the past that we had Lee Zeldin down and visited our incinerator down in Houston a while ago, and he recently commented about meeting with environmental and us on helping to solve the PFAS challenges out there. So we're excited by just seeing some of that limited momentum about disposal of technologies being pushed out there, by particularly the Department of War. Michael Battles: Tobey, it just revalidates what we already know that we have a great end-to-end solution. As Eric said in his prepared remarks, we have -- we can solve any of our customers' PFAS problems, and we've proven that both internally with our own framework as well as externally with the Department of War or the EPA. Operator: We have no further questions at this time. Mr. Gerstenberg, I'd like to turn the floor back over to you for closing comments. Eric Gerstenberg: Thanks, Christine, and I appreciate everyone joining us today. We are participating in several investor events in the coming weeks, starting with the Oppenheimer Conference tomorrow. We are looking forward to seeing many of you at these events. And as always, have a great, safe rest of your week. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Greetings, and welcome to the Perimeter Solutions First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Seth Barker, Head of Investor Relations. Thank you. You may begin. Seth Barker: Thank you, operator. Good morning, everyone, and thank you for joining Perimeter Solutions' First Quarter 2026 Earnings Call. Speaking on today's call are Haitham Khouri, Chief Executive Officer; and Kyle Sable, Chief Financial Officer. We want to remind anyone who may be listening to a replay of this call that all statements made are as of today, May 6, 2026, and these statements have not been nor will they be updated subsequent to today's call. Today's call may contain forward-looking statements. These statements made today are based on management's current expectations, assumptions and beliefs about our business and the environment in which we operate, and our actual results may differ materially from those expressed or implied on today's call. Please review our SEC filings, particularly any risk factors included in our filings for a more complete discussion of factors that could impact our results, expectations or assumptions. The company would also like to advise you that during the call, we will be referring to non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, LTM adjusted EBITDA, adjusted EPS and free cash flow. The reconciliation of and other information regarding non-GAAP financial measures can be found in our earnings press release and presentation, both of which will be available on our website. With that, I will turn the call over to Haitham Khouri, Chief Executive Officer. Haitham Khouri: Thank you, Seth. Good morning, everyone. We're pleased to report a strong start to 2026 with first quarter adjusted EBITDA of $41.2 million, reflecting both organic and acquired growth. Our Q1 results highlight 2 key points. First, our operational value driver strategy is translating directly to our bottom line. Second, we have built a durable and predictable earnings base. This predictability is driven by 3 things: number one, new and improved contracting structures in both our retardant and suppressants businesses; two, diversification within our Fire Safety segment due primarily to the growth in our suppressants and international retardants businesses. And three, organic and M&A-driven growth in our Specialty Products segment. As always, I will start with a summary of our strategy, then provide an operational update, after which Kyle will walk through the quarter's financial results and capital allocation in more detail. Starting with a summary of our strategy. Our goal is to fulfill our critical mission by providing our customers with high-quality products and exceptional service while delivering our investors private equity-like returns with the liquidity of a public market. Our strategy is built on 3 key operational pillars. First, we own exceptional businesses. These are niche market leaders that play critical roles in solving complex customer problems, qualities that support high returns on invested capital and durable earnings power. Second, we rigorously apply our 3 operational value drivers to the businesses we own. We drive profitable new business, achieve continual productivity improvements and provide increasing value to customers, which we share with through value-based pricing. And third, we operate our businesses in a highly decentralized manner, granting our business unit managers full operating autonomy paired with the accountability to deliver results with a tightly aligned incentive structure for our managers to think and act like owners. We believe that our operational pillars will optimize our durable long-term free cash flow. We then seek to maximize long-term per share equity value through a clear focus on the allocation of our capital as well as the management of our capital structure. Turning to our Fire Safety operations on Slide 4. Our Q1 Fire Safety results are a direct reflection of the 2 themes I highlighted in my opening, the successful implementation of our operational value drivers and the durability and predictability of our earnings. Starting with our value drivers. Fire Safety's Q1 performance was driven by profitable new business. Our international retardant business was strong based on both activity in existing markets and footprint expansion in new and early-stage markets. Our global suppressants business also delivered strong results based on both new wins and higher sales to our large installed base. In addition to the profitable new business results, we delivered year-over-year productivity across our business units in Fire Safety and our internal investment initiatives translated into value-based pricing. Turning to the predictability of our earnings base. The resilience of our model was clear this quarter. We delivered year-over-year adjusted EBITDA growth in Fire Safety despite lower North American retardant sales stemming from the tough comparisons of the Eaton and Palisades fires in Q1 2025. Moving to Slide 5, where we stay with Fire Safety, but step back from the first quarter. Last week, Perimeter inked 2 milestone Fire Safety contracts that will both grow our earnings and enhance their durability. First, suppressants. We worked hard over the past several years to align our products and services with the specific needs of the Defense Logistics Agency or the DLA. On the product side, we made significant R&D investments to develop products for the DLA's unique requirements and deployed capital to expand our Green Bay, Wisconsin facility to meet the DLA demand and redundancy needs. At the same time, we also invested heavily in our service capabilities, including standing up a customized vendor-managed inventory service for the DLA and optimizing our packaging to meet the agency specifications. And we did all this with a U.S.-based manufacturing footprint that supports the DLA's need for reliable domestic supply. These efforts have driven a steady increase in our business with the DLA, specifically on behalf of the Navy, the Coast Guard and the Army. In line with our efforts to establish mutually beneficial long-term contracting structures within our fire safety business, last week, we entered into a 5-year agreement to provide foams to the DLA with a maximum contract value of $500 million. Since we already provide suppressants to the DLA, we expect the incremental uplift from this agreement to be approximately 2/3 of the total contract value. We expect that the financial impact will begin in late 2026, ramp up through 2027 and reach a steady-state run rate in 2028 and beyond. We're making further investments to support this ramp-up, including further expansion of our Green Bay facility and a further increase to our staffing levels. These capital and operating investments directly support U.S. job creation. This contract is an excellent example of how our focus on understanding and meeting our customers' needs translates into profitable new business opportunities. Moving to our retardants. Last week, we renewed our CAL FIRE contract for a new 5-year term. Given the time elapsed since the prior renewal as well as the evolution of our offering on both the product and service sides, pricing on this contract increased relative to the previous CAL FIRE contract, bringing historically lower CAL FIRE pricing in line with our other large retardant customers. No state has more population exposed to wildfire risk than California. We are proud that CAL FIRE has once again trusted Perimeter to protect the lives, properties and environment of their state. Finally, let me comment on the national wildfire landscape. The formation of the U.S. Wildland Fire Service is an important development in the wildland firefighting space. Our existing federal contract already spans all of the federal wildfire fighting agencies that will be consolidated into this new service, and our contract will carry forward under this new organizational structure. We believe a more unified structure will improve coordination and streamline decision-making, supporting more effective wildfire response over time. Turning to the next slide, which covers our Specialty Products segment and starting with PDI. The first quarter of 2026 was the most challenging period of operational performance in the history of our Sauget, Illinois facility. The plant experienced substantial unplanned downtime. This disruption is the direct result of a sustained failure to provide the resources, personnel and operational discipline required to run the facility safely and reliably, a failure that has persisted ever since One Rock Capital acquired Flexsys. And as the controlling owner of Flexsys, One Rock is responsible for the strategic and financial decisions governing this facility, and One Rock bears the ultimate responsibility for driving performance to its lowest level on record. We are pursuing all available legal avenues to enforce our contractual rights. We have a proven track record of operating P2S5 facilities safely and reliably, and we are confident that upon assuming control of Sauget, we will restore operating discipline, safety standards and production consistency for the benefit of the facility, its workers and our customers. Our resolve in this matter is absolute. We are highlighting these operational failures publicly because our investors, our customers and the workforce at Sauget deserve transparency. We have a duty to protect this critical facility from One Rock's sustained mismanagement, and we will actively manage the near-term impacts while pressing our legal rights to their full conclusion. In contrast to Flexsys' performance, we're proud of how Perimeter's PDI team has performed. Despite the greatest operational headwind the business has ever experienced, our team grew revenue and adjusted EBITDA at PDI slightly year-over-year. This result speaks to the power of the operational value driver model and highlights our team's ability to fight through obstacles and deliver results irrespective of the external environment. Turning to MMT. Integration is proceeding smoothly, and we are making tangible progress across each of our operational value drivers. A key advantage of bringing MMT into Perimeter's forever hold structure is that it immediately unlocks significant new capital and resources for the MMT team. We are actively deploying these resources to implement our value drivers and further accelerate MMT's business. On profitable new business, this capital is directly supporting the MMT team's innovation pipeline. As a result, new product development has accelerated meaningfully with expected product launches at MMT stepping up from 2 in 2025 to 9 in 2026. On productivity, we are putting these resources to work to eliminate manufacturing bottlenecks and maximize throughput, driving permanent improvements to MMT's cost structure. And on pricing, we are applying our disciplined value-based approach. By combining our pricing frameworks with the MMT team's deep product expertise and strong customer relationships, we are ensuring that pricing fully reflects the exceptional value MMT delivers to its customers. Just as important as the operating model is the team. Cultural alignment has been excellent. MMT leadership shares our approach to value creation and our partnership is translating directly into performance. MMT is performing very well early in our ownership period. We see strong potential for upside as we back the MMT team and fully deploy our operating model. Turning finally to IMS. Similar to MMT, IMS' acquisitions to benefit from the resources we immediately make available to maximize the potential and value of these acquired product lines. Given the product lines IMS acquires are often orphaned or underinvested in prior to acquisition, the benefits of our forever hold structure can be particularly pronounced at IMS. The IMS team is focused on systematically applying our operational value drivers across the product line acquisitions completed in 2025. We are encouraged by our progress and look forward to further investing in these acquired products and to closing future product line acquisitions. In closing, our disciplined operational value driver strategy is delivering strong financial performance across both of our segments, while our commercial and contracting initiatives are driving durable and predictable long-term earnings. With that, I'll turn the call over to Kyle to walk through the financials in more details. Kyle? Kyle Sable: Thanks, Haitham. Perimeter delivered net sales of $125.1 million in the quarter, up 74% year-over-year, with adjusted EBITDA of $41.2 million, more than doubling from $18.1 million last year. Net income was $72.9 million or $0.44 per diluted share compared to $56.7 million or $0.36 per diluted share in the prior year. On an adjusted basis, the adjusted net income was $9 million, up from $4.1 million, while adjusted earnings per diluted share was $0.06, up from $0.03. Our consolidated results reflect disciplined execution of our operational value drivers, supported by contributions from recent acquisitions. Moving into the details of Fire Safety. Revenue for the quarter was $45.4 million, up 22% year-over-year, and adjusted EBITDA was $18.7 million, nearly double the $10.1 million in the prior year. This performance was driven by continued execution of our operational value drivers with strength across both our international retardant markets, notably Australia and our suppressants business, each contributing meaningfully in the quarter. Despite North American retardant volume headwinds, Fire Safety delivered strong results, demonstrating that the business can generate meaningful growth in earnings even in periods of weaker retardant demand, a dynamic that would not have been present historically. This quarter is another example of reported acres burned having low correlation with our U.S. retardant business' performance, given the low acreage but high impact of last year's Southern California fires and the inverse this year, with nearly 900,000 acres burning in Nebraska with minimal retardant used. We increasingly view acres burned as a poor indicator of our financial performance and expect that relationship to continue to weaken over time, given our effort to reduce variability and increase the contribution from our own execution. Looking forward to the rest of the year, wildfire activity to date is within a range we would consider normal for this point in the season with conditions that remain conducive to fire activity and the full range of outcomes from mild to severe remains possible. As always, we will be prepared to accommodate a more severe than normal fire season should such a season ultimately materialize. Our capacity planning also integrates recent comments from the Secretary of the Interior and the Secretary of Agriculture, indicating that the aggressive initial attack strategy employed in 2025 is expected to continue in 2026. We view this as an important development as that strategy drove more proactive and consistent use of retardant last year and helped support demand even in a lower acres environment and if sustained, should continue to reduce the downside sensitivity of our business to variability in fire activity while supporting more consistent and growing demand over time. As we look ahead, we remain focused not only on demand drivers, but also on ensuring our supply chain is well positioned. We have seen recent increases in fertilizer prices and lead times, but our contracts include mechanisms to address meaningful input cost movements. And combined with our inventory position, we believe that we are well prepared to effectively manage these changing dynamics. As we exit the quarter, our Fire Safety business is well positioned, driven by continued execution of our operational value drivers, supported by the stability of our contract structure and the diversification of our revenue streams and reinforced by the ongoing shift to more proactive wildfire response. Turning now to Specialty Products. Revenue for the quarter was $79.6 million, an increase of 128% year-over-year and adjusted EBITDA was $22.5 million, up from $8 million in the prior year period. The year-over-year increase was driven primarily by contributions from recent acquisitions. Importantly, the base business also delivered growth in the quarter despite increased operational disruption at the Flexsys-operated Sauget facility. As Haitham discussed, downtime at that facility was more severe this quarter than in prior periods, creating a headwind to both revenue and profitability. Despite those challenges, the underlying demand environment for PDI remains solid, and the team continues to work through these operational issues while delivering financial growth. Turning to MMT and building on Haitham's remarks, we are encouraged by the early performance of the business. Integration is progressing well, and we are seeing early benefits from the application of our operational value drivers. As we spend more time in the business and deepen our understanding of its customers and end markets, our conviction in the underwriting case has increased, and we currently expect MMT's full year results to exceed our initial expectations. Taken together, Specialty Products results reflect both the resilience of the base business in the face of operational headwinds and the growing contribution and momentum from recent acquisitions. I'll now turn to our long-term assumptions. Our assumptions are unchanged and with normal quarterly variation, first quarter results are consistent with those expectations. Our framework contemplates annual interest expense of approximately $75 million. And in the first quarter, cash interest expense was $24.4 million. The first quarter includes $6.25 million of cash interest expenses related to the bridge facility commitment provided to close the MMT deal, which will not recur in subsequent quarters. We expect tax deductible depreciation and amortization in the range of $60 million to $65 million annually, and first quarter taxable depreciation and amortization was $10.4 million. We expect our cash tax rate to be approximately 20% or better over time. And in the first quarter, cash taxes were a net benefit of $2 million, primarily reflecting timing dynamics. We expect capital expenditures of $30 million to $40 million per year and capital expenditures in the first quarter were $5.8 million, below run rate due to timing. As we look to the balance of the year, we are accelerating investment in areas, including suppressants capacity expansion and MMT productivity initiatives, which we expect will bring full year capital expenditures towards the higher end of our range. Finally, we expect working capital investment of approximately 10% to 15% of revenue growth and working capital performance in the quarter was consistent with that framework, reflecting seasonal dynamics and the impact of recent acquisitions. Turning to capital allocation. As previously announced, we completed the acquisition of MMT on January 22 for approximately $682 million, funded through a combination of cash on hand and new debt issuance. MMT represents an important addition to our portfolio and aligns directly with our strategy of acquiring high-quality businesses where we can apply our operational value drivers to drive meaningful value creation. We also continue to invest organically in our business through capital expenditures. These investments are focused on projects that enhance our ability to serve customers while driving productivity improvements and supporting profitable growth. As with all our capital decisions, we underwrite these investments to generate returns above our targeted thresholds, and we see a growing pipeline of opportunities across the business. Looking forward, we have ample capital to allocate even after our robust capital expenditure pipeline is fulfilled. Once CapEx needs are met, our primary focus is M&A. Our M&A framework remains consistent. We target businesses that provide a small but essential component within a broader solution to a critical customer need, operate in niche markets with strong competitive positioning and exhibit characteristics such as recurring revenue, high returns on capital and opportunities for reinvestment in add-on M&A. Importantly, we believe our value creation comes not from the acquisition itself, but from the disciplined application of our operational value drivers post close as we are already demonstrating with MMT. Our model allows us to repeatedly identify and improve businesses using the same operational value driver playbook, creating a repeatable engine for value creation. From a capital standpoint, we retain significant flexibility. Even after the MMT acquisition, we remain modestly levered and have ample liquidity with meaningful capacity to deploy additional capital into value-creating opportunities. We remain active in evaluating a robust pipeline of potential acquisitions and are focused on deploying capital into opportunities that meet our returns threshold and strategic criteria. Turning to our capital structure. We maintain a disciplined and flexible capital structure. During the quarter, we issued $550 million of 6.25% senior secured notes due 2034 to fund the MMT acquisition, complementing our existing $675 million of 5% senior secured notes due 2029. As a result, we have a long-dated fixed rate debt structure with no near-term maturities. At quarter end, we were approximately 3.2x net debt to LTM adjusted EBITDA, remaining below our target leverage level and preserving substantial financial flexibility. We also retained strong liquidity, including approximately $92 million of cash on the balance sheet and a fully undrawn $200 million revolving credit facility, providing significant flexibility to continue investing in the business while pursuing additional M&A opportunities. We ended the quarter with approximately 163.1 million basic shares outstanding. Overall, the quarter highlights the strength of our operational value driver model across both segments. Fire Safety delivered solid performance despite volume headwinds in retardant and Specialty Products demonstrated both resilience in the base business and strong contributions from recent acquisitions, particularly MMT. These results reinforce the increasing consistency and predictability of our earnings power. A growing portion of our earnings is driven by execution and capital allocation rather than external conditions, which we believe improves the quality of our earnings stream and position the business to compound earnings at attractive rates over time. We will continue to apply our operational value driver strategy across the portfolio and allocate capital towards opportunities that are well aligned to that strategy, further enhancing both growth and earnings stability over time. With that, I'll turn the call back to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from Josh Spector with UBS. Gaurav Sharma: This is Gaurav Sharma filling in for Josh. Congrats on the solid quarter. Can you talk about the new suppressants contract a bit more? Is this effectively you winning share at more military bases? And then you framed this as an incremental $300 million sales opportunity, but how should we layer that in over the contract period? Haitham Khouri: Gaurav, it's Haitham. Let me take the first part of your question, and Kyle will handle the second part of your very good question. So yes, this is us taking share in the suppressant space. It's a continuation of a trend, which has been quite pronounced to us taking share in the suppressant space, both with the DLA and with commercial customers over the past 3 or so years. If you rewind 3 years, we did almost no business on the foam side with the DLA. We identified that as a commercial hole and spent a tremendous amount of time, effort and capital addressing it. As we typically do, the crux of that is listening very closely to our customers, understanding their needs very clearly and then moving heaven and earth internally to be responsive and meet their needs. And the hope is that, that ultimately translates into profitable new business. And that's exactly what you're seeing here. Again, we went from almost no business with the DLA. We listened to their needs. Our R&D team, which is an excellent R&D team in Green Bay, delivered a completely unique and bespoke formulation to meet the DLA's existing needs. We invested significant CapEx in our Green Bay facility to build capacity and redundancy required by the DLA. We spent a lot of capital, OpEx and effort building a vendor-managed inventory service from scratch, which we never had before for the DLA. As you can imagine, the logistics needs of the DLA are very complex and therefore, standing up the vendor-managed inventory to manage $500 million of product is a very complex undertaking. We have that up and running and humming. We upgraded our packaging to meet the DLA's needs, and we staffed up on the customer service side to best serve the DLA. And when you do all of that, you end up with a customer that very much wants to work with you that shifts meaningful share to you and that's ultimately not only willing, but eager to enter into this kind of long-term framework agreement that gives us the visibility into future volumes that allows us to continue to invest. So that's sort of the history there, and I'll let Kyle handle the second part of the question. Kyle Sable: Yes, Gaurav, as Haitham mentioned, we've already been doing business with the DLA, and so we're trying to frame our guidance to you as the amount of uplift. So we'll have another strong year with the DLA this year, but there will be minimal uplift relative to last year. As we look forward to 2027, we expect roughly $50 million of incremental revenue above our current run rate with the DLA in 2027. And then the balance of the contract value will come over the remaining years. Gaurav Sharma: That was super helpful. And then just a follow-up. Is this just a volume element? Or is there an annual price factor that's built in on the suppressants as well? And then on the CAL FIRE deal, the comment in the slide say price increase to align with other major buyers. So does that mean you expect a step up in year 1? And is that material? And then how would you talk about price increases beyond year 1? Haitham Khouri: Yes, Gaurav, it's Haitham again. We -- both contracts will have annual or do have annual price escalators in there throughout the 5-year term. And for CAL FIRE specifically, there is a step-up in year 1, which is this year to bring them sort of in line with our pricing structure, which they've been a little out of line with historically. Operator: [Operator Instructions] Our next question comes from Dan Kutz with Morgan Stanley. Daniel Kutz: Congrats on all the progress and updates this quarter. So just wanted to circle back on a few things that you guys have already kind of commented on in the prepared remarks and see if we could get a little incremental color. First one would be on input costs. Again, I know that you guys had commented that there's some level of contractual kind of cost protection or pass-through. But with everything going on in the world and specifically fertilizer or MAP or some of the key cost components in the Perimeter cost structure, seem like they've seen some pretty significant upward pressure. Just wondering if you could expand a little bit on what types of protections you have in place, how much that could be weighing on margins currently and whether in theoretical scenario where the Middle East conflict came to a resolution and those costs came down, whether that would be a margin tailwind or whether that's kind of already kind of protected in the cost structure and therefore, wouldn't change things too much. But yes, just wondering if you could expand a little bit on the input cost dynamics. Kyle Sable: Sure, Dan. It's Kyle. Thanks for the question. You're right. As we alluded to in the script, we have pretty strong contractual protections against these price increases. Our operational team has been running way out ahead of the changes that have been happening on, making sure we have adequate inventory as lead times have lengthened. And as we look forward, we don't see any material impact to our margins from these price increases this year. Daniel Kutz: Great. That's very clear. Then maybe on the preemptive fight strategy that some of the federal wildfire fighting agencies are alluding to. I was just wondering -- so I think, again, in your prepared remarks, you kind of flagged that this is definitely a hedge against, I guess, a below severity wildfire season. Last year was absolutely a testament to that. But just wondering, across a broader range of wildfire scenarios, below severity, normal trend above severity, is the preemptive strike strategy an incremental earnings tailwind or retardant demand tailwind across different wildfire season severity scenarios? Or is it more kind of a downside hedge? Just wondering if you could expand on that, on those comments as well. Kyle Sable: Sure, Dan. Kyle again. And thanks for the question. I think you've hit on 2 important points for the more aggressive initial attack. You're correct in that it can actually drive more retardant usage through a variety of wildfire season scenarios. We think that it will put increased emphasis on growth in the air tanker fleet. And by the way, that same memo that highlighted the initial aggressive attack also highlighted a number of other moves they're doing across the wildland firefighting landscape to support growth in the aerial tanker fleet, which is also a little bit of a tailwind for us. So we think that's a clear positive. The second element, as you started to hit here to the downside protection, I think you're exactly right. What we experienced last year and if we are again to experience a more mild acre season this year is that, that aggressive initial attack provided an increased retardant usage in that scenario, which did cap the amount of downside from a more mild season. Dan, the other thing I think I'd be remiss to not mention here as we think about the different scenarios as they play out is that we've really reduced our variability and exposure to that wildfire season. And at this point, if you look at a normalized season to a relatively mild season, that fluctuation in our EBITDA is something like mid-teens percentage. And when we look at the various tailwinds we have across our business, that really means that we should be able to grow EBITDA year-over-year even with a moderate decline in the fire season year-over-year in any given year. There may still be some more extreme scenarios where we can't always grow EBITDA, but for most of the scenarios, we're going to be growing EBITDA. Daniel Kutz: That's great to hear. And maybe if I could sneak one more in kind of along the same along the same comments there. So I think for the last quarter or 2, the 5-year contract with the U.S. Forest Service, which you guys confirmed today will extend to the new U.S. Wildland Fire Service, which includes the DOI agencies as well. I guess on the service component of that contract, you report product versus service revenue for the Fire Safety segment. And we can see that, that number was in the ballpark of $30 million a few years ago, and it's been trending closer to $100 million in the last couple of years. The question is basically, first of all, is there a suppressant component to service? Or is the lion's share of that retardant? And then how much does the new contract structure kind of lock in that service revenue at this higher revenue run rate from, I think, what you guys call the full-service air base infrastructure model. And I guess the question would be at the federal level, but then also see on the slide with the CAL FIRE contract that there's a service revenue component to that. So yes, just wondering if you could -- anything you could share on what has been a pretty substantial ramp in service revenue for the Fire Safety segment? And how much of that should be viewed as a new run rate? And I guess, any potential growth either from the service model expansion or just from kind of the normal growth trend that you guys seem to be putting out despite the wildfire season severity. Yes, anything you can share on that service revenue component? Kyle Sable: Dan, so a couple of points on here. One, the majority -- in fact, virtually all of that service revenue is, in fact, tied to retardants. There's a little bit of suppressants, but largely retardants. The second point I would make in there is that, that includes all service revenue for all of our various contracts, Forest Service, CAL FIRE and others. And then when you think about that uplift in the run rate, I think you're right, we've gone from $30 million to a little over $100 million in the run rate, and we do believe that is a new and sustainable baseline. Within that, the vast, vast majority of it is contractually fixed in any given year. And then we do expect to see another uplift, although not of the same magnitude that you just saw over the last few years going forward as we continue to convert more of the bases in the Forest Service contract from government run to Perimeter run. Daniel Kutz: Awesome. Sorry, one last real quick one. Product versus service margins, are they similar ballpark, one meaningfully different than the other? Kyle Sable: Yes, Dan, we think about those as just as a bundled suite when we think about margins. So while we separate them out for reporting purposes, we think of it all as kind of like one consolidated solution with one margin. Operator: Thank you. At this time, I would like to turn the floor back to Haitham Khouri for closing comments. Haitham Khouri: Thank you, LaTanya, for running a great call. Gaurav and Dan, thank you for the excellent work you do, and thank you to all our shareholders, as always, for all your support. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Laura Lindholm: A very warm welcome, and thank you for joining Cloetta's Q1 Interim Report Presentation. I'm Laura Lindholm, the Director of Communications and Investor Relations. Our CEO, Katarina; and CFO, Frans will first go through our results, after which we will move to the Q&A, where you either have the possibility to dial-in and ask questions live or alternatively post your question through the chat. It's already possible to add questions in the chat. Over to you, Katarina. Katarina Tell: Thank you, Laura. Today, I'm very proud to present our first quarter 2026 results. After a transformational 2025, this is our first quarter with execution and clear result from our strategy. As you will see during the presentation, we are making great progress and are moving closer to delivering on all 4 long-term financial targets. But first, over to the agenda. Today, it looks as following. I will start with Cloetta in a brief, then I shortly recap our strategic framework and our updated financial targets for the ones that have not listened to us before. After that, I move to our quarterly highlights. Our CFO, Frans, will then walk you through our quarterly and full year financials. And as always, we wrap up with a Q&A. For the new listeners on the call, let me start by introducing Cloetta. We were founded in 1862. And today, we are the leading confectionery company in Northern Europe. We strongly believe in the power of true joy and our everyday purpose is to spread joy through our iconic brands. We have grown a lot since the early days and now have an SEK 8.5 billion in sales last year, combined with an operating margin of 12.1% to be compared to 10.6% in 2024 and 9.2% in 2023. We have established a strong profitability uplift, which we also will talk more about today. Over half of our sales come from our 10 biggest and most profitable brands, and we call them our super brands. Despite the increased geopolitical uncertainty, we remain largely unaffected. This resilience is due to several key factors. First, we operate in a noncyclical market with stable consumer demand, which provides a solid foundation even in uncertain times. Second, our broad product portfolio allows us to offer a range of alternatives, helping us adapt quickly to shift in consumer behavior. And finally, we have, despite the current geopolitical uncertainties, still many attractive growth opportunities like expansion of our super brands, step-up in innovation and growing beyond our core markets. These strengths gives us the confidence to continue delivering solid performance, profitable growth and building further long-term value for our investors, our customers, consumers and for the people at Cloetta. I will now briefly walk you through how we bring our vision to life through our strategic framework and then in relation to this, also our updated financial targets. To learn more, please see the recording of our Investor Day 2025, which is available on our website. So let me start by talking about our vision at Cloetta because it's really capture what we are all about. Our vision is to be the winning confectionery company inspiring a more joyful world. And it's not just something we say. For us, this is a real promise to do great work, to keep innovating and most of all, to bring joy to people every day. This vision is what guides us, is what keeps us learning, improving and leading the way in our industry. I will today also show you 2 concrete product examples of the vision. We have created a clear strategic framework to guide us forward. And right at the center is our vision. Our strategy is about focus, clear choices that will help us scale, grow and make the biggest impact where it truly matters. We have 5 core markets. It's Sweden, Denmark, Norway, Finland and the Netherlands. And today, around 80% of our total sales come from these markets. Our first strategic priority is to focus on our 10 super brands within those core markets. These are the brands with the strongest potential. By leaning into an expansion strategy, we can open new opportunities, grow faster and build real scale. We are not stopping there. We're also looking beyond our core markets. We have identified 3 high potential markets that sit outside the core, and that is U.K., Germany and North America. Our third priority is to elevate our marketing and accelerate innovation. The market keeps changing, and we need to stay ahead, not just following trends, but also help to shape them. In our strategic framework, we are now also opening up to explore M&A, but only if it fits our strategy and when, of course, it makes good business sense. That said, any M&A would serve as an accelerator. It's not something we rely on to reach our financial targets. And to make all of this work, we need, of course, the right enablers in place. This means having a focused, efficient operating model and a structure that actually support our strategy and goals. During 2025, we aligned our structure with our strategy so we can move faster and strengthen our path to profitable growth. People and culture are, of course, the heart of everything. Without them, the rest is just a black box. Our culture is the foundation of how we work, and we have now built an organization that is strong, capable and filled with joy. So Lakerol is one of our super brands in the pastilles category. And this slide capture our launch of Lakerol more and how it delivers on our vision and fits into our strategy win with super brands. What we are introducing here under the Lakerol brand is a new texture and flavoring experience, softer, chewer and more indulgent, while we are staying fully within the sugar-free space. This is a successful multi-market launch in line with our vision and strategic focus. This launch is helping us recruit younger shoppers into the Lakerol brand as Lakerol more feels modern, sensorial and relevant without alienating our existing core users from the brand. We've seen a strong start across the Nordic markets where we have launched the 2 flavors with early results showing increased market shares in the pastilles category and what's particularly is encouraging is the repeat purchase rate, which is already above the category average, really confirming that consumers don't just try Lakerol MORE, they actually also come back to buy more. Moving on to our second example. And here, we are showing how we are scaling a winning pick & mix concept into branded packaged products. Zoo Foamy Monkey started as a pick & mix success within CandyKing, where it quickly stood out, thanks to its taste, foamy texture and playful shape. Consumer demand was strong, and this gave us the results we wanted to also scale Foamy Monkey into branded packaged format. Under the super brand Malaco, we are building on the iconic Swedish Zoo monkey shape and flavor that Swedish consumers already know and love and now translated into a soft foamy candy in a Malaco branded bag. Malaco Foamy Monkey is rolled out across major Swedish retailers as we speak and is available in 2 variants, sweet and sour. This is a great example of a smart brand leverage, proven products, strong emotional equity and high engagement, both in-store and on social media. These projects deliver faster growth, lower risk and stronger relevance, a perfect example of how we continue to win with our super brands and deliver on our vision. In March 2025, we updated our long-term financial targets to match our strategic priorities and our vision. With a clearer plan in place, we raised our long-term organic growth target from 1% to 2% to 3% to 4%. As reported, inflation has now stabilized. It's obviously difficult to justify price increases driven by inflation. This means that future growth primarily needs to come from higher volumes, exactly what our strategy is designed to deliver. Our long-term adjusted EBIT target is 14% with a goal to reach at least 12% by 2027. As many of you saw in the report, we're already above 12%. As Frans will explain later, both Q4 and Q1 got an extra boost, and we will wait to celebrate 12% EBIT when it's fully repeatable. Our EBITDA net debt ratio target is below 1.5% -- 1.5, sorry. Of course, if a strong M&A opportunity appears, we may go above that temporarily, but only if it clearly supports our strategy and with a clear deleverage plan in place. And finally, our dividend policy. We are now targeting a payout about 50% of profit after tax. And now a short quarterly update. As highlighted in the report, we delivered a very strong first quarter with profitable growth driven primarily by higher volumes. Easter sales fell into the first quarter this year, but even when we adjust for that effect, we still achieved our long-term organic growth target of 3% to 4%. I'm also proud to see solid growth across both of our business segments with particularly strong performance in the Nordic and North America. Inflation continued to ease during the quarter. At the same time, geopolitical uncertainty increased, and we, therefore, expect societal and political pressure related to food pricing to remain high. Our EBIT margin reached 12.9%. And even excluding the compensation related to the quality incident, we are in the quarter, exceeding our profitability target of at least 12% by 2027. After a transformational 2025, we are now fully executing and delivering on our new strategy. And with that, we are now also another step closer to reaching all of our long-term financial targets. And with that, it's time for the financials. I'll hand over to Frans, who is more than ready to dive into the first quarter's numbers. Frans Rydén: Yes. Thank you, Katarina. So just before looking at the details here, I'd like to tell you what I'm about to tell you, and then I'll tell you. So firstly, and it's worth repeating, strong organic volume-driven net sales growth in line with our higher long-term growth target set 1 year ago and then a favorable Easter phasing on top of that. So not because of, but on top of, and I'll come back to that. And then I'll talk about the continued significant margin expansion, delivering another quarter with an operating profit adjusted margin meeting the midterm target set to be reached only in 2027. And then I'll tell you about the continued improved leverage for yet another best ever at 0.6x net debt over EBITDA, further improving on our ability to secure resilience in a volatile world and importantly, financial strength to act on business opportunities in line with our strategy. And lastly, not Q1 specific, but Tuesday, I guess, 2 weeks ago, given our strong financial position, the AGM approved the Board's proposal, which was in line with our new long-term target to distribute for 2025, our highest ever ordinary dividend, so SEK 1.40 per share, a 27% increase versus last year. So let me then start with our net sales. So again, very strong volume-driven organic net sales growth of 6.9%. Now as you recall, in Q4, our slight volume decline from Q3 had turned to stable growing volumes. So now from the stable growing volumes, we are now in the territory of solid volume growth. In Q4, I also shared that we expected that quarter 1 2026 would benefit from the shift of Easter sales coming into Q1 from Q2 last year. And I can confirm that shift to SEK 40 million to SEK 45 million this year, which is in line with the earlier estimate I gave. This means then that even when adjusting for the earlier Easter phasing, Q1 2026 organic growth is at the upper end of the range for our long-term target growth of 3% to 4%. And we are, of course, very pleased with this and to be able to confirm that after a transformational 2025, implementing the new strategy and updating our organizational structure to support that, it all starts to come together in product innovation, marketing and sales and supported by a reignited supply chain organization. Naturally, given that the phasing was from quarter 2 into quarter 1, in the coming quarter 2, that quarter's growth will reflect also that shift. So the main point will be then to look at the first half of 2026. And given the strong Q1, so you can imagine, even if we would not grow at all in quarter 2, the first half of 2026 will still be growth in line with our long-term target. And I'm not trying to sandbag quarter 2 here. The main point is just to illustrate how strong of a quarter 1 really is. Now on the 6.9% organic growth, that's partially offset by currency effects of about 3.3% for a reported growth of 3.6%. And before looking at the segments, I want to repeat something mentioned also last quarter about the currency effect. So companies incurring costs in Swedish krona in Sweden to make products which are then exported and sold in euro, of course, will have a challenge when the Swedish krona strengthens. But at Cloetta, we largely sell our products where we make them. So products made in Sweden are mostly sold in Sweden and products made in euro-denominated countries are mostly sold in euro-denominated countries. So the real effect is really limited for us, and it's primarily a translation effect. Then moving to the regular page showing then the segment here side by side or over and under, I should say. In Q4, we could report that both segments were growing to stable again, while for Q1, both segments are now clearly growing and they are growing on volume. And for pick & mix on the bottom half, we are growing solid double digits. And also if one assumes the full Easter effect in pick & mix, then pick & mix is still growing at a very healthy 2x the long-term target for Cloetta. For packed, we're also growing a healthy 3.6%, which is also in line with the long-term target. That's against a softer quarter 1 2025, but then we also rationalized the portfolio at that time and volumes were also affected by pricing and especially on chocolate back then. That said, we are very pleased with this growth being of high quality. It's volume driven and it's profitable. So let's look at the profit. So in the quarter, we are reporting an operating profit adjusted of 12.9%, and we're very pleased with that. As we also reported about 12% in quarter 4 and for the full year 2025, let me unpeel that a bit. So you may recall, for the full year of 2025, the margin was 12.1%. But then that was aided by the receipt in Q4 of compensation for suppliers' quality deficiency back in 2024. Now in Q1, we have received the second and final part of that compensation. The total compensation over the 2 quarters is SEK 44 million, of which SEK 32 million was received in Q4 and SEK 12 million now in Q1. So doing the math on that, it means that in Q4 2025 and for the full year 2025, the margin, excluding the compensation were 12.4% and 11.7%, respectively. So 12.4% in Q4 and 11.7% for the full year 2025, which is why back then, we said we would hold the celebration of having reached 2027's profitability target of 12% in 2025. Now it does mean that our Q1 margin, excluding the compensation is 12.4%. And that, my friends, is above the 2027 target. So in line with what we flagged earlier, 12% is within sight for the full year 2026. Taking one layer down into this, and it's quite obvious from the slide that the profit is driven by volume as well as mix. On the volume, the mentioned Easter phasing drives further volume. And although we supported that with merchandising and sales activities, which will be visible in the SG&A, we're obviously making a healthy profit on those sales. And then for the mix, you do have an effect of the faster-growing pick & mix, but largely offset by favorable mix with respect to market mix and also product mix within the branded package side. And I mentioned the rationalized portfolio last year, but we also have a strong lineup of new products this year. Now these net sales are supported by marketing at similar levels as in Q1 last year. So the overall SG&A is flattish to up, and we look at that separately. But cutting back on investments is not how we are driving the stronger margin. And actually, before a view of profit by segment, a quick comment for those who wants to look at the gross margin. Remember, you need to look at the adjusted gross margin, and we have that commented in the report. Given that in Q1 2025, we released provisions related to the [indiscernible] the greenfield project. So that led to favorable items affecting comparability, boosting the gross profit that year. So on an adjusted basis, so like-for-like, the gross margin is up about 50 bps. Looking then at the segments over and under, you see that both segments margin improved in the quarter over last year with the Pick & mix segment on the lower half, reaching a quarterly margin of 12%. Now that is, of course, above the target to be between 7% to 9% obviously aided by the strong sales and the favorable fixed cost absorption as a result. And we believe that the targeted long-term range is the appropriate range to continue to drive profitable growth in the category as well as geographic expansion in line with our strategy. Then for the Branded package segment, the quarterly margin is 13.4%, aided, of course, by the second part of the compensation. But irrespective of that, it's a great recovery versus last year and again, bringing us closer to the sort of plus 15% pre-pandemic level margin we used to generate in this segment. And we will continue to seek to further strengthen the packed margin and over time, return to the levels we were before the pandemic. Then moving to SG&A. Here, stripping out the benefit of translating the cost incurred in euro to Swedish krona, which I'm showing separately here, it is an almost flattish SG&A. Actually, it's the lowest quarterly increase we've had in many years. And that is, of course, on account of the savings from the change to the operating structure in 2025. So I can confirm the upside of SEK 60 million to SEK 70 million on an annual basis. And that saving in Q1 is fully offsetting the investments we have for growth, including the investment in the geographical expansion beyond our core markets, mostly well-known is the CandyKing store in New York, but it's also on the organizational side. We're, of course, already profitable on that store, but it does generate SG&A. And then also in overall organization in North America and the U.K. as well as investments in product innovation. And then increased merchandising and sales activities on account of the Easter phasing. Again, obviously, a profitable sales, but it does incur additional SG&A cost. As mentioned, our advertisement and promotions are in line with last year, where we already made a big step-up for new launches and a further step-up will be phased more into Q2 given the already strong Easter performance. The net increase in SG&A shown then on the slide is mostly driven by the carryover effect of annual salary adjustments from April 2025 with the next round, of course, now in April 2026. So key takeaway is that the change to the operating structure in 2025 has not only aligned the organization better to execute on the new strategy as evident from the quarter's results, but also permanently lowered the SG&A baseline and helped offset the stepped-up investments beyond the core markets. So overall, costs are held in check. Then on cash. In Q1, we delivered a solid SEK 144 million in free cash flow, and the difference to Q1 last year is really driven by the working capital effect of this Easter phasing as we ended Q1 with higher receivables, only partially offset by lower inventories. This is in line with expectations. And for comparison in Q1 2024, when Easter was similarly phased to how it is this year, our free cash flow was below SEK 100 million. So we continue to see the favorable development on account of the focus on both profit and working capital. And then CapEx in the quarter, that's SEK 38 million that remains on the low side, in line with earlier communicated is expected to rise to between 4% and 5% of net sales over the next 5 years, and we will revert on that later this year. That brings me to my last slide on financial position. And here, you can see that our leverage as we closed the quarter is 0.6x as net debt over EBITDA, well below our target for the leverage to be under 1.5x. And it's also the lowest ever we've had. Now the result is a combination of the strong cash flow, resulting in a lower debt, lowest ever actually at SEK 820 million and then, of course, the improved earnings. Now with the low debt, we have plenty of access to additional unutilized credit facilities and commercial papers, which together with the cash on hand is just shy of SEK 3 billion. So coming back to where I started. One, we have secured resilience in a changing world and the financial strength to act on business opportunities. And two, in April now, of course, not shown on this slide, we distributed SEK 402 million in dividend, and we're, of course, pleased to have created the conditions for that dividend payment of SEK 1.40 per share, up 27% versus last year. And on that note, I conclude that our financial position developing in line with our set targets remains very strong and hand back to you, Laura. Laura Lindholm: Thank you very much, Katarina. Thank you, Frans. It is now possible to either dial-in and ask questions live or alternatively post your question to the chat. And I think, Vicki, we already have some questions on the line. Operator: [Operator Instructions] We have the first question from Stefan Stjernholm, Handelsbanken. Stefan Stjernholm: Can you hear me? Operator: Yes. Stefan Stjernholm: Stefan here. Congrats to a good start to the year. If you start with the gross margin, if adjusting for the SEK 12 million in compensation for the quality issue, I get the margin to 34.6%, i.e., flattish year-over-year. Am I missing something? Or is that right? Frans Rydén: Sorry, can you repeat that, the flattish? Stefan Stjernholm: If you adjust gross margin for the SEK 12 million in compensation, I am getting to 34.6%. Frans Rydén: Yes. Stefan Stjernholm: Yes. I mean, how should we think about the gross margin going forward? Is there room for improvement? I mean, you had a positive leverage on the strong growth in the quarter, and you're also highlighting positive sales mix. And in spite of that, the margin is -- the adjusted margin is flattish. Frans Rydén: Okay. Okay. Yes. So it's always a little bit -- the reason that we're focusing on the operating profit margin adjusted is because of the 2 segments and that it's difference between the branded side and the pick & mix side. So when we have really strong pick & mix sales, you would have an unfavorable mix effect on the margin as a result. But the reason that we get a higher profit at the end is because we have really good fixed cost absorption when it comes to merchandising and depreciation of the racks, et cetera. So our focus is a little bit further down into the P&L because of the segments are -- it plays out a little bit differently between them, if I put it that way. Stefan Stjernholm: Yes. I got it. Good. And regarding the Easter impact, good that you give the figure of SEK 40 million to SEK 45 million on sales. Is it possible also to quantify the EBIT impact if you get -- if you take the margin for the group, it's like 5% positive. I guess that's slightly more than that given the leverage on better sales. Frans Rydén: Yes, yes. So I would say that it is possible to do it, but we haven't done it. It's not a level that we want to disclose. But we're obviously very happy with the profit in the quarter. Stefan Stjernholm: Yes. But somewhere between 5% and 10% is a fair assumption, I guess, for the EBIT impact. Frans Rydén: Yes, yes. So definitely favorable, yes. Stefan Stjernholm: Yes. And then a final one for me, the pick & mix, the pilot with Edeka in Germany, how long is the evaluation phase? Katarina Tell: Stefan, this is Katarina. Yes. So as we wrote, we are now setting up in the report. We are testing in one store, and then we will also -- we have another try at another customers next quarter. So I would -- it's usually goes for a couple of months and then we evaluate. Of course, you can't drag it out too long. So it's a couple of months, then we do an evaluation. Stefan Stjernholm: Interesting. It would be nice to hear more about that later. Okay. These were my questions. Katarina Tell: Yes. We'll update for sure. Operator: The next question from Nicklas Skogman, Nordea. Nicklas Skogman: I have 3 questions, please. First, could you give some more flavor on the organic growth? You mainly highlighted the growth in chocolate, the Kexchoklad and the Tupla, but how did these new innovations that you mentioned like the Lakerol and the Zoo Foamy, how did they contribute to growth in the quarter? And also how did the rest of the sugar candy business do? Katarina Tell: Okay. I will start with that one. So as mentioned, the Lakerol more was a successful launch. We launched that quite early in the -- or I think it was week 7 or 8 or something in the quarter. And it's already taking market share. So that is, of course, a very positive signal. We also see that consumer already coming back to buy more in a double sense. So that is a very -- we have very positive signal. So that launch have, of course, contributed to the growth. The Foamy Monkey was launched a bit later right now. So it's too early to know the consequence of that one. But we have proof, of course, that the consumer already likes it because it's a client in CandyKing. So that is, of course, we really believe big in this launch as well. Nicklas Skogman: And the rest of the sugar candy business, how is that excluding Easter and the launches -- the innovation launches? Katarina Tell: It's performing well. So we have -- we are on a good growth. And as I said, we had a very strong quarter and on top, the Easter sale. So we really now get the strategy into action. And what we also see is the Nordic performing very well together with North America. Nicklas Skogman: Okay. Second question is on the inflation. You mentioned that it is slowing. Do you think we could see price being a net negative contributor for the full year, given the massive decline in the cocoa prices? Frans Rydén: So first of all, we don't want to comment on our prices in terms of price signaling. What we've said is that we have an established way of working with our customers, which is around fair pricing and where we adjust our pricing based on world market commodities. And now cocoa, which, of course, is only part of our portfolio has stabilized. And here, we have to think about when players who are as us sell chocolate products, if that would be at a lower price, how many consumers would then come back into the category, and that would drive volume to maybe more than offset that. And as Katarina mentioned in the CEO comments in the report as well that although from a market point of view, and I'm talking Nielsen here, the chocolate candy or confectionery chocolate category has -- looks like a little bit more promising now than it did before. We have really strong volumes. So you could have a rollback without dropping NSV. Nicklas Skogman: Yes. So volume could offset the potential price impact in short. Okay. Good. Last question is on the announcement yesterday from a competitor. They acquired a company called Aroma. Do you have any business with Aroma today via a pick & mix part of your company? And also from a broader market view, do you expect any changes to the market dynamics as a result of this acquisition? Katarina Tell: Yes, I can confirm. In the CandyKing concept, we have Aroma products. As mentioned in the interview this morning, it's not in line with strategy for Cloetta to acquire Aroma because we have a clear M&A strategy from that perspective. [ Fazer ] and Aroma are 2 well-known players today in the market. And of course, they will now have one -- there will be one set of competitors that we have to -- yes, play with, so to say, and see. I don't think it's too early to say what the key changes will be. But of course, this is a signal that Fazer will be more focused in the confectionery category. And that, of course, we need to take a position and manage. Nicklas Skogman: Could you share how much of the pick & mix business that is like how much is Aroma at the retail level? Frans Rydén: No, no, that's not something we would do. But if you think about Aroma is about 1% of the confectionery market in Sweden. So Aroma plus Fazer is less than half the size of Cloetta in Sweden. So it's not going to change -- impact our strategy this. But as Katarina says, we'll have to continue to see how this acquisition develops. And -- but it doesn't impact our strategy, and it would not have -- Aroma would not have been relevant for us with our focus on our super brands in the Nordic. Nicklas Skogman: All right. Good. Maybe I'll sneak a last one in. What's the latest on the North American business? Katarina Tell: Sorry, what is the latest update on the North American business? Nicklas Skogman: Yes. What's the last, yes. Katarina Tell: Yes. So as mentioned, North America grew well in the quarter. So it contributed to the growth. We launched the CandyKing store in Manhattan in the end of December. It's a profitable business. It's there to drive CandyKing and also to learn about -- learn the consumers and customers about our concept. We are also, as mentioned, we have recruited a business manager that's located in the U.S., all the packaging for what we can -- how we can drive the Swedish candy in the packed format are now approved from a legal perspective, both the design and the information on pack and recipes and so on. So we are progressing well, but we will share a more updated information about North America, yes, going forward. But we are progressing well and it's contributing to the growth in this quarter for sure. Laura Lindholm: Thank you, both. Vicki, it seems we do not have any further questions from the line. Is that correct? Operator: That's correct. No questions for the moment. Laura Lindholm: Thank you. We move over to the chat. We do have one question that was posted quite early on, but that's quite commercial and business driven in terms of promoting products. So we will come back to that separately. We will move to the second question, which is focusing on the agreement with IKEA. Assuming the IKEA contract has made your products available in more countries than you are already existing in and beyond the 3 identified markets, will you explore the opportunity to accelerate the expansion to new countries? Katarina Tell: Yes. So last year, we signed a global contract with IKEA. Today, we are -- we're having sale in 14 markets, and we continue to roll it out in more countries. We have planned for that in 2026 and 2027. The details of the agreement with IKEA are confidential. So -- but as long as we have the opportunity possibility, we will share information about the contract -- about the business within the details of the contract. Yes. Yes, it's 14 markets. Laura Lindholm: Good. We have no further questions in the chat. So should you like to post a question, please do so now. And I think also no further questions from the lines, right, Vicki? Operator: No questions from the phone. Laura Lindholm: All right. Let's double check the chat. It appears we have no further questions. It's time to start to conclude our event for today, but we take this opportunity to update and remind you of our upcoming IR events. Our next report Q2 is published on the 15th of July. But in addition to that, quite a lot is happening. Before the report, you can meet us in Stockholm and at our plant in Ljungsbro, Sweden as well as also New York and Dublin. You can see the details here on the slide. After Q2, we have so far have confirmed IR seminars and other events in Stockholm and in New York. And also there, you can find all the details on the slide and then also keep an eye out for the IR calendar on our website. We've updated it almost weekly. For those of you who are based in the U.S. or plan to travel there, our CandyKing store has been mentioned many times, and we extend a special welcome to that store. It's located in the West Village at 306 Bleecker Street. And do trust me, it is the perfect spot to familiarize yourself with our leading brand and concepts and to know what Swedish Candy is all about. It's now time to conclude the event. Before we meet again, we, of course, hope that you get the chance to enjoy our wide portfolio of confectionery products during many joyful occasions. Thank you for joining us today.