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Operator: Good morning, ladies and gentlemen, and welcome to the Flotek Industries, Inc. first quarter 2026 earnings conference call. At this time, all lines are in listen-only mode. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded on Wednesday, May 6, 2026. I would now like to turn the conference over to Mike Critelli. Please go ahead. Mike Critelli: Thank you, and good morning. We are thrilled to have you with us for Flotek Industries, Inc.’s first quarter 2026 earnings conference call. Today, I am joined by Ryan Ezell, chief executive officer, and Bond Clement, chief financial officer. We will begin with prepared remarks on our operations and financial performance followed by Q&A. Yesterday, we released our first quarter 2026 results, full-year 2026 guidance, and an updated investor presentation, all available on our investor relations website. This call is being webcast with a replay available shortly afterward. Please note that today’s comments may include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from our projections. For a full discussion of risk factors, please review our earnings release and most recent SEC filings. Please also refer to the reconciliations in our earnings release and investor presentation for non-GAAP measures. With that, I will turn the call over to our CEO, Ryan Ezell. Ryan Ezell: Thank you, Mike, and good morning to everyone. We appreciate your interest in Flotek Industries, Inc. and your participation today as we review our first quarter 2026 operational and financial results. In 2026, Flotek further positioned its industrialized pivot and transformational growth storyline through the continued execution of its corporate strategy. Driven by the power convergence of innovative real-time data and chemistry solutions, as shown on slide 3, Flotek has laid the foundation for a data-driven growth trajectory built on diverse recurring revenue, high-margin services, and proprietary technologies that create value for our customers and improve returns for our shareholders. The strategic transition of the company into a data-as-a-service business model continues to gain momentum while expanding the total addressable market for the company. As a result, Flotek’s data analytics segment grew exponentially while our differentiated chemistry segment outpaced the market in a challenging environment through an unwavering commitment to safety, service quality, innovation, and total value creation. Now, before I discuss the company’s vantage point on the evolving geopolitical and macroeconomic dynamics within the sector, I would like to touch on some key highlights for the first quarter referenced on slide 4 that Bond will discuss later in the call. Company total revenue grew 27% compared to 2025, highlighted by 295% growth in data analytics, which was the highest quarterly revenue for data analytics in the company’s history. Industry technologies revenue increased 13% despite three-year lows in completions activity in North America, which was also the highest quarterly revenue in over seven years. Company gross profit climbed 25% versus 2025. It is impactful to note that data analytics accounted for 50% of the company’s gross profit versus 8% in the prior-year quarter, marking a major milestone in Flotek’s transformation. Total company adjusted EBITDA grew 44% year over year. Flotek’s XSpec Analyzer was named Product of the Year at the 2026 Analyzer Technology Conference. Finally, 2026 guidance builds upon a multiyear trend of revenue and profitability growth as the company executes on its strategic initiatives to provide long-term resiliency and profitability as shown on slide 5. Most importantly, these results were achieved with zero lost-time incidents in the field operations. I want to thank all of our employees for their hard work and commitment to safety and service quality in achieving these outstanding results. Now turning to the larger picture for the energy and infrastructure sector, we share the viewpoint that the ongoing situation in Iran will have impactful and potentially long-term implications on global supply and energy security that will demand action. The structural disruption in the Middle East has catalyzed a fundamental shift in supply-side dynamics, establishing a higher baseline for energy security and recalibrating the risk profile for regional supply. As cumulative production deficits and reductions in strategic reserves are trending towards 1 billion barrels, we expect increased investment in localized oil and gas developments, while geographies that do not possess resources look to rapidly diversify energy security exposure. All of these factors point towards a fundamentally tighter energy market than what existed just 60 days ago and support a stronger commodity pricing environment for increased upstream activities. Layering in the expanding power demand driven by AI, data centers, and industrial reshoring, combined with the reliability issues of an aging transmission infrastructure, the expectations for tailwinds within the energy sector further strengthen. North America is already showing early indicators of recovery. Completions activity white space has all but disappeared for 2026, with spot work interest increasing throughout the remainder of the year. Our legacy pressure pumping customers continue to capitalize on the portfolio diversification opportunity provided by the demand for remote power generation. Flotek is poised to support emerging customers with products and services that help protect their assets while optimizing their operational performance and fuel efficiency. With multiyear waiting lists for turbines and reciprocating engines, protecting these capital-intensive investments is critical along with enabling reliability standards that exceed the greater than 99% uptime requirements. Transitioning from the macro view, let us dive into the details starting with slide 9. I want to spotlight the remarkable progress in our data analytics segment. We saw service revenues increase 785% in 2026 versus the first quarter of 2025, driving gross profit margin to 75% versus 38% in the prior-year period. This strong growth is powered by our flagship upstream applications Power Services and Digital Valuation, both of which are generating significant contracted wins and a robust recurring revenue backlog shown on slide 10. Highlighting these wins are: first, 21 Power Services measurement units added since closing our original PowerTech deal. These are in addition to the primary long-term PowerTech contract assets. There is a 27-unit order from a large OFS customer with an expanding distributed power fleet to monitor field gas for power generation and digital evaluation of fuel quality and consumption. A 15-unit order from a major midstream customer for real-time crude and condensate quality measurement. And also a deployment of a smart skid rental to a major IOC to optimize gas quality with real-time blending of field gas and CNG, which is one of the first applications of its kind. We also deployed rental assets to support our large utility recovery power contract in Montana. This momentum has accelerated with these new contracts, expanding our expected backlog for the remainder of 2026 to $34.1 million and our three-year expected backlog to more than $90 million. Power Services led this growth, further reinforcing our shift towards high-margin recurring revenue streams. Flotek’s Power Services has evolved from a novel analytical approach into a transformative platform for the energy infrastructure sector that we call PowerTech. What began as advanced analytics has grown into a comprehensive end-to-end fuel management platform, redefining performance standards and operations within the sector as shown on slide 11. Our expanding portfolio of patents and field-proven use cases position Flotek as a leader across the natural gas value chain. When considering the velocity of our measurement, we deliver unmatched real-time fuel monitoring, conditioning, blending, and engine control to optimize performance and safety for behind-the-meter distributed power operations. The success of Flotek’s Power Services applications is expanding rapidly as we expect to have proprietary real-time analyzers on more than 50% of the currently active North American e-frac and natural gas-powered fleets by year-end. Additionally, on March 3, 2026, Flotek announced its first contract within the utilities infrastructure sector, seen on slide 12. Leveraging our patented PowerTech platform, Flotek will partner with leading distributed power providers to coordinate installation of up to 50 megawatts of state-of-the-art power generation equipment, including advanced gas distribution and smart conditioning systems, to support critical federal disaster recovery initiatives. We are pleased to announce that we have initiated phase one of the project, which includes the mobilization of 12 megawatts of distributed power combined with our proprietary gas conditioning and distribution skids to the in-field staging area while the site prep work is completed. First power is expected in 2026. Now let us transition to slide 13 and dive into our second upstream application, digital valuation. This groundbreaking use case sets a new standard in the oil and gas industry, delivering unprecedented transparency and minimizing enterprise risk for producing wells like never before through real-time digital twinning of the custody transfer process. In 2025, Flotek reported a historic milestone in natural gas measurement. The XSpec spectrometer became the first optical instrument to achieve the stringent reproducibility and repeatability requirements of the oil and gas industry standard for custody transfer, GPA 2172, also known as API 14.5. We believe the XSpec’s speed, accuracy, durability, and qualification under the rigorous measurement standards outlined in GPA 2172 will provide a significant advantage in discussions with prospective customers as we aggressively expand its manufacture and field deployment. In March 2026, the XSpec Analyzer was named Product of the Year at the 2026 Analyzer Technology Conference, further exemplifying its differentiated capabilities. Since completing our digital valuation pilot program in 2025, we exited the year at 25 active units deployed. Furthermore, 2026 is off to a great start with that number more than doubling to 57 units currently deployed or contracted for delivery. It is clear that execution of our transformational strategy to grow the data analytics segment with upstream applications is gaining traction. What is most important is what it means for our stakeholders and investors. First, our DAS-driven strategy ensures predictable, recurring revenue and cash flow, delivering stability and long-term value. Secondly, our proprietary data technologies and superior measurement accuracy enable velocity and decision control that establish a high barrier to entry, secure client loyalty, and support our value-based service model. Finally, long-term, high-margin subscriptions position Flotek for sustained growth and margin expansion, driving significant shareholder value over time. Lastly, let us move to our chemistry technology segment, which continues to deliver robust performance driven by the differentiation of our Prescriptive Chemistry Management services and our expanding international presence. Slide 15 highlights the resilient performance of our 13% increase in total revenue for 2026 compared to 2025 despite a 21% decline in the average North American frac fleet count over the same period according to Primary Vision data. As mentioned earlier, we believe we have reached the trough of the cycle and see encouraging indicators for cautious optimism in the second quarter of 2026 and beyond. We continue to closely monitor operational and supply chain risks to our international operations amid the ongoing conflicts in the Eastern Hemisphere. It is evident that our chemistry team has executed our strategy flawlessly. As we move into the second quarter of 2026 and beyond, the opportunities leveraging the convergence of Prescriptive Chemistry Management and data services move to the forefront through high-margin services that improve operator ROI. These advanced services include smart chem-add units, real-time flowback monitoring, and implementation of prescriptive geological targeting. Looking ahead, I am more confident than ever in Flotek’s momentum and our ability to drive sustained, profitable growth as we execute our transformative corporate strategy. We are firmly positioning Flotek as a high-growth technology leader in the energy and infrastructure sectors, accelerating innovation through the powerful integration of real-time data analytics and advanced chemistry solutions that are tailored to precisely meet our customers’ evolving needs. Now I will turn the call over to Bond to provide key financial highlights. Thanks, everyone, and good morning. Bond Clement: Our first quarter results build upon a record-setting 2025. We issued our initial guidance for 2026 that points toward continued strong growth in revenue and adjusted EBITDA. Quarterly highlights included achieving our highest quarter of total revenue since 2017, driven by the largest quarterly contribution from ProFrac in the more than four-year history of our supply agreement, and the second consecutive quarter in which our data analytics segment surpassed $10 million in revenue. Total revenues for the quarter increased 27% year over year and 4% sequentially, driven by continued strength in related-party revenue, which increased $21 million, or approximately 70%, compared to the year-ago quarter. Of that increase, roughly $14 million was related to chemistry revenue, while approximately $97 million was attributable to the PowerTech lease agreement. External customer chemistry revenue declined 33% year over year but was flat on a sequential basis, which we view as an encouraging sign. As Ryan touched upon earlier, we expect external chemistry revenue to increase in the second quarter amid improving customer engagement, reinforcing our belief that completion activity levels are stabilizing and may be in the early stages of recovery as we move through the year. Data analytics delivered another strong quarter with service revenue increasing significantly compared to the prior-year period. As highlighted on slide 9, service revenue accounted for 82% of data analytics revenue this quarter, up sharply from the year-ago quarter, helping to drive first-quarter data analytics gross profit margin to 75%, a 200 basis point improvement sequentially. Data analytics segment revenue represented 15% of total company revenue in the first quarter, significantly up from 5% in the year-ago quarter. As highlighted in the earnings release, we began mobilizing equipment related to our disaster recovery Power Services contract. As a result of this incremental revenue, we are forecasting sequential growth in data analytics during the second quarter. As noted on slide 12, we currently expect 2026 revenues from this contract to total approximately $12 million before consideration of the contract extension. Gross profit increased 25% as compared to the year-ago quarter. First-quarter gross profit as a percentage of revenue totaled 22%, which equated with the year-ago quarter despite the nearly $5 million reduction in the order shortfall penalty as compared to the first quarter of last year. SG&A expenses increased 10% year over year, primarily driven by higher non-cash stock-based compensation related to the timing of our long-term incentive grants. For context, our 2026 grants were issued in the first quarter, whereas the 2025 grants were made in the fourth quarter. On a sequential basis, SG&A declined 9%, reflecting lower legal and professional fees. As revenue continued to scale this quarter, we saw meaningful leverage in our G&A expenses. Excluding stock compensation, G&A declined to 8.7% of revenue, down from 10.5% in the year-ago quarter. That nearly 200 basis point improvement below the gross profit line reflects the efficiency of our cost structure and was a key driver in the year-over-year expansion in adjusted EBITDA margin in the first quarter of this year. Net income for the quarter was $4.7 million, or $0.12 per share, compared to $5.4 million, or $0.17 per share, in the prior-year quarter. The year-over-year decline was primarily driven by higher depreciation and interest expense related to the PowerTech acquisition that closed during 2025, as well as a higher effective tax rate. For the first quarter, our effective tax rate was approximately 26% compared to only 1% in the year-ago period, reflecting adjustments that we previously discussed related to our valuation allowance on deferred tax assets. As an update to our prior expectations, we now anticipate our effective tax rate to be in the range of 23% to 26% going forward, the vast majority of which will be non-cash, and that incorporates estimated state taxes on top of the 21% federal rate. Per-share metrics for 2026 as compared to the year-ago quarter also included a higher share count as a result of the 6 million shares issued in conjunction with the PowerTech acquisition in the second quarter of last year. The earnings release yesterday included our guidance for 2026. As shown on slide 4, we are estimating total revenue in a range of $270 million to $290 million and adjusted EBITDA in a range of $36 million to $41 million. The midpoints of these metrics imply growth of 18% and 17%, respectively, as compared to 2025. As a reminder, our adjusted EBITDA numbers presented in the release and the presentation, including our guidance, do not add back non-cash amortization of contract assets, which totaled $2.2 million in the first quarter and are expected to total $6.2 million for the remainder of 2026. On the balance sheet, you may note a new line item called “equipment credit—related party.” As part of the settlement of the 2025 order shortfall penalty, we agreed to receive a $12.5 million allowance from which we can place orders for construction of Power Services equipment. We have already placed POs for approximately $10 million of additional distribution and conditioning assets that we expect to have in service throughout 2026. We expect to fully utilize the equipment credit in 2026, which will represent the bulk of our estimated capital expenditures budget. We believe 2026 is shaping up to be a significant year for Flotek. Importantly, we have been able to deliver consistent growth metrics while maintaining a disciplined balance sheet and low leverage. As shown on slide 16, using the midpoint of our 2026 adjusted EBITDA guidance, our leverage ratio is approximately 1.0x based on net debt outstanding as of March 31. When you factor in the estimated $8.4 million in 2026 non-cash amortization of contract assets, we are less than 1.0x levered. We believe that this ultimately positions us to continue investing in growth while maintaining financial flexibility. With that, I will turn it back to Ryan for closing prepared remarks. Ryan Ezell: Thanks, Bond. Our first quarter 2026 results extend our multiyear track record of consistent improvement as we continue transforming Flotek Industries, Inc. into a data-driven technology leader. The data analytics segment delivered strong growth, highlighted by triple-digit increases in service revenue, expanding recurring revenue streams, and a robust multiyear backlog. Together with our resilient Prescriptive Chemistry Management services, Flotek is well positioned to gain additional market share and drive further top- and bottom-line improvement with substantial upside opportunities in our data-driven services. We remain committed to shaping the industry’s digital and sustainable future by leveraging chemistry as our common value creation platform. With our proven execution, expanding high-margin capabilities, and clear pathway to scaled growth, Flotek is poised for the next phase of value creation for our investors. We will now open the call for questions. Operator: Thank you. Ladies and gentlemen, to ask a question, please press star then 1. [inaudible] One moment, please. We will begin the Q&A. Operator: Our first question comes from Jeffrey Scott Grampp. Your line is open. Jeffrey Scott Grampp: Hey, good morning, guys. Wanted to start first, Ryan. The data point to get to 50% of your units on e-frac is impressive. As I recall, that was how things initially started with the ProFrac relationship and the value you brought there and then obviously scaling that to a much larger deployment with them. Is that kind of the goal or outcome on some of these deployments, or where are we in terms of traction or state of conversations to potentially expand the market opportunity with some of these customers? Ryan Ezell: Yeah, Jeff, that is a great question. I will try to give you some tangible color on our approach. In our Power Services business, we have taken a very methodical approach. Our background in monitoring hydrocarbon flow through our data analytics group has over 15 years of experience. We evaluated all the different basins, hydrocarbon and gas quality, and geography to look at where frac fleets are going to be, where potential data center locations will be, and other power generation sites, and we built our equipment and measurement techniques for those specific locations. We executed a pursuit plan of proving out our measurement, then moving into control, and then finally the distribution piece. What you are seeing now is we targeted our primary experienced customer base around e-frac and natural gas power. Most of these customers are now aggressively moving to other behind-the-meter distributed power platforms. Looking at our original work that started back in 2022 with ProFrac and the continued growth of North America’s e-frac and natural gas fleets, the team has done a great job working with a multitude of clients to get our Varex or XSpec units on location to start measuring gas quality, whether for evaluation and volume or for potential conditioning. That is always the first step in our sales process. We are proud to announce that between currently awarded work and recent POs we have received, by the end of the year we will have an analyzer on location for over 50% of these higher-tech fleets, which is a phenomenal step. We hope that evolves into our ability to further advance their conditioning and optimization, whether reciprocating engines, turbines, or even their natural gas pumping fleets. That is part of our execution of the sales process. Jeffrey Scott Grampp: Got it. Thanks for those details. My follow-up on the utility infrastructure side, appreciate you putting some data on the impact in 2026. Where do you think it potentially builds beyond this phase one and the 12 megawatts you put out? Are there additional phases under consideration, or is that your best guess for steady-state work on that contract? Ryan Ezell: Right now, after our initial assessment, there are two primary sites, which are phase one and phase two. Phase one is moving forward. We have mobilized the first 12 megawatts to location with our proprietary conditioning and distribution equipment and plan to have that site active in the back half of the year. We believe with the success of that project we will initiate phase two, which will probably be an additional 15 to 20 megawatts. The timing on that at best would be the very end of the year, probably more into the 2027 timeframe, given site prep requirements. We do expect this work to continue past just our six-month measurement part of the contract, but we will be conservative until we officially lock that down. We expect this project in the end to be between 25 to 30 megawatts with all of our gas distribution equipment on location. Another point to note, while our primary goals are growing Power Services in oilfield power, we are now seeing our tentacles stretch into other areas around data center growth and other behind-the-meter power generation opportunities. We are seeing line of sight into 200-plus megawatts of power generation and conditioning opportunities coming into the pipeline that we are actively pursuing through the back half of the year and into 2027. The pipeline is continuing to grow. We also have Varex units on two different large turbine gas-fired power plants where we are monitoring fuel quality, ethane percentage in natural gas, and optimizing fuel. A lot of exciting things are happening in Power Services for Flotek, which offer potential upside to our numbers in the back half of the year, particularly rolling into 2027. Operator: Thank you. Our next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead. Rob Brown: Good morning. Congratulations on all the progress. Following up on the 200 megawatt pipeline you discussed, how does the cadence of quotes in that market work, and how does revenue flow through for you as those come into the mix? Ryan Ezell: Our primary goal is around gas conditioning and fuel optimization services. They come in different ways. Traditionally, we are the primary gas conditioning equipment for emergency power startups or peak power support because they are using very raw field gas that could be wet or otherwise out of spec. Often there are power shortages, so we can leverage relationships with current customers to help pass through or greenlight some of those power generation assets. Moving into data centers, those are longer-term plays where we improve fuel efficiency and, depending on geographical location and gas or pipeline quality, we come in heavily. Those tend to be on the longer end of our sales pursuit cycle due to engineering, proving out, gas testing, and sampling. Given we are already into May, those are more likely 2027 revenue-generating opportunities. However, there are opportunities to pull some forward, particularly where power assets are already on location and having gas quality issues. We are being pulled in to fix those problems. Rob Brown: Great. On the 57 units you have deployed or on order, how is the order book pipeline looking for that product? How do you see that building? Ryan Ezell: When we talked a few weeks ago, those numbers have more than doubled on issued POs, contracted deliveries, and field installations. It is not linear. We are seeing double-digit orders of units, we get them installed, and then amplified opportunities follow. We are having a lot of conversations with midstream providers, our main target audience. Once we get solid acceptance, we have two major midstream customers right now who, on any scale purchases, could triple the current active number with a couple of POs. We expect growth in a nonlinear fashion. Our target is roughly 150 units by year-end, which is within striking distance for custody transfer, with potential upside. Operator: Thank you. The next question comes from Gerard J. Sweeney with ROTH Capital. Please go ahead. Gerard J. Sweeney: Thanks for taking my call. On digital analytics, lots of opportunities are starting to emerge. As you look at the playing field, what do you need to solidify some of these orders and get the product out there further? Any choke points? Do you need more investment in sales, or is it more time-oriented and more testing? Ryan Ezell: Breaking down Power Services into phases—measurement, conditioning, then control and distribution—we are making great headway. The majority of measurement POs are already received, and we are manufacturing and deploying analyzers. The next revenue growth step is conditioning. We mentioned our first modified smart blending skid that monitors volumes of CNG to field gas for a flat BTU quality every five seconds—the first of its kind. Once analyzers are on location, adding equipment like that is the next step. As Bond mentioned, we have already issued POs to build out $10 million dedicated to the next generation of conditioning and distribution assets. We expect a big majority online by midyear, then you will see impact and uptake. We are investing at least $12 million into capital assets for conditioning, with potential for more as business cases arise. We have amplified our sales force and have open positions to put more salespeople on the ground. We picked up a couple of large-scale engineering firms involved in data center design-builds that are getting comfortable with our equipment. Lastly, we are in in-depth conversations with OEM engine providers—most are sold out for the next three years and are doubling or tripling capacity. We are far along on the ability to control engines by methane number and Wobbe index. Look for exciting things on that front, which could provide additional upside depending on distribution schedules in the back part of the year. Gerard J. Sweeney: Are those conditioning skids that you are building and expect to be available at midyear all factored into your guidance, or are they layered in as you go through the year into next year? Ryan Ezell: They are layered in conservatively. As they come online, we have objective utilization rates, with room for higher utilization and earlier in-service dates. This is a new frontier for us, and we are getting a better understanding. We lean conservative with opportunities to push asset utilization and returns. We have a positive outlook for the back part of the year. Operator: Thank you. Our next question comes from Donald Crist. Please go ahead. Donald Crist: Hope you all are doing well. Ryan, I wanted to ask about your comment on the U.S. pressure pumping business, either on the third-party side or with ProFrac. What are you seeing out there? We are hearing that a lot more pressure pumping is going to work. Thoughts around that and chemical sales, domestically or through ProFrac? Ryan Ezell: We break the year into first half and second half. A lot of potential items in the first half have now solidified. The majority of the spot-call white space is gone, particularly with our target customers using Tier 4 dual-fuel, direct-drive natural gas, or e-fleets. We are starting to see an uptick. Our expectation is external chemistry customers will continue to strengthen from Q2 onward. Visibility is improving for the back half, with spot work increasing. Availability of upper-tier equipment is almost gone now, which is good for the market. In chemistry, you have seen that play out with our related-party revenues with ProFrac. These fleets have moved into a lot of gas basins where they have strong positioning, and we picked up a lot of chemistry. We expect that to translate to other customers. Our external business was slightly impacted by weather in early Q1 and some normal repair and maintenance cycles, and now businesses are picking up. Importantly, there is a lot of optimism for our frac business in the Middle East. We got through trial stages and expect large deployments of our chemistry to hit the ground this quarter. We are now on two operating fleets and looking to pick up one to two more by the end of the year. You will see a lot of stage work coming from the Middle East, which will bolster our external chemistry revenue mix. Bond Clement: Don, to give you some numbers, when you look at first-quarter external chemistry revenue in 2025 of $22 million, we are obviously down this quarter. We believe by the end of the year we could see those kinds of numbers again on a quarterly basis—getting back to where we were last year—which would be a big growth driver from here. Donald Crist: That was my next question—whether the Middle East impacted the $14 million you generated this year or not. Any comments around that and getting chemicals into the Middle East, including logistics? Ryan Ezell: International business was extremely light in Q1 due to logistics delays. I have been very pleased with our team’s logistics plan. In Q2, we are seeing chemicals get on the ground a few weeks earlier than expected. Our biggest customer there is pleased, and we are seeing a pickup in total stages. Domestically, our chemistry team has done a phenomenal job finding opportunities and growing the business. We are seeing the convergence of our data and chemistry businesses play out, with opportunities to utilize our XSpec units and dual-channel Varex units for flowback control, crude, and gas quality, as well as our advanced real-time chem-add units that use micro-dosing on concentrates. These drive differentiation and significant growth opportunities for chemistry and high-margin data services. Operator: Thank you. Our next question comes from Gaushi Sriharan with Singular Research. Please go ahead. Gaushi Sriharan: Good morning, and thank you for taking my call. On gross margins coming in at about 22%, with data analytics already at 50% of gross profit, as the shortfall penalty mechanism resets through 2026 and data analytics share continues to grow, how should we think about the pace of gross margin expansion? Is a 25% to 27% range realistic by 2026, or are there other offsets we should model? Ryan Ezell: We have continued to see overall gross margin improvement even with reductions in the order shortfall penalty, which is now minimal. The factor that will play the biggest role is how much distributed power revenue runs through the P&L. When we pass through distributed power with one of our big customers, we typically have a minimal markup, which can dilute profitability, for example on our Montana contract. By contrast, our conditioning skids alone can come in at roughly 80% gross margin. Depending on how many additional megawatts move into the back half, it could dilute the consolidated margin. Bond Clement: In the back half, we expect margin expansion, but it is hard to forecast precisely because we also expect a sizable increase in external chemistry revenue, which carries lower margins, while data analytics grows at higher margins. We think 25% by the end of the year is possible, and we are forecasting gross margins to continue to move up. Gaushi Sriharan: Thanks. One more. On the Q1 deck, you flagged EPA flare monitoring enforcement being rolled back. Given that Veracal was generating around $2 million to $2.5 million at around 60% gross margin in 2025, how much of that demand has deteriorated versus what you originally expected? Is that business pivoting toward voluntary or international regulatory frameworks to offset that headwind? Ryan Ezell: There has been some softness domestically. We still have a fleet staying relatively busy, but as a rapid growth mechanism in the U.S., it has slowed. International deployments are picking up. In the U.S., New Mexico and Colorado are advancing utilization even as Texas softens. We are seeing customers move from mobile 14-day test pad use to ongoing operational efficiency and real-time tuning of flares to achieve lower emitter status and operational efficiency targets. That trend is occurring domestically and internationally. Operator: There are no further questions at this time. I will now turn the call back over to Mike Critelli for closing remarks. Mike Critelli: Thank you. Join us at our upcoming investor events. In May, you can catch us at the Louisiana Energy Conference for meetings and an investor presentation. In June, we will be at the Planet MicroCap 2026 conference at the Bellagio in Las Vegas. In August, we will be at EnerCom Denver at the Westin, featuring an investor presentation and one-on-one meetings. For all other events and the latest information, please see the events section of our website. Ryan Ezell: Thanks, everyone, for your time today and your questions. We will speak to you soon. Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Welcome to Adient's Second Quarter Earnings. [Operator Instructions] I'd like to inform all participants that today's call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Linda Conrad. Thank you. You may begin. Linda Conrad: Thank you, Denise. Good morning, everyone, and thank you for joining us. The press release and presentation slides for the call today have been posted to the Investors section of our website at adient.com. This morning, I'm joined by Jerome Dorlack, Adient's President and Chief Executive Officer; and Mark Oswald, our Executive Vice President and Chief Financial Officer. On today's call, Jerome will provide an update on the business. Mark will then review our second quarter financial results and our outlook for the remainder of our fiscal year. After our prepared remarks, we will open the call to your questions. Before I turn the call over to Jerome and Mark, there are a few items I'd like to cover. First, today's conference call will include forward-looking statements. These statements are based on the environment as we see it today, and therefore, involve risks and uncertainties. I would caution you that our actual results could differ materially from these forward-looking statements made on the call. Please refer to Slide 2 of the presentation for our complete safe harbor statement. In addition to the financial results presented on a GAAP basis, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures to the closest GAAP equivalent can be found in the appendix of our full earnings release. And with that, it is my pleasure to turn the call over to Jerome. Jerome Dorlack: Thanks, Linda. Good morning, everyone, and thank you for joining us to review our second quarter results. Today, we will focus on the quarter's solid performance and provide an update to our fiscal year 2026 outlook. Overall, Q2 results came in line with our expectations, reflecting typical seasonality in China and some temporary production inefficiencies on a few key programs. Despite that, revenue was up 7% year-over-year, driven largely by FX tailwinds with underlying growth in both the Americas and Asia. Adjusted EBITDA was down modestly year-over-year, reflecting temporary mix, launch costs and customer-driven inefficiencies, partially offset by favorable FX and SG&A. Free cash flow in Q2 reflected the normal seasonality of the second quarter, and we ended the quarter with a cash balance of $831 million and $1.6 billion of liquidity. Given normal cash flow seasonality and the increased geopolitical uncertainty, we paused stock repurchases during the quarter, consistent with our approach last year. Turning to growth. We continue to aggressively pursue new business in all regions. In the Americas, more OEMs are announcing their intention to onshore production in the United States. We are working with our customers to capitalize on these opportunities as their plans materialize. We have also won significant conquest programs in South America and China. And in China, our growth over market remained strong despite the overall production volume challenges in the region. Finally, as we look beyond the quarter to the full year, based on what we know today, we are increasing our guidance modestly for revenue, adjusted EBITDA and free cash flow. Favorable volumes and strong business performance are being muted by $35 million of expected input cost headwinds, which Mark will outline further in his remarks. Turning now to Slide 5. While I just noted that Adient is raising guidance slightly for fiscal year 2026, we acknowledge that the overall macro environment remains volatile. The ongoing geopolitical conflicts, elevated energy and commodity costs, trade policy uncertainty and shifting consumer sentiment continue to influence the industry. While nobody can predict what will happen for the remainder of the fiscal year, what differentiates Adient in this environment is our operating model. We combine strong commercial discipline and pricing mechanisms with exceptional operational execution, flexing labor, controlling costs and launching flawlessly, supported by a strong balance sheet with ample liquidity. That allows us to execute at a high level even amid production volatility and supply chain challenges. Despite these external headwinds, our year-to-date results reinforce our ability to execute. We continue to drive positive business performance despite temporary disruptions and customer-driven inefficiencies. We continue to outpace the market in China as expected. And we maintain margin discipline across regions, while preserving a strong and flexible capital structure. This is how we manage what's within our control and why we continue to deliver on our commitments and maximize long-term shareholder value. Before I get into the regional update, I want to recognize our global team's exceptional performance year-to-date. We have received over 60 awards in the last 2 quarters, comprised of recognition from our customers, industry organizations and independent quality assessors across the globe, a testament to our operational excellence and the trust our customers place in Adient. In addition to these noteworthy accomplishments, Adient continues to be recognized as an employer of choice in the regions we do business, validating our commitment to our people and enabling us to attract and retain top talent worldwide, which strengthens our ability to execute. These recognitions validate that our strategy is working. We are winning with customers, investing in our people and delivering the consistent quality that builds long-term partnerships and shareholder value. Now, let's talk a bit more about the regions on Slide 6. While our business is global, each of our regional businesses is impacted by unique market dynamics, and each is facing its own set of opportunities and challenges. In the Americas, we are navigating a complex and dynamic environment, driven in part by tariff policies, which are manageable at current rates but continue to be fluid. Onshoring and growth remain a key focal point for the Americas team, especially as onshoring momentum continues. In addition, the teams are driving margin improvements through our continuous improvement programs, automation and optimizing our manufacturing footprint. The team is also focused on launch execution for multiple programs, including the Kia Telluride, Rivian R2 and the Toyota RAV4. In EMEA, market uncertainty and overcapacity persist and continue to impact not just Adient, but the overall industry. Our team continues to rise to these challenges. We are pursuing and winning new and replacement business and continue to strengthen our supplier-of-choice status in the region. Operationally, the European team is driving favorable business performance through commercial execution, cost discipline and restructuring actions that more than offset the current volume headwinds, all while successfully executing more than 30 launches so far this year. Turning to Asia. The market dynamics with shorter vehicle development cycles and innovation are a key differentiator. As we will highlight in a few slides, our Asia team continues to commercialize innovation products, which our customers are excited to invest in. Despite industry pressures in China, we continue to outperform the market through launches with local OEMs, which now represent about 70% of our wins. Our world-class JV structure further strengthens our local presence and expands our market. Beyond China, Asia outside of China is also positioned for above-market growth in the second half of this year as new launches ramp. While we do expect some manageable margin compression, the region is expected to remain accretive to Adient's EBITDA and cash generation. While each region is distinct, what ultimately defines Adient is that we operate as one unified company. Across every region, our teams are aligned around the common purpose, serving our customers, supporting our employees and delivering value for our shareholders. We do that through disciplined execution, seamless collaboration across borders, a strong culture of integrity and the ability to adapt quickly as conditions change. Turning to Slide 7. This page highlights how our growth strategy has continued to gain momentum. In the Americas, onshoring and conquest wins continue to drive meaningful volume gains. This quarter, we secured roughly 200,000 incremental units from the Chevrolet Equinox U.S. onshoring and conquest win, along with approximately 180,000 units from Volkswagen conquest programs in South America. These wins reflect the strength of our footprint and our ability to execute reliably as customers regionalize production. That momentum is showing up in our forward book as well. FY '27 booked business has increased to about $400 million and FY '28 to roughly $630 million, representing close to 700,000 incremental vehicles and market share gain. Importantly, that figure reflects what we booked to date. Onshoring trends continue, and we remain in active discussion with global OEMs on additional opportunities that extend beyond what's captured here. We continue to see ourselves as a net beneficiary of customer onshoring. In Asia, our team has done an exceptional job of competing and winning in a highly dynamic market. As I mentioned in the last slide, approximately 70% of our new business wins in China are with local OEMs, reflecting strong customer relationships, faster development cycles and Adient's ability to localize engineering and execute at scale. That execution is translating into above-market growth with China up 10% in Q2 versus a declining industry. Taken together, this reinforces the momentum we're building across regions as onshoring, conquest and localized execution continues to expand our growth runway. Moving to the next slide. After the quarter-end, we announced the completion of a tuck-in acquisition that expands our foam manufacturing footprint in the Americas. We acquired a foam production plant in Romulus, Michigan, which supports multiple OEM seating programs, expanding our Americas foam network to 10 plants and 30 plants globally. This is a strategic core business move that strengthens our vertical integration capabilities and helps improve supply assurance and responsiveness for our customers. Our focus is on a smooth integration with uninterrupted service, and we see opportunities over time from logistics advantages, operational flexibility and productivity improvements. This targeted acquisition strengthens Adient's operational model by further improving control over critical inputs, lowering execution risk and supporting more resilient margins. We are thrilled to welcome the Romulus employees to Adient and are excited about the capabilities and commitment they bring to our organization. Moving on to Slide 9. I want to spend a moment and talk about our recent launches and the new business wins because these are important proof points on how Adient is growing. These wins aren't about volume alone. They reflect higher content, more complex seating systems and deeper integration with our customers across the regions. In the Americas, Adient continues to be a net beneficiary of customer onshoring trends. We are happy to announce the recent conquest win with the Chevrolet Equinox, highlighting once again our world-class footprint, consistent operational execution and strong customer partnerships reinforce our supplier-of-choice status. We also recently won conquest business on several Volkswagen platforms in South America. This is strategically important growth for Adient as it deepens our footprint with a major global OEM, strengthens our regional manufacturing relevance and positions us for sustained revenue growth and incremental opportunities in the market over the coming years. In EMEA, program wins such as the new Porsche SUV and recent launch of the Citroen C4 demonstrate continued momentum with leading global OEMs. Importantly, these wins reflect disciplined, selective growth, where we are prioritizing programs that align with our operational strengths, higher value content and improved earning resilience in the region. In Asia, growth is being driven by domestic OEMs and EV platforms, including Xpeng, Leapmotor and Changan, where we are delivering advanced comfort features, high adjustability and multivariant seating architectures, often with Adient-led engineering development in region. Importantly, many of these awards involve premium comfort content, higher complexity and greater value per vehicle. When you look at this slide, I think it's important to step back and look at the balance of our growth portfolio. On one hand, programs like the Chevrolet Equinox represent disciplined growth on high-volume onshore ICE platforms, where Adient is winning complete seat content, taking share through conquest and leveraging our market-leading North American footprint, delivering strong execution and solid cash generation. At the same time, launches like the Rivian R2 and Leapmotor D19 position us on next-generation EV platforms, where higher complexity, tighter integration and engineering-led execution support higher content per vehicle and stronger higher-quality earnings over time. Together, these programs demonstrate that we're not making an either/or choice between legacy and next-gen. We're deliberately building a portfolio that balances scale and cash flow today with complexity-driven higher-quality earnings tomorrow. That balance is exactly what underpins the sustainability of our results and our confidence in the long-term outlook. Overall, this slide reinforces why Adient continues to be the supplier of choice, winning across regions, technologies and vehicle segments, while executing complex launches at scale. Turning to Slide 10. I want to highlight 2 recent innovation milestones that underscore how Adient continues to turn technology leadership and realize commercial execution. Most recently, we achieved an industry-first launch of our StepJoy foot massage system on the NIO ES9. This is a key example of how we're expanding seating comfort beyond traditional lumbar and back applications, while maintaining compact packaging, cost efficiency and automotive-grade reliability. Importantly, this is not a concept. It is in production today, validating our ability to industrialize differentiated comfort solutions at scale. In parallel, we're advancing our mechanical massage portfolio with ProForce Massage Flow, which builds on our already validated ProForce platform. ProForce Massage significantly expands massage coverage and gives customers the ability to offer premium seating experience, providing differentiation over traditional highly commoditized massage offerings offered by our competitors. The modular design and production validation allows this technology to be deployed across multiple seat architectures and vehicle segments within an OEM, enhancing scalability, and is already scheduled for production on 2 C-OEM models. The ProForce system is differentiated from what our competitors offer. Together, these launches demonstrate how we're leveraging innovation to drive higher content per vehicle, deepen OEM relationships and support higher-quality earnings over time. This is how innovation plays into Adient's operating model, disciplined, scalable, differentiated and commercially focused to help our customers enhance their overall in-vehicle experience. Before turning this over to Mark, I want to pause here on Slide 11 because this slide really connects the dots between our operating model and what it delivered this quarter. We speak a good deal about operational excellence, profitable growth, innovation and being a supplier of choice, but these are not abstract concepts. They are the foundation that allows us to execute consistently, especially in an environment like this one. In the second quarter, that execution showed up in very tangible ways. We delivered multiple complex launches as planned, continued to convert supplier-of-choice recognition into conquest and onshoring wins, and advanced innovation programs that are already in production and generating value for our customers. We also strengthened our footprint and reduced execution risk through a targeted tuck-in acquisition. Our teams have received more than 60 customer and industry awards across the region over the past 2 quarters, reflecting Adient's day-to-day execution and quality, launch performance, responsiveness and employee satisfaction. This recognition is translating directly into outcomes, key talent retention, deeper customer trust, conquest and onshoring wins, and the ability to launch more complex, higher-content programs consistently. That external validation reinforces why our operating model continues to scale in a challenging environment. These proof points are the direct result of how we run the business every day, and they're what gives us the confidence in our ability to convert performance into cash flow generation and sustainable value creation going forward. Now, I'd like to turn it over to Mark to walk you through the financials. Mark Oswald: Thanks, Jerome. Let's turn to financials on Slide 13. Adhering to our typical format, the page shows our reported results on the left side and our adjusted results on the right side. As a reminder, the prior period included a onetime noncash goodwill impairment charge of $333 million related to the EMEA goodwill impairment, which impacted our GAAP reported results in Q2 of fiscal year '25 and affects the year-over-year comparability. My comments will focus on the adjusted results, which exclude special items that we view as either onetime in nature or otherwise not reflective of the underlying performance of the business. Full details of these adjustments are included in the appendix of the presentation for reference. Moving to the right side, high level for the quarter. Sales for the quarter were $3.9 billion, up 7% year-over-year, reflecting favorable FX, solid volumes and strong underlying business performance. Adjusted EBITDA was $223 million. While this was down year-over-year, the comparison reflects the impact of near-term customer-driven production inefficiencies and increased launch expense as we continue to invest in future growth. Equity income was lower year-on-year as a result of lower volumes with certain of our customers in China. Adjusted net income was $41 million or $0.52 per share. Let's dig a bit deeper into the quarter, beginning with revenue on Slide 14. I'll go through the next few slides relatively quickly as details for the results are included on the slides, allowing sufficient time for Q&A. We reported consolidated sales of $3.9 billion in the quarter, which was an increase of $254 million compared to the same period last year, primarily reflecting better FX tailwinds, along with favorable volume and pricing. On the right side of the page, we are presenting regional performance on a trailing 12-month basis. This view helps normalize seasonality and timing effects inherent to our operating model and provides a clear picture of the underlying trends. In the Americas, we are seeing growth of 5%, outperforming a flat market, primarily driven by Adient's customer profile, pricing and new vehicle launches. In EMEA, sales have trailed the market, reflecting customer volume and mix and deliberate portfolio actions such as the recent closure of our Saarlouis Ford plant. For China, while the trailing 12-month view is influenced by earlier-period softness, recent performance has notably been stronger. This quarter, sales in China grew at double digits, while the overall market declined, building on first quarter's significant outperformance. We expect this trend to continue over the next several quarters based on our book of business and launch schedule. Unconsolidated revenue declined year-over-year, reflecting planned program exits in Europe and lower volumes in China. Turning to Q2 EBITDA performance. Adjusted EBITDA of $223 million included approximately $8 million of temporary customer-driven production inefficiencies, which we expect to recover in future periods, and $11 million of launch expense, which supports future growth in our expanding program portfolio. Excluding these items, Adient's underlying business performance remains solid, reflecting the strength of our operating model and the continued focus our teams have on operational excellence and delivering on our full year commitments. As shown on the chart, volume and mix was an approximate $18 million headwind, mainly driven by the shift to China OEMs versus foreign manufacturers in China, which, as mentioned previously, will result in margin compression that we view as manageable, plus a variety of higher volumes on lower-margin platforms in North America in Q2. As in prior quarters, we've provided detailed segment-level performance slides in the appendix of the presentation for your review, but I'll briefly summarize each region at a high level. In the Americas, we had a solid underlying business performance, reflecting strong execution and program momentum. Results for the quarter were partially impacted by mix, temporary production inefficiencies and launch costs to support the region's future growth. In EMEA, the team continued to focus on driving positive business performance despite a challenging macro environment. And along with FX tailwinds, this helped mitigate the ongoing mix headwinds in the region. In Asia, results were impacted by equity income, the timing of commercial negotiations and planned increases in launch as the region invests in new programs and growth. Equity income was unfavorable year-on-year, primarily reflecting lower volumes in our China joint ventures. Moving on, let me flip to our cash, liquidity and capital structure on Slides 16 and 17. Starting with cash on Slide 16. For the quarter, the company generated $8 million of free cash flow, defined as operating cash flow less CapEx. In addition to the typical seasonality of our business, second quarter cash flow benefited from approximately $90 million of timing-related items, specifically related to a commercial agreement and a hedging transaction. Both items will reverse and become outflows in the third quarter. On a year-to-date basis, free cash flow totaled $23 million and included the benefit of the same $90 million timing effect just mentioned. Excluding this impact, year-on-year cash flow performance reflects favorable working capital fluctuations, driven by typical period-to-period swings, lower cash restructuring outflows in Europe, timing of dividend payments, and an increase in cash spending, supporting Adient's growth initiatives and automation spend. Important to point out, last quarter, we highlighted a nonrecurring tax settlement in a certain jurisdiction that increased our tax -- cash tax forecast for fiscal year '26. That settlement was paid out in our second quarter. Despite the expected $90 million outflow in the third quarter, we continue to expect strong free cash flow in the second half of the year, consistent with our historical seasonality, and remain confident in delivering on our free cash flow commitment. Turning to our balance sheet on Slide 17. Adient continues to maintain a strong and flexible capital structure. As of March 31, we had a total liquidity of approximately $1.8 billion, consisting of $831 million of cash on hand and $957 million of undrawn revolver capacity. Again, worth mentioning, the $90 million, which benefited second quarter free cash flow, was also included in the March 31 cash balance. I would also point out, Adient did draw on our ABL during the quarter due to typical seasonality and normal working capital fluctuations for our business. The ABL was fully repaid within the quarter. On a trailing 12-month basis, our net leverage was 1.8x, which remains comfortably within our targeted range of 1.5x to 2x, reflecting both disciplined capital management and the underlying earnings power of the business. Importantly, we have no near-term debt maturities, providing us with significant financial flexibility as we navigate a dynamic operating and macro environment. Overall, the capital structure remains strong and flexible. Turning now to our expectations as we move from the first half into the second half of fiscal year 2026. The first half of fiscal 2026 delivered solid business performance that was in line with our internal expectations despite a challenging operating environment. We remain focused on what was within our control, maintained discipline in execution and cost management, and exited the first half with a solid cash position and a healthy balance sheet. As we look to the second half of fiscal year '26, we currently anticipate approximately $35 million of input cost headwinds. Approximately $25 million is related to Middle East conflict through higher chemical and freight costs, and additional $10 million is driven by higher costs as a result of the LyondellBasell chemical supply disruption. This $35 million of higher input costs is expected to be more than offset with the benefits from volume and the acceleration of business performance. The team remains focused on driving business performance and generating cash. Turning to our updated outlook for fiscal 2026. Based on our performance year-to-date, improved customer production schedules, we are modestly increasing full year guidance for revenue, adjusted EBITDA and free cash flow. We now expect consolidated revenue of approximately $14.8 billion, up from our prior outlook of approximately $14.6 billion, reflecting solid first half performance, updated near-term customer production schedules and the latest S&P Global production assumptions. Adjusted EBITDA is expected to be approximately $885 million, up from our prior guidance of $880 million, reflecting the impact of higher revenues and increased business performance, which are helping to offset the $35 million of anticipated higher input costs. As a result of these updates, we now expect free cash flow of approximately $130 million, up from $125 million previously. This improvement reflects the pull-through of incremental adjusted EBITDA and continued focus on working capital discipline and cash generation. Cash taxes are still expected of approximately $125 million, no change from prior guidance. CapEx also remains unchanged at approximately $300 million. We have included a simple adjusted EBITDA bridge within the materials on Slide 20 that illustrates the components of our revised guidance. Before wrapping up, I want to spend a moment on Slide 21 because this page speaks to the durability and trajectory of our cash generation. As we've discussed, the $130 million of free cash flow expected this year reflects several elevated and transitional cash uses that are not structural to the business. As these items normalize, we expect materially stronger EBITDA to free cash flow conversion. Capital expenditures are expected to remain at about $300 million, supporting growth, innovation, operational excellence, while remaining aligned with our long-term capital allocation framework. Restructuring cash flows are expected to normalize as European actions progress. Similarly, interest expense is expected to ease with opportunistic repricings and voluntary debt paydown. And finally, cash taxes are expected to revert to a more normalized level following this year's nonrecurring settlement payment. Taken together, these actions clearly outline the path to a structurally higher free cash flow profile. Longer term, as business performance and volume continue to scale and calls for cash remain relatively stable, we believe Adient is well positioned to generate materially stronger free cash flow, supporting disciplined and balanced capital allocation, driving enhanced shareholder value. With that, let's move to the question-and-answer portion of the call. Operator, can we have our first question, please? Operator: [Operator Instructions] Our first question does come from Colin Langan with Wells Fargo. Colin Langan: Any color on why the revenue increase? I mean, we've seen S&P actually lowered numbers, at least on the calendar year. Anything in particular that's driving that? Is that just a geographic mix, certain platform mix? Mark Oswald: Yes. Colin, I'd say it's a combination of, one, you have to adjust that we're on the September 30 fiscal year, right? Obviously, we're 2 quarters through. Third quarter, we have pretty good visibility now based on production call-offs, right? And then, it's -- as you indicated, it's based on geographic mix, it's customer platforms that we're exposed to, et cetera. Colin Langan: Okay. And any color on the onshore bidding? I mean, you seem to have won a pretty large chunk of that so far. Has this been sort of a short-term action wave and then more actions will come in a few years? Or is this actually still even early days for some of the onshoring opportunities, and we'll see the larger numbers coming as more stuff gets bid and onshored? Jerome Dorlack: Yes. I think we're -- in terms of the discussions with the customers, I think they're still very active, still very dynamic. At the point where we're at now, I think a lot of them are waiting to see how the USMCA negotiations and discussions go. Once there is clarity on how that shapes up and what the rules in terms of content, how long that agreement will be, whether it will be an annual evergreen or another 7-year bilateral or trilateral, whatever that shapes up to be, I think that will then free up the next wave of onshoring discussions. I think what's important though and how you think about Adient and how we're positioned, and we've presented figures on this in the past, among seating suppliers, we have the best footprint to be able to capitalize on this. We have more JIT facilities than anyone -- than any other seating supplier in the U.S. From a geographic standpoint, we're best positioned to be able to capitalize on this. We have the capacity to be able to do it. And then, because of our leading modularity, ModuTec, and capabilities, and now with the foaming acquisition, we have the capital ready to be able to deploy the footprint to be able to deploy it and the customer relationships to be able to capitalize on this. And I think we still feel pretty strongly we'll be a net beneficiary of onshoring. Operator: Our next question comes from Nathan Jones with Stifel. Andres Loret de Mola: This is Andres Loret de Mola on for Nathan Jones. Just on margins, the decline of 70 bps, can you maybe give a little bit more color on the temporary customer-driven costs? And are they recoverable later on? Mark Oswald: Yes. So good question. So yes, if you look at that 70 bps, I'd say 60 bps is really related to mix. And as I indicated in my prepared remarks, a lot of that mix was -- obviously, we were very transparent that as we continue to shift and pivot to the Chinese local manufacturers there, there's going to be margin compression. That's the majority of that. There was also some, I'd say, higher-volume, lower-margin business in the Americas that we saw for the quarter. We do view the mix shift over in China to be very manageable. We've indicated that's going to be falling up somewhere around 100 basis points when we get through the year. So 1 quarter does not make a trend. We have a pretty good line of sight in terms of what launches are coming on, where production is heading over there. Same thing with the Americas just in terms of where we see the volumes heading over there in the next couple of quarters. Andres Loret de Mola: Got it. That's helpful. And then, just on the split domestic versus foreign OEMs in China, I mean, can you guys -- I know you said 70% launches with local OEMs. Can you provide a kind of breakdown of what that mix is now and sort of what you expect for 2026? Mark Oswald: Yes. So last year, we ended 2025, we were somewhere just north of 60-40 mix over there. And so, as we continue to win -- and we indicated last year, our 2025 wins was also skewed about 70% local Chinese to 30% foreign. So, as we continue to launch this year, that's going to be trending from, call it, that low-60% to that 70% mark over the course of the next 12 months or so. Jerome Dorlack: Yes. And I think as we indicated in the prepared remarks today, our bookings this year are mirroring that same bookings rate, so 70% domestic, 30% [ transplant ] for the win rate. So if you look at our forward roll-on, we would expect our roll-on to continue to drive mirroring that 70% domestic, 30% [ transplant ], so continuing a very aggressive roll-on business and rotation into the domestic OEM. And it really is leveraged by our world-class joint venture footprint that we have there, working with our joint venture partners and really the way we operate our business in China for China with local Chinese leadership, local Chinese management and leveraging our technology. And that's why we talked a lot today about technology, bringing technology to scale there, and it's not commoditized technology. It is leading-edge technology there that allows our customers to be able to price for value, price for the customer in that region through the products we deliver there. Operator: The next question comes from Joe Spak with UBS. Joseph Spak: Mark, I want to go back to your comments on normalized free cash flow. And I want to sort of bridge that a little bit to sort of next year as well. And I realize like you're not going to guide '27 now and a lot can happen between now and then. But you are talking about $400 million on the backlog. So even if we assume 10% incremental margin, that's like $40 million in EBITDA. The recoveries from the Middle East is another $25 million. The supply disruption is another $10 million. You have business performance. There's the $100 million in free cash flow timing items you mentioned in '26. So I guess what I'm getting at is, it seems like based on what we know now, and I know things can change, it seems like free cash flow could be up over $200 million next year. I'm just wondering if we're thinking about that correctly, if there's any other offsets we should be thinking about? And if we do see that, I know you said you paused the buyback activity for uncertainty, but why wouldn't you sort of try to maybe get ahead of what seems like a pretty good inflection of cash flow and buy back the stock when it's at relatively attractive valuations? Mark Oswald: Yes. Great questions, Joe. I think you're thinking about the buckets the right way. Clearly, there's going to be revenue growth that we've been very transparent in mentioning. So obviously, that will convert. If I look at my calls from cash, as I indicated, those will be relatively stable to improving, right, as my cash taxes trends back to its normalized level. Restructuring -- now, again, restructuring over time will trend back to its normal level in Europe. We obviously still have to look to see the European landscape over there. I don't think anybody is expecting that to get much better over there, right? So we have to see what our customers do with their programs, what that means for our restructuring. But all in all, that will trend back down to its normalized level. Interest expense, as I indicated, we're opportunistic with repricing like we've been doing with the Term Loan B as we basically do some voluntary debt paydown because we do recognize that the disciplined capital allocation policy includes not only share buybacks, but also debt paydown, right, inorganic growth opportunities as we demonstrated this past quarter with the Woodbridge business. Yes, I think you're right. I think the cash definitely trends higher. So I think you're thinking about that in the right way, Joe. In terms of why not get in front of it earlier and we hit the pause button this year on the share repurchases, as I indicated, we got into Q2 -- because of normal seasonality and working capital needs, we actually did draw on the ABL, right? So we drew $150 million that will be called out in our Q this afternoon when we release that. When we paid that back, clearly, the war in the Middle East, it started, it escalated. We started to see chemical prices increase. We had the supplier [indiscernible] right. So there was greater uncertainty. So it was prudent for us to do that as we went through Q2. As we go through the balance of the year and we go into next year, there's really been no change in our capital allocation policy. We still expect to be good stewards of capital. We'll still be balanced with our allocation policy right. So, no change from that perspective. Joseph Spak: I guess, the second question, just I want to go back to China. Again, on the one hand, you're talking about 70% of the wins in China is domestic. That's coinciding with margin degradation in the region, which I know you said you can expect, and I think the slides had a comment about how it's manageable. But can you just help us like level set like -- because it's sort of tied up within the -- what you show for APAC. I know some of the China business is unconsolidated. Like, where are we now? What level does that backlog really come on at from a margin perspective? And like where can we see margins going? I think you've been very clear, and we can appreciate that, that's going to be a margin headwind. But what's sort of the steady-state level for that business? Mark Oswald: I think as we go through the balance of this year, as I indicated, do I still expect us to be down about 100 bps in 2026? Absolutely. As we continue to win new business over in that region, the team has been working very hard just in terms of, again, using automation over there, right? They're basically being sourced, the whole seating, whether it's trim, foam, JIT, right, metals, right, which continues to help out the overall earnings profile of that business over there, right? So the team is working hard to continue to maintain it at 100 basis point degradation. We view that as manageable. As we get into 2027 and start to finalize 2027, and we'll be back out with that. But again, I think that 100 basis points is probably good for your modeling at this point. Operator: The next question comes from Mike Ward with Citigroup. Michael Ward: Mark, maybe just to follow up a little bit on what Joe was asking. On the excess cost, the $25 million, $35 million, does that -- if you're able to recover it by the end of this year, does that provide some upside to your current forecast? Mark Oswald: Yes. So again, Mike, if you think about chemicals in particular, right, we have pass-through agreements and escalators with our customers, right? Those typically come on at a 2-quarter lag, right? So third quarter, I'm not expecting any recoveries. Am I going to start getting some of those recoveries in the fourth quarter? Absolutely. Will some of that bleed into '27? Yes. Some of the, what I'd say, customer production inefficiencies, right, we called that out. Is the Americas team going to go back and work with our customers to try and recoup some of that in the back half of this year? Yes, there will be tough commercial negotiations. So could there be some upside, Mike? Possibly. But again, tell me when the war in the Middle East is going to end, tell me what oil prices are going to do, tell me how fast LyondellBasell can get their facility up and operating, right? So those -- we're trying to balance what I'd say is the risk for the balance of the year versus, as you indicate, some opportunities for the balance of the year. That's why we came out with the $885 million guide. That's our best 50-50 look right now in terms of where we think the year is going to end. Michael Ward: Makes sense. And maybe, Jerome, on more of a strategic standpoint, I mean, the trim acquisition, in North America, what type of level of vertical integration do you have for a typical seat? Jerome Dorlack: Yes. So the Woodbridge plant is a foaming plant for us. If you look at our business in North America, I mean, on an average contract, given our customer mix and our customer platform mix, especially when we talk about the large truck platform that we acquired, it would have been 2 quarters ago when we went from just having the JIT and foam, we acquired JIT, trim and foam on that, we will be well over 80%, probably 85% vertically integrated on our business in North America. It is a very, very healthy level now in our North America business. And when I say vertically integrated, I speak about JIT, trim and foam. We've talked a lot about the metals business and trying to look at the metals business and wind out some of our non-healthy metals business. So we've been, I think, very transparent on that. But on the JIT, trim and foam level, it's a very healthy level of vertical integration now in the Americas business. And it's one of the reasons why you've seen the Americas business really have a, I think, nice progression on the margin expansion and the cash flow progression as well. Operator: Up next is Emmanuel Rosner with Wolfe Research. Emmanuel Rosner: I was hoping to first follow up a little bit on the commodities outlook. I know obviously, a lot of moving parts between the disruption and the conflict. But at least in terms of the disruption piece, do you have good visibility in terms of the supply? Is it really just a question of higher pricing and basically recoveries coming with a lag? Or is there also -- I guess, what sort of visibility do you have in terms of essentially ensuring supply? And then, what does that look like into 2027? Jerome Dorlack: Yes, I think you have to -- I think, Emmanuel, you have to break it down into 2 pieces. I think you have to break down the LyondellBasell issue and then maybe break down the Middle East/Strait of Hormuz issue. So on LyondellBasell, I think our team in the Americas, with our customer group, has done a very good job of working through alternative means of supply and securing alternate supply chains. So I think we have good line of sight, alternative chemicals supplied, validation underway with our customers. I think we've been able to tie that off. On the Strait of Hormuz, at the moment, I think we have line of visibility as much as anyone in the industry can have when it comes to supply. I'll go back to Mark's comments. I don't think we can sit here today and be any better forecasters or prognosticators that would say, if it remains the way it is, I can't tell you what's going to happen in 3 months, 5 months, 6 months or anything along those lines. I don't know that I can give you a better answer than anyone else can on that topic, Emmanuel, nor should we really be doing that. So again, on LyondellBasell, I think we've done a very good job working with our teams. I think we're supplied. We have supply secured. On Strait of Hormuz, I don't think we're in any better condition or any worse of a condition than anyone else in the industry on that topic. Emmanuel Rosner: That's helpful. And then, one follow-up on the normalized free cash flow. So obviously, a decent piece of it would be normalization of restructuring spending. It doesn't seem like 2027 would necessarily be the year, first, with potential restructuring needs in Europe. I guess, what would need to happen to be able to sort of like lower this restructuring need? It just feels like in Europe, there's maybe some structural industry trends that would require ongoing restructuring for longer. Jerome Dorlack: I think it's too early to say, Emmanuel, whether 2027 is normalized or not normalized, whether there's a tail-off or not a tail-off. I think we're very much in active discussions with a couple of key customers around the key -- a couple of key JIT manufacturing sites right now and what the future of those sites will be. So it's just -- it's too early to say what '27 and even '28 look like at this point. In terms of what needs to happen in Europe, I think there needs to be stabilization within the European theater on industry volumes and capacity rationalization across not only the JIT landscape and the seating landscape, but also our customers' manufacturing landscape. And I think there's still announcements coming out at our customers, where they're trying to repurpose their manufacturing facilities. You've seen announcements around that. And with that, that opens up opportunities for us to be able to service them in different ways than maybe we would traditionally do. And it's some of those discussions that we're in with them. So I think it's too early to say what our '27 restructuring looks like, whether it tapers off or it doesn't, and the same would go for '28. Operator: The next question comes from Dan Levy with Barclays. Dan Levy: Your second half guidance, you're basically saying that you're offsetting the weaker half-over-half revenue and the onset of some of these commodity costs with better business performance, which you've done a really good job putting up. Maybe you could just remind us sort of like what's hitting now? And then, you've broadly talked about a number of different work streams in terms of restructuring, balance-in, balance-out, labor efficiency. Maybe just give us a sense where you are on your journey on business because it's been so good for so long. And what else is sort of the next front here on continuing to drive those benefits as opposed to sort of clearing out already the low-hanging fruit? Mark Oswald: Yes, Dan, maybe I'll start on what we see first half, second half, and Jerome can comment just in terms of certain of the automation, which is going to contribute to the efficiencies and business performance. But you're absolutely right. When I look at first half, second half, sales are going to be down slightly where we called out $35 million of higher input costs. But I've also got the benefit of lower launch costs in the second half of the year. I've got better business performance. As we indicated, business performance starts to accelerate, whether that's through the lower launch costs, my ops waste, my C&I efficiencies that the plant builds as I go through the second half of the year, right? Some of the, what I'd say, frictional costs that [ hit ] in Q2 with the customers, we'd expect that to subside as we go through Q3, Q4. So it's really the acceleration of business performance that really gives me comfort in terms of confidence in what I think I can do in second half versus first half despite the lower levels of [ buying ]. Jerome Dorlack: Yes. And then, to your -- second part of your question, what is the -- I'll use my words, the next frontier of driving business performance? We've talked a lot about automation starting to flow in. And even this year, if you look at the capital expenditures that we're putting into the business, that step-up year-over-year in automation, that will start to pay dividends as we get into '27 and '28. And we're really leading the industry in terms of some of the automation we're doing in our foaming business, some of the automation we're putting into our metals business, our trim business, and then, on the JIT side of it, what we've been able to do with our modularity. The feedback we get from our customers is your modularity offerings are leading edge. It's one of the reasons we've been able to conquest and expand our backlog in the JIT side is through our modularity offerings. With that, we're not only able to offer more competitive pricing to our customers, but it also leads to some of this margin expansion story, better roll-on, roll-off into the business. And so, when you look at the restructuring coming in, in Europe starting to pay dividends, but then also modularity, better roll-on, roll-off and then the automation piece of it, that's really where we see this then starting to fuel some of the additional margin expansion that we'll see in the Americas and in our European business going forward and that sustainability piece. And then, just coming back to some of the questions that we had earlier in the call around Asia and China in particular. I think it is worth continuing to highlight that even though there will be margin compression on the Asia side -- or the Asia Pacific business, as revenues grow there, even with that margin compression, it will still be cash-accretive, margin-accretive and still expanding cash flows for Adient overall. I think it's always important to keep that in mind. Dan Levy: Great. As a follow-up, I wanted to just -- I asked a similar question on the last earnings call, but I think it just gets to a broader theme on where we are on market share dynamics in the seating market and more specifically within North America because one of your competitors has talked about sort of a growing pipeline and traction on awards. So can you just give us a sense, broad strokes, what we are seeing on market share dynamics? Is there sort of a consolidation within yourselves and another one of your competitors away from the rest of the field? Jerome Dorlack: Yes. I think that that's a fair way to characterize it. I think if we look at where the wins are occurring, where some of the market share is coming from and how that pie is shaping up, I think based on the competitive offering that we're able to bring forward, our modularity solutions, the technology that we're able to put in place, I think the pie continues to shrink into those who are able to bring the most competitive offerings forward, who have the balance sheet to be able to do it, who are able to deploy the capital and who are the suppliers of choice into their customers. And I think Adient is certainly one of those, if not the preeminent one in the space. And I think with that, we're at the bottom of the -- or I guess, the midpoint of the hour. I just want to close the call by first thanking all of the 70,000 Adient employees around the world for your commitment to making the company what it is, and then thank all of our customers for your continued support to the business and to the company, and then thank all of our owners and shareholders for your ongoing support. Thank you very much, everybody. Mark Oswald: Thank you. Linda Conrad: Thank you. And in closing, I want to thank you once again for your interest in Adient. If you have any follow-up questions, please feel free to reach out to me. With that, operator, we can close the call. Operator: Thank you. That does conclude today's conference. We thank you for your participation. Have a wonderful day. And at this time, you may disconnect your lines.
Operator: Good morning, and welcome to the Icahn Enterprises L.P. First Quarter 2026 Earnings Call with Andrew Tino, President and CEO; Ted Papapostolou, Chief Financial Officer; Robert Flint, Chief Accounting Officer; and Joseph Passeri, Director of SEC Reporting. I would now like to hand the call over to Joseph Passeri, who will read the opening statement. Joseph Passeri: Thank you, operator. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements we make in this presentation, including statements regarding our future performance and plans for our businesses and potential acquisitions. Forward-looking statements may be identified by words such as expects, anticipates, intends, plans, believes, seeks, estimates, will or words of similar meaning and include, but are not limited to, statements about expected future business and financial performance of Icahn Enterprises L.P. and its subsidiaries. Actual events, results and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties and other factors that are discussed in our filings with the Securities and Exchange Commission, including economic, competitive, legal and other factors. Accordingly, there is no assurance that our expectations will be realized. We assume no obligation to update or revise any forward-looking statements should circumstances change, except as otherwise required by law. This presentation also includes certain non-GAAP financial measures, including adjusted EBITDA. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the back of this presentation. We also present indicative net asset value. Indicative net asset value includes, among other things, changes in the fair value of certain subsidiaries, which are not included in our GAAP earnings. All net income and EBITDA amounts we will discuss are attributable to Icahn Enterprises unless otherwise specified. I'll now turn it over to Andrew Teno. Andrew Teno: Thank you, Joe, and good morning, everyone. I wanted to say thank you to everyone, who I've worked with over the past few years, both before becoming CEO and after. It is an honor and privilege to work with and learn from the living legend of activism in our Chairman, Carl Icahn. Over the past few years, we have worked hard to high-grade the Investment Fund portfolio and to get our controlled operations moving in the right direction. I leave the company knowing that it's in good hands with a significant war chest to take advantage of opportunities as they arise. It's been a pleasure and honor. And with that, I will hand it over to Ted, our new CEO. Congratulations, Ted. Ted Papapostolou: Thank you, Andrew. Before turning to the work ahead, I want to begin by thanking Andrew for his leadership and service to Icahn Enterprises and wish him continued success in his next chapter. I am honored to take on the role of CEO and excited by the opportunity ahead. Icahn Enterprises has a unique portfolio, a strong heritage of disciplined capital allocation and a culture of accountability and long-term thinking. I look forward to building on that foundation, working closely with Carl and our Board to continue strengthening the enterprise and executing on our priorities. I also look forward to working with Rob in his new role as CFO. With that, let's get into the results. First quarter NAV increased by $201 million compared to year-end. The increase was primarily driven by an increase of $605 million in our long position in CVI, which was offset in part by losses on refining hedges of $320 million in our Investment segment, also known as the funds. Regarding CVI, major geopolitical events drove volatility, which have set up attractive market opportunities for the balance of 2026. We believe CVI is well positioned to allow for potential future debt reductions and capital returns to shareholders. We are pleased with CVI's announcement of a $0.10 dividend. For Q1, the Investment segment was up approximately 4%, excluding the refining hedges. In terms of our top positions, AEP is an electric utility that benefits from the AI infrastructure build. In the first quarter, the company reaffirmed its 2026 operating EPS outlook and increased its long-term operating earnings CAGR to greater than 9%, supported by 63 gigawatt of incremental contracted load and 11% rate base growth through 2030. AEP stock was up approximately 14% for Q1. Centuri reported strong base revenue and gross profit growth of 28% and 50% in Q4. The company also guided to strong double-digit base revenue and gross profit growth for 2026 as it continues to capture the tremendous tailwinds from increased energy infrastructure investment. The stock was up approximately 16% for Q1. IFF continues to execute on its portfolio optimization, running a sale process for its food ingredients business and announcing the completion of its divestiture of the soy crush business. IFF stock was up approximately 8% for Q1. Caesars reported solid Q1 results with Vegas stabilizing regional sales growing in the low single digits and digital posting strong EBITDA growth of 61%. Caesars is expected to generate significant cash flow in 2026, which we hope to fund meaningful share repurchases and debt paydown. Caesars' stock was up approximately 13% for Q1. Echostar lowered its total expected tax and decommissioning costs related to its divested assets, which we believe meaningful upside remains for the position with the IPO of SpaceX potentially serving as a material positive catalyst. Echostar stock was up approximately 8% for Q1. As of quarter end, we had approximately $782 million in cash at the funds. Lastly, the Board declared an unchanged distribution at $0.50 per depositary unit. I will now pass it to Rob to discuss our financial results. Robert Flint: Thank you, Ted. For the first quarter of 2026, net loss attributable to IEP was $459 million, or a loss of $0.71 per unit. Our first quarter consolidated results include $425 million of losses on refining hedges in our Investment segment and $158 million of unrealized derivative losses in our Energy segment. Q1 '26 adjusted EBITDA loss attributable to IEP was $216 million compared to adjusted EBITDA loss attributable to IEP of $228 million for the prior year quarter. I will now provide more detail regarding the performance of our individual segments. The Investment Funds had a positive return of 4.4% for the quarter, excluding refining hedges. Including the refining hedges, the funds had a negative return of 8.2% for the quarter. Long and other positions had a net positive performance attribution of 4.1% and short positions had a negative performance attribution of 12.9%. The investment funds had a net short notional exposure of 29% at the end of the quarter compared to net short of 13% at year-end. Excluding our refining hedges, the funds had a net short notional exposure of 2% as of quarter end compared to net long of 19% at year-end. Our investment in the funds was approximately $2.2 billion as of quarter end. Moving to our Energy segment. Energy segment adjusted EBITDA attributable to IEP was negative $5 million for Q1 '26 compared to negative $6 million for Q1 '25. The first quarter refining operations were solid with crude utilization of 97%, although margins were weighed down by higher RFS obligation costs and unrealized derivative losses. The Fertilizer segment had strong results driven by robust demand for the spring planting season. We believe that CVI's assets are well positioned to benefit from the global tightness in refined product and nitrogen fertilizer. Now turning to our Automotive segment. Q1 '26 Automotive Services revenues decreased by $9 million compared to the prior year quarter, primarily driven by closure of stores during the balance of 2025, offset in part by increased price. Same-store sales paints a better picture having increased by approximately 2% as compared to the prior year quarter. We are pleased with this positive revenue trajectory, but there's still a lot more work to be done. We continue to focus our efforts on product, pricing, labor and distribution strategy. Now turning to all other operating segments. Real Estate's Q1 '26 adjusted EBITDA increased by $18 million compared to the prior year quarter. The increase is primarily driven by income from the assets that were transferred from the Automotive segment, of which $9 million is intercompany income from the auto segment and $2 million from third-party tenants. Food Packaging's adjusted EBITDA attributable to IEP decreased by $6 million for Q1 '26 as compared to the prior year quarter. The decrease is primarily due to lower volume and disruptive headwinds from the restructuring plan. Home Fashion's adjusted EBITDA decreased by $2 million when compared to the prior year quarter primarily due to softening demand in retail and hospitality business and supply chain disruptions in the Strait of Hormuz. Pharma's adjusted EBITDA decreased by $10 million when compared to the prior year quarter, primarily due to the reduced sales resulting from generic competition in the anti-obesity prescriptions and increased R&D expenses related to our ongoing pivotal drug trials. The Transocean trial preparation for our PAH drug is on schedule, and the first patient will be dosed in the next 60 to 90 days. The physician community remains excited by the potential for disease-modifying designation. Now, turning to our Liquidity. We maintain Liquidity at the holding company and at our operating subsidiaries to take advantage of attractive opportunities. As of quarter end, the holding company had cash and investment in the funds of $2.8 billion, and our subsidiaries had cash and revolver availability of $1.3 billion. We continue to focus on building asset value and maintaining liquidity to enable us to capitalize on opportunities within and outside our existing operating segments. Thank you. Operator, can you please open the call for questions? Operator: [Operator Instructions] As I see no questions in the queue, I will pass it back to Ted Papapostolou for closing comments. Ted Papapostolou: Thank you, everyone, and looking forward to our next update call. Operator: This concludes our conference. Thank you for participating, and you may now disconnect.
Operator: Good afternoon, and welcome to the MannKind Corporation First Quarter 2026 Financial Results Earnings Call. As a reminder, this call is being recorded on 05/06/2026 and will be available for replay on the MannKind Corporation website shortly after this call for approximately 90 days. This call will contain forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from these expectations. For further information on the company's risk factors, please see the Form 10-Q for the period ended 03/31/2026, the earnings release, and the slides prepared for this presentation. Joining us today from MannKind Corporation are Chief Executive Officer, Michael E. Castagna, and Chief Financial Officer, Christopher B. Prentiss. I would now like to turn the conference over to Michael E. Castagna. Please go ahead, sir. Michael E. Castagna: Thanks, operator, and good afternoon, everyone. Thank you for joining us for our Q1 2026 earnings call. Here is today's agenda, and I will start with some opening remarks. In the first quarter, we continued to execute our strategy to evolve MannKind Corporation into a diversified company positioned to deliver sustained long-term growth. The company is fundamentally different than it was even a few years ago, and we are excited about the near-term milestones that will further advance the company's evolution. Today, we will discuss the recent positive developments with United Therapeutics and articulate our growth plans that we expect will drive significant shareholder value over the coming years. Let's begin with our announcement earlier today that MNKD-1501 has been unveiled as ralinepag DPI, which United Therapeutics optioned back in August. Our formulation team has been moving ralinepag DPI forward expeditiously, and we recently received a $5 million payment to prioritize the continued rapid advancement of this program. We have the potential to receive up to $35 million in development milestones plus a 10% royalty on net sales. Of those milestones, we expect about $15 million to be earned over the next 12 months. This expanded collaboration is significant for a few reasons. First, it deepens an already productive partnership with United Therapeutics. Second, ralinepag DPI has the potential to be used across pulmonary arterial hypertension, pulmonary hypertension associated with interstitial lung disease, idiopathic pulmonary fibrosis, and progressive pulmonary fibrosis, collectively impacting more than 250 thousand patients and representing a substantial opportunity to improve outcomes across these conditions. Third, it continues to validate our unique Technosphere platform. In addition to ralinepag DPI, we have also confirmed MannKind Corporation as the sole manufacturer of Tyvaso DPI under a supply agreement that includes contractual minimums. This provides us with a solid foundation as we continue to scale our Danbury, Connecticut facility for our own pipeline, including a manufacturing buildout to support the growth of FURO6 ReadyFlow. Now let's move on to Q1 performance. We delivered quarterly revenues of $90 million, a 15% increase over the prior year, as this now includes the addition of FURO6. Q1 was a challenging quarter for several reasons. Number one is structural. Each year, Q1 typically declines relative to Q4 due to annual deductible resets. As patients face higher out-of-pocket costs at the start of the year, we see both fewer fills and lower doses per prescription. For FURO6, doses per prescription were down roughly 20% in Q1 compared to Q4. Number two is transitional. As we prepared for our upcoming launches of Afrezza Pediatrics and the FURO6 ReadyFlow auto-injector, we reorganized field teams, leading to customer disruptions in Q1 as we did not want to disrupt the field in Q4 or the upcoming next two quarters given the potential launches. Additionally, we reallocated marketing resources away from Afrezza adult, which slowed the growth year over year as we thought it would be more prudent to shift these investments toward the pediatric Afrezza launch and FURO6 nephrology opportunity. We have made the adjustments, and the field teams in place today are talented, highly experienced in their therapeutic areas, and have the right resources to deliver quarterly growth over the balance of the year. Number three, as we prepare for the launch in Q3 of the auto-injector, we want to ensure an efficient conversion. We transitioned our inventory levels to minimize volatility and inventory stocking of the current on-body infuser at the specialty pharmacies. As this adjustment is now behind us, we expect future product outflows to better reflect underlying prescriber demand, which will help us accelerate the transition upon FDA approval. When you put these three things together, Q1 came in lighter on the revenue side, but even so, the underlying indicators were more encouraging than the top line may suggest. We saw growth in both overall writers and repeat writers of FURO6, hitting a record number of prescribers in Q1, and demand momentum improved as the quarter progressed. Doses dispensed are up nearly 60% through April compared to the same period last year. Chris will walk through the quarter in more detail. We are confident the underlying business is moving in the right direction, and we remain on track to meet our full-year 2026 FURO6 revenue target of $110 million to $120 million. Now let's walk through the Q1 highlights. The FDA approved the updated Afrezza label, which now provides clear starting dose guidance. That is an important enabler for the pediatric launch as this was the dosing used for the pivotal trial. We have also completed our launch buildout for Afrezza Pediatrics ahead of the May 29 PDUFA date. We completed the pilot phase enrollment in our Inhale First pediatric trial evaluating Afrezza in youth with newly diagnosed type 1 diabetes. That is the long-term goal I have talked about for years. Additionally, we settled the convertible notes, which strengthens the balance sheet. Finally, on the SC Pharma integration, we are now approximately seven months post-close, and I am very pleased with how the integration has progressed. For most functions, integration is substantially complete, and we have identified synergies that exceeded our $20 million annual target we previously set. I want to thank both teams for the way they came together. These integrations are always challenging, and ours is going exceptionally well. Now I will take a step back to talk about strategic evolution because this tells a really important story. Until 2022, we were essentially a single-product company with Afrezza. Since then, United Therapeutics and Tyvaso DPI specifically have played a critical role in funding our transformation, including enabling the SC Pharma acquisition last year. With that acquisition, we added FURO6, which brought an incredible team with deep cardiology experience. That has expanded our portfolio and our commercial infrastructure in a meaningful way. As we look at 2026 and beyond, we are now a diversified cardiometabolic and orphan lung company with multiple FDA-approved products, two near-term regulatory catalysts, and a potentially transformative pipeline opportunity with inhaled nintedanib DPI advancing into Phase 2. The United Therapeutics partnership will remain a reliable pillar of the business, providing stability and significant growth potential. It also gives us flexibility to advance the pipeline, reduce debt, and pursue business development opportunities. But the MannKind Corporation story is increasingly about the products and development candidates we own and the brands we are building for the long term. Turning to the major catalysts for 2026 and beyond, we have two regulatory catalysts and one clinical catalyst stacked up in a narrow window over the next three to four months. First is the Afrezza pediatric indication. If approved, Afrezza will be the first and only needle-free mealtime option for children and adolescents in more than a century and would address a long-standing unmet need with a highly differentiated value proposition. Importantly, this opportunity compounds over time as adolescents initiate therapy early and continue into adulthood, supporting durable long-term growth for the brand. Second is the FURO6 ReadyFlow auto-injector. If approved, this changes the administration profile for FURO6 from several hours to just seconds, which has real implications for patient convenience, training, and widespread adoption. It supports broader use and would significantly reduce our cost of goods. Third is the MNKD-201 nintedanib DPI program. There remains an urgent need for more effective therapies in IPF. Current options are limited by tolerability. Our lung-targeted delivery approach is designed to address those barriers, and we are on track to report Phase 1b top-line data in the third quarter, a key clinical de-risking step. In parallel, we are advancing MNKD-201 into a global Phase 2 trial this quarter. Each of these catalysts will be significant on its own. Having all three in a single calendar year is a powerful testament to our progress and execution over the last ten years. Together, these milestones strengthen our foundation and position us to potentially deliver meaningful growth in the years ahead. We have two near-term regulatory events, a growing commercial business, a strong revenue base from United Therapeutics, and a pipeline approaching important data milestones. Now let us go deeper on the upcoming commercial expansion opportunities for our products, starting with Afrezza. The pediatric opportunity is a well-defined new population entry point with the ability to expand across even broader populations over time. There are roughly 360 thousand people between 8 and 22 years old living with type 1 diabetes in the U.S., with about 30 thousand newly diagnosed each year. While our launch focus is type 1 in children and adolescents, when you look at the broader picture where Afrezza is already indicated, the long-term opportunity for inhaled insulin is significant with over 38 million patients that we are indicated for today. The pediatric opportunity is one of the most important for Afrezza since its initial approval, and our extensive research highlights why. Despite decades of technology and drug innovation in diabetes, A1c control is still not meeting goals, largely because of mealtime challenges that exist in the everyday life of patients. Afrezza is the solution. After more than a decade on the market, Afrezza is poised to finally live up to its potential. Managing mealtime insulin in children and adolescents often means multiple daily injections, rigid meal timing, and significant burden on both parents and caregivers. Afrezza directly addresses those challenges by eliminating mealtime injections through a novel route of administration, providing greater flexibility around meals, and easier timing for kids. When you think about what it means for a child with type 1 diabetes to not have to take a shot at lunch or wear a pump while playing sports, or count carbs at a birthday party or even forgo the cake, that is a really big deal to the average life of a child. This is a therapy backed by more than a decade of real-world data and now a completed Phase 3 pediatric trial. The American Diabetes Association now positions inhaled insulin as an equivalent option to multiple daily injections and insulin pumps including AID in their guidelines. This guideline support puts Afrezza on equal footing with the standards of care, a significant milestone that recently happened. The evidence base has never been stronger. Families and physicians continue to highlight the significant daily burden of diabetes management and are telling us that Afrezza has the potential to fundamentally change that experience. With peak share potential in the range of 23% to 37%, and each 10% share representing approximately $150 million in net revenue, the opportunity is significant and will continue to compound over the coming years. Pediatric represents a fundamentally different dynamic. As we look at our key areas at launch, we are continuing to be very disciplined. We are directly addressing the mealtime challenge for about 35% of patients who have real friction with insulin and mealtime today, compounded by the fact that 25% to 35% intentionally miss their mealtime injections or pump boluses. We are engaging consumers through highly targeted outreach—about 93% of families are motivated to speak to their HCP to request a change in the child's diabetes management, so patient requests matter. We are targeting roughly 60-plus prioritized academic medical centers with about 20 key account managers, where the highest-volume pediatric prescribers are. In parallel, the broader Afrezza sales team extends coverage by engaging community-based healthcare providers as well as these academic centers to ensure comprehensive reach and frequency at launch. We are enhancing the customer experience through ease of access, with commercial or Medicaid patients able to get on Afrezza for $35 or less. In parallel, we have engaged in a number of payer discussions to ensure formularies are positioned to support the pediatric launch, and we are seeing receptivity to expand access for children and adolescents as we approach approval. The pediatric approval for Afrezza offers the brand a new beginning—new patients, eager physicians, and a clear unmet need. If approved, we are ready to launch. Let us turn our attention to FURO6. As we look at the addressable opportunity, there are roughly 700 thousand fluid overload events we can address outside the hospital setting. There are multiple intervention points along the patient journey. Since launch, we were historically targeting when fluid first presented at home and oral diuretics were not enough. We are moving to address the post-discharge setting; it can impact length of stay and 30-day readmissions. With the FURO6 ReadyFlow, we believe we can unlock several additional intervention points both earlier and later in the treatment paradigm, where FURO6 logistics can break this cycle of admissions and readmissions. Next, let us talk about the ReadyFlow auto-injector and why we are so excited about it. We consistently hear from HCPs that the current FURO6 on-body infuser, while effective, can be a barrier to adoption in certain patient segments. With the PDUFA date of July 26, if the ReadyFlow auto-injector is approved, it will reduce the administration time of FURO6 from five hours to just seconds. That could broaden use among prescribers who have been more selective with the current presentation. Our research also supports this: 65% of HCPs anticipate they would expand their FURO6 use with the ReadyFlow auto-injector. Patients are already familiar with the auto-injector delivery format through other therapies. It is a simple, reliable delivery system with minimal training required. It has comparable efficacy and safety to IV and the current on-body infuser. The auto-injector allows earlier intervention and enhances patient independence because there is less hesitancy to use it. Importantly, the ReadyFlow auto-injector would significantly reduce our cost of goods, which improves our margins and frees up capital to reinvest. On FURO6 ReadyFlow launch readiness, we are building from a position of strength. To support the launch, we have identified four key tactics. Number one, approximately 60% of FURO6 patients require prior authorizations today, so simplifying access and reducing friction in the onboarding process is critical to ensuring patients can start therapy without delay. Based on recent payer conversations, they are receptive to removing access hurdles given the overall cost benefits of FURO6 and reducing the number of patients going into the ER related to fluid overload. Number two, from an adoption standpoint, our market research is encouraging. Roughly 85% of existing FURO6 patients are expected to convert to the ReadyFlow auto-injector, reflecting strong confidence in the ReadyFlow profile. In addition, 65% of healthcare providers anticipate expanding their use as they have earlier and more productive intervention. Number three, we have a clear focus on accelerating time to patient start. We are exploring alternative distribution partners that will improve our ability to get FURO6 in the hands of the patient the same day. Lastly, we have deployed our key account manager team to deepen integrated delivery network relationships and get FURO6 integrated into hospital discharge protocols. That is where the post-discharge intervention opportunity lives. It is where we believe we can make the most meaningful difference in reducing hospital readmissions. We have prioritized more than 60 key accounts supported by the entire sales force, in addition to our newly established key account managers who completed training in March. This approach should drive consistent uptake and appropriate utilization, which we expect will accelerate in the second half. Taken together, these tactics position ReadyFlow for rapid adoption by accelerating patient starts, establishing earlier use in the treatment pathway, and ensuring focused, disciplined execution across the accounts that matter most. Moving on now to the nintedanib DPI, our MNKD-201 program. IPF is a devastating disease. These patients cough up to a thousand times per day, and with the poor tolerability of current treatments, their quality of life is significantly compromised. Eight out of ten patients die from this disease within five years, and many would rather forgo treatment than endure the side effects of today's standards of care. Our approach is to bypass the GI tract through targeted pulmonary delivery. The Technosphere platform is a proven platform. We have two FDA-approved products with less than a 3% discontinuation rate due to instances of cough and demonstrated safety and tolerability in patients with underlying lung disease. So when you combine a proven molecule like nintedanib with direct lung targeting and consider our Phase 1 volunteer observations showing no GI tolerability issues and our Phase 1b in actual IPF patients showing no discontinuations due to cough or serious adverse events in the first 12 patients, we have strong confidence in the potential to improve tolerability while maintaining or potentially enhancing efficacy. Onto our MNKD-201 program updates. We have completed enrollment of Cohort 1 in our Phase 1b INFLow study, which is in active IPF patients. Our top-line data are expected to be shared during Q3. That is a key de-risking point as we generate safety and tolerability data in these patients. Simultaneously, we are initiating enrollment in our global Phase 2 study now that we have received our first country approval. We are advancing both programs in parallel to accelerate data generation and development timelines. Here are the key things that differentiate MNKD-201: a two-second inhalation, a proven delivery platform with no cleaning required, and the potential to dramatically reduce side effects while meeting or beating the efficacy of oral nintedanib. Each step further de-risks a program that we believe has tremendous potential to target a disease with limited treatment options. Taken together, our inhaled nintedanib DPI program, along with United Therapeutics’ Tyvaso DPI and ralinepag DPI, gives us three differentiated shots on goal in IPF. Importantly, nintedanib DPI is not only well positioned to serve as the backbone of therapy, but also opens the door to combination use alongside other current and emerging IPF therapies, which is increasingly how we expect this market to evolve. Together, these programs reinforce the potential for inhaled delivery to improve tolerability and play a central role in redefining how IPF is treated. Before I turn it over to Chris, I want to highlight some of the key upcoming scientific conferences we will be at, including the Respiratory Innovation Summit where we have a small presentation at ATS, the American Diabetes Association where we have almost 10 presentations at the Scientific Sessions, and the American Association of Heart Failure Nurses in San Diego in late June. These are exciting times with lots of data dissemination and hopefully upcoming FDA approvals. I will now turn it over to Chris to review our first quarter 2026 financial results. Thanks, Chris, and good afternoon, everyone. Christopher B. Prentiss: For a summary of our financials, please review our press release issued before this call and our Form 10-Q, which is now on file with the SEC. Let us start with FURO6. For Q1 2026, FURO6 net sales were $15.5 million. As a reminder, the acquisition closed on October 7, and only post-acquisition results are included in MannKind Corporation financials. Underneath the revenue number, the demand metrics for the brand remain strong. We had a record number of writers in the first quarter, and 75% of those writers are repeat writers, which is a really good signal. Doses dispensed grew 64% year over year, and our IDN business grew 97% year over year, reflecting the early traction of our key account manager team. If you look at 2025, approximately 14% of annual volumes were generated in Q1. If you apply this to our Q1 units dispensed, we remain on track to achieve our annual target and are reaffirming our 2026 FURO6 revenue range of $110 million to $120 million. Turning to Afrezza global sales, Q1 2026 net sales were $15.3 million, up 3% year over year. As we discussed earlier, we have shifted our marketing efforts toward our two anticipated launches this year and transitioned nephrology sales responsibility to the legacy Afrezza sales team. As expected with a new call point, this created some near-term disruption, which we expect to improve steadily over the remainder of 2026. Tyvaso DPI-related revenues provide a durable revenue base. Our collaboration services revenue is driven primarily by manufacturing revenue based on volumes sold through to United Therapeutics plus the recognition of deferred revenue. For the quarter, CNS revenue was $23.5 million compared to $29.4 million for the prior-year quarter. As we have noted previously, this revenue stream may fluctuate between periods depending on production scheduling at our Danbury facility across Afrezza, development programs, and Tyvaso DPI. However, it is important to note that the amendment to our Tyvaso DPI supply agreement we signed earlier this quarter established annual minimum quantities, effectively fixing our annual manufacturing revenue for Tyvaso DPI. As a result, period-to-period fluctuations are driven primarily by manufacturing planning and scheduling requirements, and to a lesser extent by the timing of revenue recognition from other collaboration activities. One such collaboration is our development of ralinepag DPI with United Therapeutics. We recently received $5 million to accelerate its development. We will begin to recognize this in Q2. An additional $35 million of development milestones remain, of which we expect to earn $15 million over the next 12 months. Q1 2026 royalties reflect year-over-year growth of 9% to $32.7 million. In 2026, royalty revenue will support key capital priorities including funding the March retirement of our senior convertible notes, our CVR obligations, and our pipeline programs. Turning to the bottom line, for Q1 2026, we reported a GAAP net loss of $16.6 million, or $0.05 per share. On a non-GAAP basis, we reported a net loss of $6.9 million, or $0.02 per share. For comparison, in Q1 2025, we reported GAAP net income of $13.2 million, or $0.04 per share, and non-GAAP net income of $21.6 million, or $0.07 per share. The year-over-year change reflects the planned increase in commercial spend associated with the potential FURO6 ReadyFlow auto-injector and Afrezza pediatrics launches, as well as the incremental cost structure associated with the SC Pharma acquisition, including amortization of acquired intangible assets, which is non-cash. For the full details on non-GAAP adjustments, please refer to our press release and 10-Q filing. On the expense side, R&D expenses increased over the prior-year period, driven by ongoing enrollment in the Phase 1b study and preparations to begin enrollment for the Phase 2 study of MNKD-201. We expect R&D spending to remain at this level as we advance the MNKD-201 program, as well as our pipeline programs such as our inhaled bumetanide program MNKD-701. Selling, general, and administrative expenses increased compared to the prior-year quarter, primarily driven by the expanded commercial infrastructure supporting the anticipated pediatric Afrezza and ReadyFlow auto-injector launches, as well as the full-quarter impact of the SC Pharma commercial team and operating structure. Having two PDUFAs within months of each other is unusual for a company of our size and makes 2026 a deliberate investment year. We are investing to ensure both potential launches are properly supported across the field and in promotion, which is reflected in SG&A this quarter. Going forward, we will continue to evaluate commercial performance and adjust investment levels with discipline as we execute on these launches. Turning to our balance sheet, we ended Q1 with a solid liquidity position after settling the remaining balance of our senior convertible notes. We believe we have sufficient capital to support our planned commercial launches and continue advancing our pipeline. In addition, our credit facility provides financial flexibility if needed, and we remain focused on deploying capital in a manner that maximizes long-term value for our shareholders. Before I turn it back over to Mike, I want to mention that we will be at the Jefferies Global Healthcare Conference in New York in June. We look forward to engaging with many of you there. With that, I will turn the call back over to Mike. Michael E. Castagna: Thank you, Chris. Let me close by summarizing why we believe MannKind Corporation is well positioned for the next phase of growth. Number one, as we look at the remainder of 2026, we are in the middle of a meaningful corporate transformation. Since 2022, we have evolved from a single-product company into one with multiple FDA-approved products and a more diversified growth profile. United Therapeutics revenue continues to provide a strong foundation while our revenue mix is shifting steadily toward MannKind-owned brands, with owned revenue moving from roughly 40% just prior to the SC acquisition to over 65% with the anticipated FDA approvals as we exit 2026. That represents a fundamentally different company than the one we experienced a few quarters ago. Number two is FURO6. We have a clear line of sight to achieving our $110 million to $120 million revenue range for 2026. The ReadyFlow auto-injector, pending its July 26 PDUFA date, represents a meaningful opportunity to extend and accelerate the brand's growth trajectory. The fact that 65% of healthcare providers indicate they would expand their use with the FURO6 ReadyFlow auto-injector reinforces our confidence in its potential. Number three is Afrezza. A pediatric approval would unlock a significant growth opportunity and represent the most important milestone since the approval of Afrezza in 2014. Pediatric demand indicators are strong, the value proposition is clear, and we are launch ready with disciplined, targeted investment. If approved, our team is ready to execute. Number four is our partnership with United Therapeutics. The Tyvaso DPI franchise continues to deliver durable economics with the potential for expansion into IPF, and ralinepag DPI extends the partnership into multiple indications, reinforcing both the strategic depth and long-term value of this relationship. Number five is nintedanib DPI. Completion of the Phase 1b in IPF patients—where we expect top-line data in Q3—and first patient enrollment in the global Phase 2 program this quarter represent important de-risking milestones and position this asset as the next meaningful pipeline value driver. When we put all these together—a durable revenue base from United Therapeutics, two near-term regulatory catalysts, and a pipeline with meaningful upside—our priorities are clear, our team is focused, and MannKind Corporation is poised to capitalize on some of the most fundamental and transformational moments in the history of the company. We will now open the call for questions. Operator: Thank you. At this time, if you would like to ask a question, please click on the Raise Hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk. Then you will hear your name called. Please accept, unmute your audio, and ask your question. We will wait one moment to allow the queue to form. Our first question will come from Roanna Clarissa Ruiz with Leerink Partners. You may now unmute your audio and ask your question. Roanna Clarissa Ruiz: Great. Good afternoon, everyone. A couple from me. I will start off with ralinepag DPI and get a little bit more context. How long have you been working on it, and what additional formulation work do you think needs to be done from here to go from the oral ralinepag to an inhaled version? Any gating factors you might expect as you are working through this? Michael E. Castagna: Thank you, Roanna. Before I start, I just want to apologize to everyone for the technical difficulties we had and the length of the call. We will get to Q&A, but I just want to apologize. On ralinepag DPI, we have been working on this since we announced the agreement back in August. It takes a while to onboard powders and API. All that has been moving very smoothly. We had a bunch of prototype powders; we have selected some leading ones, and they are moving forward. There is always some fine-tuning as you go through manufacturing, but overall we are moving full scale ahead on United Therapeutics’ timelines. Roanna Clarissa Ruiz: Okay, great. And then I wanted to ask about the nintedanib DPI program as well. Now you have a few different shots on goal in IPF, with ralinepag DPI, etc. How are you thinking about these products evolving in the landscape given their different active ingredients, and any physician feedback you have heard so far? Michael E. Castagna: We believe there will be combination use going forward. We know the current orals have overlapping toxicities and the data in combination have not always looked that positive. But if you look at the TETON data 1 and 2, the combination of treprostinil and nintedanib looked very strong, and we know pirfenidone is a little bit weaker of an agent, so we see a bigger gap there. In general, I would see an evolution of a combination market. That is one of the reasons we are running a QID arm in our Phase 2, so that if you were on QID Tyvaso DPI or Tyvaso nebulizer, you could look at a QID nintedanib DPI as well. We are hoping to show in that trial whether using 4 mg twice a day or 2 mg four times a day, outcomes are comparable. If one is better, that is great and we will lead with that. That is one of the things we are exploring in Phase 2. Roanna Clarissa Ruiz: Great. Last one for me on FURO6. Any extra color on trends you saw in the quarter? You reiterated your guide, which is encouraging, but anything interesting you are watching for in the next couple of quarters in terms of underlying demand? Michael E. Castagna: First, we know two competitors launched last October. We are keeping an eye on that, but not much activity—maybe 40 to 50 scripts since launch, so nothing of significance. We did hear anecdotal reports of people switching back; some had tried the nasal and may not have gotten the efficacy they wanted and went back to FURO6. That is an early indicator of patient or physician satisfaction for us, which makes us more confident as we go forward. On the FURO6 side, new prescribers looked great, nephrology picked up a lot in March as we closed out the quarter. We think the transition of the sales force caused a pretty big disruption in January and February. As they get relationships re-established, lunches on calendars, and dinner events now taking place, we think nephrology will continue to accelerate throughout the year. Overall, especially with the auto-injector, FURO6 should grow a lot faster in Q3 and Q4. Looking at volume, the percent of units that shipped in Q1 last year versus Q1 this year gets you close to our reported number. Q1 co-pay resets are a headwind; we heard the same from other companies. March and April pick back up, which gives us confidence for the rest of the year. We feel pretty good, and all the feedback and anecdotal evidence we hear for FURO6 is very positive. Operator: Our next question comes from Wells Fargo. Please go ahead with your question. Analyst: Hey, good evening, and thank you. I also wanted to ask about ralinepag DPI that was disclosed this morning. Going back to what you were saying a minute ago, how far along in the process are you, and what gives you confidence that you can actually formulate this as a DPI? I believe there is also discussion in the disclosure that once-daily is on the table. What is the confidence around that as well? Michael E. Castagna: I cannot comment on the pharmacokinetics; I will defer to United Therapeutics and their modeling and all the work they have done and what they know about ralinepag. We will not know the real answer until we get into humans and see the pharmacology. Hypothetically, what they believe is probably the best we have today. In terms of my confidence, I feel pretty confident we have a lead powder that can go forward into animal and human trials now. The amount of powder we have to make for those things is not very significant, so that is ahead of schedule. United Therapeutics has done an excellent job moving this as quickly as humanly possible, and we are doing our best to keep up and stay ahead of them. Overall, there is a lot of energy to accelerate this as quickly as possible, and I think there will be good updates throughout this year and next year. Analyst: Excellent. On the two PDUFAs coming up—Afrezza pediatrics and FURO6—assuming both are approved, how soon after those approvals would you anticipate seeing the adoption curves impacted? Michael E. Castagna: On pediatrics, the approval should come the week before the American Diabetes Association meeting. If that timeline holds, it would be ideal because we have nine or 10 presentations and posters, as well as an evening event at ADA. That will be a good blast-off, not just for the U.S., but also internationally. We plan a staged rollout across the first 30, 60, 90 days to get into the top 10 to 15 institutions, set up best practices, and then expand. We are updating the reimbursement hub and leveraging the FURO6 hub model for a more white-glove service. We should see a little impact in Q2, but we will be watching Q3 and the summer closely. On the Inhale First trial, the first nine or 10 patients’ anecdotal feedback is really positive; first-insulin use in newly diagnosed children could be a game-changer if that continues. On FURO6, with a July 26 PDUFA, we expect launching in August. We would see a little impact in Q3 and a fuller impact in Q4. That one should go faster given the acute-use dynamic. Operator: Our next question will come from Cantor Fitzgerald. Please go ahead with your question. Analyst: Hey, this is Sam on for Olivia. Piggybacking on FURO6 questions, it is encouraging you are still confident hitting $110 million to $120 million in sales this year. Is that including both the on-body and the auto-injector? You mentioned weighting more toward Q3 and Q4. Is that due to the potential approval of the auto-injector, and do you expect the auto-injector to cannibalize the on-body infuser quickly? Michael E. Castagna: The forecast for the year basically looks at how units came out in 2025 and proportionately how demand curves look today; they are consistent with 2025. The auto-injector is a small portion of that range, not the reason we expect to hit $110 million. The on-body infuser should be able to get us in that direction, and the auto-injector will bring it there faster. Timing of launch and speed of rollout will determine the incremental. One challenge in the first half is we do not have samples this year as we prepare for the auto-injector and manage inventory. We are gearing up to sample the auto-injector to drive faster adoption. Operator: Our next question will come from Truist Securities. Please go ahead with your question. Analyst: Hi, it is Dinesh on for Greg. Congrats on the progress. One on the ralinepag DPI update: can you remind us on the relative positioning of prostacyclins and treprostinil-based drugs in PAH—patient applicability and physician choice—and how that frames your view on commercial and royalty opportunities to MannKind Corporation via United Therapeutics? Michael E. Castagna: It is a little early to speculate. United Therapeutics has Tyvaso DPI and Tyvaso nebulizer. Over the next two to three years, the major focus will be continued penetration, including IPF for the DPI scenario. Tyvaso should be a growth driver. As ralinepag launches, that probably goes earlier due to convenience, but that is United Therapeutics’ positioning and expertise. On IPF, you heard in United Therapeutics’ call that ralinepag DPI will be the predominant formulation in that development program, so we expect that to become the dominant driver overall for IPF. Operator: Our next question will come from Brandon Richard Folkes with H.C. Wainwright. Please unmute your line and ask your question. Brandon Richard Folkes: Thanks for taking my question. On Afrezza pediatrics, do you have to do anything on the contracting side post-label expansion, or does that fall into current coverage contracts? Secondly, how will you assess success of the pediatrics ramp early on, and what objectives would drive you to invest further versus keep investment where it is or pull back? Michael E. Castagna: Because it will be the same SKUs, we do not have to add another SKU to contracts, so no fundamental updates there. We have presented to large PBMs and some regionals, and we are exploring freeing up prior authorizations and simplifying access for pediatrics. There is appetite to reduce friction for kids. We are making sure Medicaid access exists and the big three PBM commercial lives have access. It will not all happen July 1, but through the year and into January next year, we expect updated clinical guidelines at most payers to support Afrezza use—even in adults—because ADA guidelines put Afrezza equal to AID systems and multiple daily injections. Step edits that put Afrezza behind those are now against standards of care, so we expect payer criteria to update in a positive way heading into 2027. In terms of pediatric success, the key metrics are breadth and depth of prescribing rather than early revenue: number of prescribers, number of institutions initiating and repeating use, and patient referrals into our hub. We will share those in the quarters ahead. We will have access programs to ensure payer friction is not a reason to avoid prescribing. We have also decided our 20 key account managers will be supported with local coverage to help with reach and frequency at launch. Operator: Next question will come from Yun Zhong with Wedbush. Please unmute your line and ask your question. Yun Zhong: Hi, good afternoon. Questions on the MNKD-201 program. It is encouraging to hear good safety and tolerability with no discontinuations. Given you will enroll the first patient in Phase 2 in Q2 without waiting for Phase 1b top-line in Q3, do you plan to confirm anything else besides safety and tolerability from the Phase 1 study? Also, United Therapeutics discussed a bridging study for Tyvaso DPI for IPF starting with healthy volunteers and then patients. Do you expect any impact on patient enrollment and your overall program? Lastly, including ralinepag, there will likely be three DPI products for IPF. Do you envision patients taking different inhalations with the same DPI, or is co-formulation reasonable to improve convenience? Michael E. Castagna: Several questions. On MNKD-201, we did a Phase 1a last year with healthy volunteers, particularly looking at cough-related incidents, FEV1, FVC, and GI side effects like diarrhea. We can confirm cough was not a major concern and GI side effects did not occur even at the highest doses, which gave us confidence. On FEV1 and FVC, there were no significant issues beyond expected variability. In the 1b study, we are in IPF patients, taking a stepwise approach to show you can dose a dry powder inhalation safely and effectively. After the first 12 patients at 2 mg TID (about 30 mg powder to deliver 6 mg nintedanib), tolerability, cough, and discontinuations presented no concerns. That cohort is now closed. The DSMB will meet next week, and hopefully post-meeting we will open Cohort 2. We are already screening and expect to enroll that faster and have top-line in Q3. That top-line will likely show that 8 mg BID versus 2 mg QID does not show a meaningful difference in tolerability or cough, which helps wrap up questions as we expand Phase 2. On Tyvaso DPI bridging, remember United Therapeutics is focused on Tyvaso DPI for the U.S. market in IPF. Our Phase 2 is, as of today, 100% ex-U.S. We are considering adding a few U.S. sites pending additional FDA steps. We have submitted the protocol to FDA and received comments, so we know what it would take. We are focused on accelerating European and other ex-U.S. enrollment, including Canada and Australia, to minimize any potential impact from Tyvaso’s IPF acceleration in the U.S. On co-formulation, our technology, given dose sizes and the common excipient, has potential for fixed-dose combinations. I have worked on fixed-dose combos previously. First we need to confirm dosing regimens are tolerable, which is the first step for any fixed-dose combo, and then you need two parties willing to come together. Stay tuned, but we are all moving in the same direction to help patients live longer, healthier lives versus today. Operator: Our next question will come from Mizuho Financial Group. Please go ahead with your question. Anthony Charles Petrone: [inaudible] Michael E. Castagna: Okay, may have dropped. Operator: Our next question will come from RBC Capital Markets. Please go ahead with your question. Analyst: Good afternoon, Michael. On discharge protocols and integrating FURO6 into the 60 key accounts, can you walk us through the process to open those accounts or have changes made to discharge protocols, and how long they may take? And a second one on Afrezza: of the 60 priority accounts, what would they represent in terms of your targeted market share of 23% to 37%? Over 50%? Can you fine tune that? Michael E. Castagna: They take time. If this were fast, we would be blowing out numbers now. Think six to 15 months, not three months. Every health system is different. I have met with several at the C-suite level, cardiac surgery, and discharge quality teams. Consistently, there are patient navigators responsible for 30-day readmissions. You need to engage quality, pharmacy, get local contracts set up, and get adoption into protocols—that all takes time. Cleveland Clinic is already doing it. Kaiser is running a large experiment in Northern California that looks promising. We expect trial results later this year looking at early discharge by a day or two, which is the type of data people want. Other clinics focus on ensuring patients leave with FURO6 so they are not coming back within 30 days. It is a hodgepodge of systems. As we find commonalities, we will get those across the finish line. Cleveland Clinic shares their protocol with other customers, which is great. On your Afrezza question, I would estimate roughly 75% to 80% of the target opportunity is concentrated in those key accounts. About 20% of patients fall in the community setting and 80% in the key account setting. It is very concentrated. Operator: Final question comes from Mizuho Financial Group. Please go ahead and ask your question. Anthony Charles Petrone: Thanks a lot. On FURO6 and the July 26 PDUFA date, are you expecting a panel meeting on the auto-injector? As a follow-up, FURO6 is moving from a hospital or infusion clinic five-hour infusion to under 10 seconds at home. What does that transition look like? How long to get adopted in the home, and what level of patient training is needed? It seems pretty seamless and a game-changer—just trying to frame the transition. Michael E. Castagna: We do not expect a panel. We have had various information requests from FDA—nothing that looks like a showstopper. We believe we are on track for that PDUFA date and are working on labeling and manufacturing so we are ready when FDA gives the green light. On the transition, because it is an acute-use drug—every cycle is new—conversion can happen very quickly. Today, probably 90% of use is preventing people from going into the ER and about 10% is post-discharge within 30 days, roughly. The auto-injector should really help with hospital discharge because it is much easier. We are targeting more local distribution and same-day delivery to the patient, which is important when someone is suffering fluid overload. That is harder with the on-body infuser given higher COGS. We expect a quick transition overall. There will be a group who still prefer the on-body infuser, and we will make it available, but we believe the preponderance of growth will come from the auto-injector. Operator: That concludes the question and answer portion of today's call. I will now hand the call back to Michael E. Castagna for closing remarks. Michael E. Castagna: Thank you for joining our call today. Apologies again for the technical difficulties. We appreciate your continued support and look forward to keeping you updated as we execute on the multiple regulatory and clinical catalysts expected in the months ahead. These are exciting times. We have never been busier here at MannKind Corporation—stay tuned for updates as we go. Thank you. Operator: That concludes today's call. You may now disconnect.
Operator: Good day, and welcome to the One Stop Systems Fourth Quarter 2025 Conference Call and Webcast. [Operator Instructions]. As a reminder, this call is being recorded. As part of the discussion today, the representatives from OSS will be making certain forward-looking statements regarding the company's future financial and operating results, including those relating to revenue growth as well as business plans, bookings, the company's multiyear strategy, business objectives and expectations. These statements are based on the company's current beliefs and expectations and should not be regarded as a representation by OSS that any of its plans or expectations will be achieved. Please be advised that these forward-looking statements are covered under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995, and that OSS desires to avail itself of the protection of the harbor for these statements. Please also be advised that actual results could differ materially from those stated or implied by the forward-looking statements due to certain risks and uncertainties, including those described in the company's most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q, financial reports on Form 8-K and recent press releases. Please read these reports and other future filings that OSS will make with the SEC. OSS disclaims any duty to update or revise its forward-looking statements except as required by applicable law. It is now my pleasure to turn the conference over to OSS' President and CEO, Mr. Mike Knowles. Please go ahead, sir. Michael Knowles: Thank you, Julie. Good morning, everyone, and thank you for joining today's call. I'm pleased to report that 2025 positive momentum has carried into 2026, and we are off to a strong start with significant year-over-year growth in both revenue and profitability. These results reflect disciplined execution by our team and suggest accelerating demand for our enterprise class ruggedized compute platforms across both defense and commercial markets. Importantly, we believe these trends further validates OSS' position as a critical enabler of next-generation AI autonomy and sensor-driven applications at the edge, markets that we expect to drive sustained long-term growth for years to come. Before we review the specifics of the first quarter, I want to remind everyone on today's call that our first quarter results reflect the opportunistic sale of our wholly owned subsidiary, Bressner, in December of 2025, and proceeds of $22.4 million, subject to final closing working capital balances. As a result, Bressner historical financial results are now reported as discontinued operations. and the results we are discussing today reflect the performance of the remaining core OSS business. The sale of Bressner was a strategic transaction that we believe unlocks value for shareholders simplified our operating structure, strengthened our balance sheet and sharpened our focus on higher margin, higher growth opportunities within our core business. We believe our first quarter performance is already demonstrating the benefits of this transition and reinforcing the earning power of our go-forward strategy. Today, OSS is a pure-play provider of ruggedized AI compute platforms for edge applications. As a result, we entered 2026 as a more focused and scalable company, fully aligned around delivering market-leading enterprise-class compute solutions to both defense and commercial markets. And I'm very pleased with our strong start to the year. Looking at our operational performance in the first quarter, we delivered strong results with revenue increasing 55% year-over-year to $8.1 million, reflecting growth across both our defense and commercial businesses. Highlights in the defense market include increased shipments to support the PH aircraft, a long-range multi-mission maritime control aircraft used for antisubmarine warfare, surveillance and reconnaissance operations. In addition, we benefited from increased activity related to the design, development and delivery of prototype compute systems for next-generation enhanced vision systems for U.S. Army combat vehicles. These programs highlight our role supporting mission-critical applications and our ability to scale alongside large multiyear defense platforms. On the commercial side, we experienced increase in demand from a medical imaging OEM, including shipments of our liquid-cooled server platforms reflecting the growing adoption of our solutions in high-performance data-intensive environment. Taken together, these drivers demonstrate both production level demand and early-stage program engagement, which we believe will position us well for continued growth. As our sales grow, we are seeing increased market awareness and stronger customer engagement with a growing number of organizations turning to OSS for enterprise-class deployable compute solutions. During the quarter, we generated nearly $15 million in new bookings that we expect to deliver in 2026 and 2027. I am pleased to report that this was one of the strongest quarters in our history and resulted in a book-to-bill ratio of 1.8 supporting our goal to maintain a trailing 12-month book-to-bill ratio above 1.2. Bookings during the quarter were driven by several key program wins across both defense and commercial markets. First, we announced aggregate new awards of $10.5 million from the U.S. Navy and a leading U.S.-based prime defense contractor in support of the P-8 Poseidon Reconnaissance aircraft, 7.5 million of which was booked during the first quarter with the remainder falling in last year's fourth quarter. With these latest wins, OSS has secured more than $65 million in total contracted revenue associated with this mission-critical aircraft to date, including over $23 million awarded since the beginning of 2025. Second, we received a new $1.1 million initial order from a top-tier commercial aerospace prime contractor to support next-generation in-flight entertainment system, which is expected to be delivered by the fourth quarter of 2026. We believe this platform has the potential to generate more than $6.5 million in total revenue over the next 5 years. Third, we secured a new engagement with a commercial robotics customer manufacturing autonomous construction and mining equipment. We expect this program to generate approximately $2 million in orders in 2026 with a 5-year opportunity in the range of an aggregate $10 million to $15 million. Importantly, we displaced an incumbent solution to win this business we believe, highlighting on the strength of our technology. More recently, in April 2026, we announced a new relationship with a company building a network of autonomous energy nodes for emerging alternative energy powered data centers. While the initial order was valued at over $500,000, we expect this customer to scale to an aggregate $10 million opportunity over the next 5 years. We believe this opportunity to reflect how our solutions are increasingly being deployed in next-generation data center architectures where power efficiency, scalability and enterprise-class compute are critical to supporting AI and data-intensive workloads. Recent program wins reflect both expansion within existing platforms and new customer additions, underscoring the breadth and durability of demand we are seeing across our markets. We are also seeing a clear shift in the size and composition of our bookings. Orders are becoming larger, more programmatic and increasingly tied to multiyear deployments across a broader set of customers. In fact, our first quarter bookings of $15 million nearly equal the total bookings we generated for the full year of 2023. In addition, our average order size has increased nearly 3x since 2023. And over the past 12 months, we have added a growing number of new programs and projects further strengthening our long-term growth profile. Supporting the momentum we are seeing in both sales and bookings is the continued expansion of our pipeline of opportunities. Three years ago, we believed our pipeline last structure consistency and alignment with our long-term strategy. Since then, we have made a deliberate effort to build a more strategic and disciplined pipeline one that is closely aligned with our commercial and defense go-to-market strategy, our technology road map and applications that we could believe can scale across both markets. I'm pleased with the progress we have made and more companies across our core defense and commercial end markets are pursuing the company's rugged enterprise-class compute solutions. As a result, we believe our pipeline has expanded significantly from roughly $1 billion previously. These opportunities are primarily concentrated in North America. However, we are starting to see more international opportunities to emerge. This has the potential to further increase the size and diversity of our pipeline materially over time. We believe that underlying this growth are strong and durable market dynamics. Demand for enterprise class compute is accelerating as AI, machine learning and sensor fusion applications increasingly move from data center to the edge. This shift is driving a new generation of mission-critical applications across both defense and commercial market areas, where OSS is well positioned given our expertise in ruggedized compute platforms. Alongside the growth in our pipeline, we are continuing to invest in advancing our technology platform to support the next generation of AI-enabled systems operating at the edge. R&D remains a critical component of our strategy and we are increasingly working alongside customers on customer-funded development programs that allow us to design and deploy purpose-built compute architectures for emerging applications. These engagements are a key driver of our long-term growth. We believe they position OSS early in the life cycle of next-generation platforms, deepen our relationships with key customers and create a clear pathway to the future production programs as these technologies move from development to deployment. We are seeing growing traction within U.S. Army Labs defense research organizations and large defense primes as they reassess current requirements and plan for future compute architectures and OSS is becoming increasingly embedded as a trusted provider of enterprise-class compute solutions supporting next-generation war-fighting capabilities. These efforts span a range of applications, including advanced vision systems, sensor and data processing, autonomy and AI-enabled situational awareness. While these development programs typically take multiple years to mature, we are encouraged by our expanding role within the Department of War ecosystem, and we believe these engagements position OSS to participate in a growing number of future production programs. Many of the programs we discussed earlier today began as development efforts, where we worked alongside customers to design highly specialized compute solutions for demanding applications. As those systems mature and transition into production platforms, we believe they can create multiyear revenue opportunities for OSS customer-funded development increased 145% year-over-year in the first quarter, and we expect additional growth through 2026, supported by new defense and commercial development efforts. At the same time, we continue to advance our core technology road map. During the fourth quarter of 2025, we led the way in our market with the introduction of our next-generation PCIe Gen 6 product portfolio that is designed to address the rapidly increasing bandwidth and data processing requirements associated with artificial intelligence, machine learning and sensor-driven workloads. PCI Gen 6 significantly expands data throughput capabilities and will play an important role in enabling the next generation of AI accelerators and GPUs, high-speed storage systems and advanced compute architectures required for AI applications at the edge. We continue to believe these technology investments position OSS well to support the growing demand for high-performance compute infrastructure as AI-enabled systems continue to expand across both defense and commercial platforms. We believe that OSS is well positioned for long-term growth, and we are encouraged by the strong start to 2026. As we move through the year, we are focused on helping provide the compute storage needs of our customers, supporting our customers' development efforts and converting our pipeline to sales. We also continue to closely manage several operational factors, including supply chain dynamics. In particular, we are seeing longer lead times for certain pump components, including memory, which may impact the timing of certain shipments throughout the year. As a result, we are maintaining our guidance for 2026 and we expect revenue growth in the range of 20% to 25%, supported by our growing pipeline of platform opportunities, increasing customer engagement, higher customer-funded development activities and the continued transition of development programs into production deployments. We expect gross margins of approximately 40%, reflecting product mix and an increasing contribution to customer-funded development programs, which is an important component of our strategy to advance new technologies alongside our customers. At the same time, we expect to generate positive EBITDA and adjusted EBITDA while continuing to invest in key areas of the business, including sales expansion and customer support resources that support our growing pipeline and deepen relationships with strategic customers. With a strong balance sheet, expanding customer relationships and a growing pipeline of opportunities driven by the adoption of AI-enabled systems, we believe OSS is well positioned to continue building momentum and delivering long-term value for our shareholders. We also believe our strengthened balance sheet provides the flexibility to make strategic investments in our business and pursue selective strategic acquisitions that could complement our technology platform, expand our customer base and enhance our capabilities over time. Finally, I want to thank our entire team for their dedication, innovation and relentless focus on delivering results for our customers and shareholders. So with this overview, I'd like to now turn the call over to Dan. Daniel Gabel: Thank you, Mike, and good morning to everyone on today's call. Financial performance in Q1 exceeded our expectations, reflecting both strong customer demand and disciplined operational execution. Q1 results reflect a number of key accomplishments: First, we achieved strong top line growth of 55%; second, we achieved robust bookings of nearly $15 million for the first quarter; third, gross margin of 51.6% remained above our expectations, reflecting favorable mix and pricing, operational improvement and showcasing the strong value that we provide to our customers. Third, higher sales, strong gross margins and disciplined expense management, produced positive adjusted EBITDA in the first quarter. And finally, strong collections and working capital management drove a record amount of free cash flow from continuing operations. We believe that the company has never been in a stronger position. And with a strong cash position, a solid backlog and a robust pipeline, we believe we're on track to achieve our 2026 guidance and to execute on our growth and profitability objectives. Now for a quick overview of Q1 2026 financial performance. For the first quarter, we reported total revenue of $8.1 million compared to $5.2 million last year. The 55% year-over-year increase in total revenue was primarily due to higher sales to defense prime customers of data storage products to support the PA aircraft, higher sales to a medical imaging OEM of liquid-cooled server products and sales to defense prime customer related to the design, development and delivery of prototype compute systems for an enhanced vision system for combat vehicles. Gross margin in the first quarter was a first quarter record of 51.6% compared to 45.5% in the prior year quarter. The 6.1 percentage point increase from the prior year was primarily due to a more profitable mix of products shipped this year, engineering efficiencies in customer-funded development programs and improved manufacturing absorption due to higher production volume. We continue to expect some level of variability in gross margins quarter-to-quarter based on absorption, product mix and program life cycle. On a sustained basis, we continue to target margins in the mid-30s to mid-40s. We expect that second quarter gross margins will normalize into this range. Total first quarter operating expenses increased 2.5% to 4.8 million. This increase was predominantly attributable to higher general and administrative expenses, partially offset by lower marketing and selling and R&D expenses. For the first quarter, the company reported a GAAP net loss from continuing operations of $0.4 million or $0.01 per diluted share compared to a net loss from continuing operations of $2.3 million or $0.11 per share in the prior year quarter. The company reported non-GAAP net income. Net income from continuing operations of $0.3 million or $0.01 per diluted share compared to non-GAAP net loss from continuing operations of $1.7 million or $0.08 per share in the prior year quarter. Adjusted EBITDA from continuing operations, a non-GAAP metric, was $0.2 million. compared to an adjusted EBITDA loss from continuing operations of $1.6 million in the prior year first quarter. Turning to the balance sheet. Cash flow from continuing operating activities was a record for a 3-month period as we saw a robust quarter of collection and previously managed inventory levels. Net cash provided by continuing operations for the 3 months ended March 31, 2026, was $4 million. Compared to net cash used in continuing operations of $1.5 million in the prior year period. As of March 31, 2026, OSS had total cash, cash equivalents and short-term investments of $34.4 million, restricted cash of $2.2 million and no debt outstanding. Working capital was $44.7 million as of March 31, 2026, compared to $45.3 million at December 31, 2025. As I mentioned, we're reaffirming our guidance for the full year, including revenue growth in the range of 20% to 25%, gross margin of approximately 40% and positive EBITDA. We believe our strong performance in Q1 supports our planned ramp in the second half of the year. We're seeing strong demand and our first quarter performance establishes strong operational momentum. At this time, we are maintaining our guidance as we continue to navigate a dynamic supply chain environment. As we enter the second quarter, we remain focused on disciplined execution, including managing our supply chain to convert customer demand into revenue, profit and cash. We also remain focused on continuing to drive growth by investing in our technology pursuing M&A opportunities and securing new platforms that may provide a sustained multiyear revenue stream. As always, we look forward to updating you on our success. This completes our prepared remarks. Julie, please open the call for questions. Operator: [Operator Instructions]. Your first question comes from Scott Searle from ROTH Capital. Scott Searle: Congrats on the quarter and the outlook. Maybe just for starters, Mike, Dan, could you give us a little bit of an idea of the mix of business in the quarter between defense and commercial? And then maybe to dig in a little bit on the supply chain front, it sounds like there are some headwinds. I'm wondering if you could dig in a little bit more detail, give us some color in terms of where does memory fit in the bank? Is it a cost issue from a bond standpoint in gross margins or just general availability as you look out into the second half of this year? And is that the primary constraint. And Mike as well, ongoing military activities, I think there have been some concerns that potentially it's a distraction in terms of the ability to progress existing opportunities. Based on your comments, it doesn't sound like that's been the case as you started to move forward on a couple of different fronts and expand that pipeline. I'm wondering if you could just expand on that a little bit. And then I had a follow-up. Michael Knowles: Great. I'll let Dan start with the mix, and then I'll jump in with the supply chain and the ongoing defense activities. Daniel Gabel: Yes. Thanks, Mike. So starting on the mix. So in Q1, we saw growth across multiple areas. So customer-funded development was up. Production was also up. From -- in production, we did see a higher mix of some of our more mature production program. and those tend to carry higher margins. So that's part of what you're seeing. But on the bookings front, we also announced some new wins, including on the commercial side that are expected to be scaled over time as we go through the year and into future years. I'll comment briefly on supply chain before I turn it over to Mike. So what we're seeing there primarily memory extended lead times for other components, including CPU, but certainly, the critical path for many of our deliveries run through that memory supply chain. Lead times are longer than what we saw last year. Pricing has certainly moved up. I think there's still some volatility. But relative to 3 months ago, I think that volatility has moderated, sort of plateaued at a higher level. From a pricing perspective, in general, we don't aim to absorb those price increases. We take them along to our customers. And it's certainly a market-wide dynamic not unique to OSS. So generally, we've been successful in doing that. But every bid has its own customer and competitive dynamics, and so we evaluate those bids individually. Michael Knowles: Yes. No, great. Dan, summary on the supply chain. Scott, I would just add that it really -- the biggest long-tail impact has really been on the memory. And a moderate portion of the bond. We've been able to manage the rest of the build and material in our products, whether standard or purpose-built with supply chain quite well. So it's really just in those components. And we've got a number of risk mitigation actions we've been working to help mitigate the risk of those delivering time frames. So we will assess and continue to work that as it goes through. And as Dan mentioned, we've been able to pass the price on. So financially, we've been able to manage that impact. And now we'll just be working the -- continue to work the timing impact across our systems, and it really is just one component. Unfortunately, it's a fairly standard performance in server memory. On the change in the defense environment with the ongoing operations in the Middle East and in and around Iran. Given that the budget for 2026 on the defense side was already passed and people are executing against obligations. We really haven't seen an impact on bookings or planned orders for the year. We've built into the planet and anticipated, there may be some slight delays in award timing. And that is just based on the fact that there is an increased overall movement to move standard logistics and material that's needed in support of the forces over in the Middle East that has to get contracted and put out. So there's a time factor. But to date, so far, we've not seen a big impact on timing or elements of programs or plans that were already budgeted or planned for 2026. In these kinds of experiences we've also seen that these per track, there generally starts to be indications back from the conflict on what are the technology applications that could be used to better facilitate execution of the battle plans in the area and to become more efficient in the very specific battle or environment that's being bought. And we generally being in the lab in some of the places we're positioned. We are looking for that to hopefully turn to opportunity for us into this year and next year as we have the opportunity to leverage high-performance computing, commercial-based solutions to readily support any of those applications, which generally will come in around software or sensors capabilities. And to go with that, you'll need the right level of compute and low latency, which is where we sit. So we monitor those and to the lab, and we'll keep an eye for them. But oftentimes, it starts to create opportunity for specific solutions that would enable the current conflict operation execution. Scott Searle: Very helpful. And if I could to just follow up on the opportunity, the unfactored opportunity pipeline. I think you indicated that it's up significantly from the prior number you guys have talked about it being $1 billion. And it sounds like there are growing size opportunities within that. I'm wondering if you could expand on that a little bit. And as it relates to some of the near-term opportunities, particularly the advanced vision systems for military vehicles, kind of a time line for that to convert maybe into production? And then as we look to I think the long-term targets you guys have talked about for growth of 20% to 30%. Given all the activity that's going on in the pipeline, given how you're starting to convert some of that into orders, do we see an inflection in '27 towards the higher end of that long-term target range? Daniel Gabel: Yes. I think -- so Steve, talking about the pipeline, yes, we continue to monitor that. That's our source of identification of opportunities is that we have spoken before, we rate those on probabilities of go that they'll be funded awarded and happen and probably a win probably that we win, and that helps identify orders of priority in terms of where we'll be addressing opportunities. So we continue to see elements moving into the pipeline. I'm probably most encouraged that we're seeing a diversity across that pipeline that would include a multitude of new customers, new opportunities, all at moderate values compared to when we started the pipeline 3 years ago. As I noted in my comments, just the growing number of booking size and multiyear programs. The other thing I would say that's starting to appear in that pipeline is we're seeing probably an increased number of potential transitional or transformational opportunities that we have factored down appropriately, but it's creating more opportunities for us to find potential transformational organic growth out of things that we're doing. And that's leading us to have that as we move through the factored element of that is what's continuing to strengthen our positive feeling about the ability to grow at that 20% to 30% range. But as I mentioned, there are those transformational opportunities and some long programs of record that where we do see those come to fruition would represent substantially greater growth and what we're seeing in the probability weighting factors today. Some of those, as we had mentioned in the past, are in and around Army programs. The current elements we had talked about in the past with the 360-degree situation awareness system. That architecture solution still remains under test and evaluation by the U.S. Army. They will make decisions as appropriate and timing and priority for them. This is the joy of working in the defense department, sometimes these things can happen fast. Sometimes they can be protracted. Sometimes they can come in multiple phases. The benefit we stand is that we have a solution that is present under test available and is the only solution that can provide the capabilities that were written to the requirements that we delivered again. That architecture has now expanded into multiple additional sensor-based processing applications where the demand for the high-performance compute and sensors processing and the demand for low latency to move that data has become a requirement across a couple of other capabilities. We mentioned one in our press release about the enhanced vision system. And we continue to work some additional opportunities for that compute infrastructure is starting to form the basis for sensor distribution at extremely low latency. So we continue to prosecute those. We're seeing them across opportunities across the other services where we could find these potential larger transformational programs of record, but no distinct timing on any of those quite yet. Operator: Your next question comes from Eric Martinuzzi from Lake Street. Eric Martinuzzi: Yes. I wanted to ask sort of a guidance philosophy question. It sounds like if there were not the supply chain issues, there's a chance you could have actually bumped up your outlook for 2026. Am I reading that the right way? Michael Knowles: Yes, I think that's right, Eric. We're definitely seeing strength on the demand side. You can see that in our bookings. As we look towards guidance, we're remaining cautious as we navigate this dynamic supply chain environment. The other thing I'd add, our guidance was back half weighted for the year. I think the strong performance in Q1 helps to moderate that ramp. It certainly increases our confidence in the guidance. But we have seen and we're continuing to see extended and variable lead times for components, including memory. So the timing of revenue conversion remains our biggest risk for the year. It's a risk that our guidance takes into account. We'll continue to drive that supply chain, and I think we'll have increasing visibility into that as we move through Q2. Eric Martinuzzi: And is there -- the booking success you had in Q1, was any of that kind of, I don't know, Q2 or Q3 or pull forward? Or was it just normal course? Daniel Gabel: Yes, I think it was a combination. I think there was probably some pull forward that we saw. And I think there were also some new wins that we have factored and maybe the initial awards weren't used, but those will grow over the time. So overall, I think Q1 bookings were a very positive story for us. Michael Knowles: Yes, I'd agree. But exactly what Dan said, across the border, it was a good bookings quarter for us. Operator: Your next question comes from Brian Kinstlinger from Alliance Global Partners. Kevin Pimental: This is Kevin for Brian. First, can you provide updates on both the autonomous robotics for construction and mining as well as the aerospace programs for passenger cabin systems? When do you expect each might move into production from LRIP? Michael Knowles: Thanks, Brian (sic) [ Kevin ]. So on the robotics front, we've successfully completed prototype and early prototype build and delivery test and validation in the environment and we'll be transitioning that program to production here in 2026. So we'll start to see news on that coming in the coming months and quarters as that program starts to transition into production. The commercial aerospace now has actually transitioned into production. Deliveries have started this year, 2026, and will continue through this year, and then we'll look to 2027. Kevin Pimental: And then, are there any -- can you provide any updates on the liquid cooling system for medical imaging where a tech refresh is pending? How will a tech refresh impact this production program? Michael Knowles: Yes. Yes. Well said on production forecast for the year with the medical imaging company, the liquid-cooled server. So we have that laid. We saw a ramp in production demand from last year. So we're positive about the momentum of that program is where it's going. And we do continue to explore the opportunity where we can in our systems in our configurations while they're based on a lot of commercial open system architectures. The ability for tech refresh and upgrade being able to put in even additional more computer lower latency can help with the overall performance of systems. So we always continue much like with this customer of all our customers to engage in the opportunity where and if needed, to be able to provide quick updates in compute and latency to further enhance the performance of those systems. Kevin Pimental: Great. And then lastly, could you provide an update on the autonomous maritime application has testing been completed? And do you still expect production orders this year? Michael Knowles: Yes. On the Autonomous Maritime, systems delivered under test and evaluation in discussions with the customer, we would expect to see production orders this year. Given that the production orders are received early enough, we should be able to generate revenue on that this year. Operator: And there are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.
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: Thank you for standing by. Welcome to Quanterix Corporation Q1 2026 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Joshua Young. You may begin. Joshua Young: Thank you, Preyila, and good afternoon, everybody. With me on today's call are Everett Cunningham, Quanterix' President and CEO; and Vandana Sriram, Quanterix' Chief Financial Officer. Today's call is being recorded, and a replay of the call will be available on the Investors section of our website. During the course of today's presentation, we will make forward-looking statements covered under the U.S. Private Securities Litigation Reform Act. These forward-looking statements are based on management's beliefs and assumptions as of today, May 6, 2026. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that might cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. To supplement our financial statements presented on a GAAP basis, we have provided certain non-GAAP financial measures. These non-GAAP measures are used to evaluate our operating performance in a manner that allows for meaningful period-to-period comparison and analysis of trends in our business and our competitors. We believe that such measures are important in comparing current results with other period results and assessing our operating performance within our industry. Non-GAAP financial information presented herein should be considered in conjunction with, not as a substitute for the financial information presented in accordance with GAAP. Investors are encouraged to review the reconciliations of these non-GAAP measures to the most directly comparable GAAP financial measures set forth in the presentation posted to our website and in the earnings release issued today. Finally, any percentage changes we discuss will be on a year-over-year basis unless otherwise noted. Now I'd like to turn the call over to Everett Cunningham. Everett? Everett Cunningham: Thanks, Josh. I'm happy to be here with all of you this afternoon. My time at the company has been very exciting and informative, and I'm more confident than ever about the future of Quanterix. Now in that spirit, I'd like to start off by sharing some of my key observations in my first 100 days with the company. First, we have a passionate employee base full of people who want Quanterix to win and be successful for the long term. Now based on our customers' feedback, we remain the market leader in early detection of critical disease biomarkers, and that's a great position to be in, one that we must capitalize on. Next, we have an installed base of over 2,300 instruments across passionate customers who appreciate the value of our products and services. Our market-leading technologies include Simoa, where we are the leaders in ultrasensitive digital immunoassays for protein biomarker quantification and spatial, where we have the highest plex proteomic platform on the market. Now these are both businesses where we can generate strong growth and build solid businesses moving forward. Next, our strong foundation positions us to be a leader in the Alzheimer's diagnostics industry. Now it's early innings, but I believe in our capabilities, and I want to invest in them now. So in summary, I believe that we have a clear path towards profitability for our research tools business and a balance sheet to support our growth ambitions for our Alzheimer's disease diagnostics with approximately $100 million in cash and no debt. Now this journey, I'm here to undertake is exciting, and I couldn't be more excited to be here. Now moving from a high-level observation to more of a detailed strategic and tactical consideration. I gathered a lot of feedback in my first 3 months here. The company has many strengths to build upon, but we're not currently fulfilling our potential. So as a result, I'm making some operational as well as strategic changes now and in the future quarters that will help us better capitalize on our compelling opportunities. One overriding philosophical change that we must move the company from a mode of integrating and realizing synergies to a mode of investing and growing our business for long-term growth. We are allocating resources to growth opportunities where we see compelling near-term returns while ensuring that we continue to hit our annual operating targets in 2026 and beyond, just as we delivered our $85 million of cost synergies from the Akoya acquisition. In the first quarter of 2026, we reported $36.4 million of revenue as our end markets remain difficult. While our consumable revenues performed as planned, our revenues from our instrumentation business was slightly softer than expected. Now some of the shortfall is related to timing issues, but there's also some changes that we're going to be implementing to bring more focus to our sales efforts. These changes will bring benefits as the year progresses. Now, in addition to investing in growth opportunities, we are hard at work at creating a culture of operational execution and delivering quarterly expectations as a key tenet of our organization we are building here at Quanterix. We've established good operational rigor, which can be seen in our gross margin performance, our disciplined approach to spending and in our ability to consistently hit our cash usage targets. Now during the last call, I shared details of my 30-year commercial background at companies such as Illumina, Quest Diagnostics and Exact Sciences. I know what best-in-class commercial organizations look like, and I've identified multiple opportunities to take Quanterix to the next level of operational performance. As a result, we're making several investments to improve our commercial effectiveness in 2026 and beyond. Now these investments include: we're going to elevate our pharma partnerships in our accelerator business with an experienced senior leader. This important business has slipped in recent quarters, and we are changing that now. I expect that myself, the new leader and our current professionals in this space will have frequent and candid dialogues with our pharma clients to understand how we can better solve for their needs. Now with our best-in-class technology and solutions, we expect significant improvement this year. Next, we are expanding our team of lead generation representatives to improve our outbound targeting and drive net new business. We're also going to hire new market development leaders that will support the sales team in training, systematic value propositions and competitive positioning. This is intended to refocus our sales force on their customers while clarifying Quanterix' many advantages of our overall value propositions in our key end markets. We will be harder hitting on differentiation. For example, we will highlight our ability to detect proteins more accurately than others while doing it more consistently. Next, we're leveraging Thermo Fisher's distribution capabilities to improve our online presence. Now this will have a dual benefit of helping our customers by easing their barriers to access for our products while reducing the manual work of our commercial team to provide pricing quotes. Everything that we're doing is centered on investments that will yield near-term returns to sharpen our focus, expand our opportunity set and grow our top line performance in 2026 and beyond. Now our customers have told me repeatedly that we are the market leader. Armed with this feedback, we're adjusting our course and importantly, we're moving quickly with a sense of urgency. Now we're also increasing our investment in our Alzheimer's diagnostics business. Health care providers who treat Alzheimer's want a reliable noninvasive test to drive earlier intervention of this terrible disease. We firmly believe and industry leaders concur that we have the best performing and most comprehensive Alzheimer's diagnostics test available today in LucentAD Complete, and we expect to garner meaningful market share as blood-based biomarker testing continues to grow. So we're making the following investments in our diagnostics business. First, we are hiring a new diagnostics leader reporting directly into me to build and invest in our emerging diagnostics business. With this move, we are bringing in strong leadership to expand and strengthen our diagnostics portfolio as part of our commitment to advancing our position in the nascent Alzheimer's testing market. Next, we are upgrading our next-generation Simoa HD-X platform and expect to file for IVD status with the FDA in 2027. Now this will position us not only to serve research customers who increasingly request IVD solutions for their clinical trials, but it will also set us up to support the distributed IVD model for our lab customers. Next, we are investing in lab infrastructure and implementing new targeted sales and marketing tactics to increase mind share for our LucentAD Complete test in anticipation of FDA clearance in the second half of this year. Now these investments will build on the strong momentum that we have in our diagnostics business. As a matter of fact, today, we just announced an important and exciting partnership with Tempus AI. Under this agreement, LucentAD Complete will be integrated into [ EHR ] systems at select Tempus Partner Health System locations as part of the Tempus Next program. Now patients who meet the clinical criteria will be flagged using a proprietary algorithm and testing will be available for order at a clinician's discretion. Now to help fund these investments, we're streamlining our product road map. Now my engagement with customers and collaborators in this sector over the past 3 months has led us to prioritize our Simoa HD-X platform and other investments, both on the research tools and diagnostics sides of the business. Also, we're incorporating learnings and enhancements from our next-generation platform into the HD-X upgrade. And additionally, we are continuing to gather feedback from our early access launch program that we expect to incorporate over time into the next-generation Simoa program. Now on the spatial side of our business, our 2 key priorities for 2026 are to expand our PCS biomarker panels for discovery applications and to release new reagents for the HT platform to better support clinical applications. Now from a financial perspective, we continue to expect to reach cash flow breakeven performance by the fourth quarter this year. The entire company is committed to building a profitable and sustainable research tools business that are leaders in both spatial and ultrasensitive proteomics. Now we expect the investments that I discussed today will help drive commercial effectiveness in the second half of 2026. We are not waiting for better markets. Instead, we're making thoughtful and deliberate decisions to drive Quanterix to where the industry is going. And finally, we are excited about our Diagnostics business as we are delivering on key milestones this year while welcoming in a proven seasoned business leader to accelerate our performance in this space. Now let me turn it over to our Chief Financial Officer, Vandana Sriram. Vandana Sriram: Thank you, Everett, and good afternoon. Total revenue for the first quarter was $36.4 million, an increase of 20% from the previous year. Organic revenue declined by 21%. Revenue from our diagnostics partners was $2.9 million, up meaningfully year-over-year from $1.6 million in the first quarter of 2025. This reflects increasing volume for our single biomarker test from our diagnostics enablement partners. During the quarter, both of our end markets and our consumables revenue were largely in line with our expectations, but we saw slightly weaker-than-expected results in instrumentation with a handful of instrument transactions getting pushed into the second quarter. From a product perspective, Simoa contributed $24 million, a 21% organic revenue decline and spatial reported $12.4 million, down 26% year-over-year. Instruments revenue was $4 million, comprised of $2.3 million from Simoa and $1.7 million from spatial instruments. We placed 16 Simoa and 11 spatial instruments in the quarter. Consumables revenue was $21.4 million. This consisted of $14.5 million in Simoa and $6.9 million in spatial consumables. Accelerator Lab services were $4.3 million, $3.5 million in Simoa and $800,000 in spatial. Our customer mix was meaningfully skewed to academia, which represented approximately 65% of the business in Q1. On a pro forma basis, assuming Quanterix and Akoya were combined for the full year, academic revenue for the first quarter declined approximately 16%. Pharma revenue declined 33% year-over-year, primarily due to fewer large accelerator projects and spatial instruments placed. As Everest already mentioned, we are adding resources and refocusing strategies towards the pharma end market, and we expect to see better results here in the coming quarters. Moving on to the P&L. Gross profit and margin for the first quarter were $15.6 million or 42.7%. Non-GAAP gross profit was $18.5 million and non-GAAP gross margin was 50.9%. The synergies from the Akoya transaction are apparent here. Even with a reduction in pro forma revenue, we are maintaining non-GAAP gross margin over 50%. Operating expenses for the quarter were $56.9 million. Included in operating expenses are approximately $22 million of costs related to acquisition, integration, restructuring and purchase accounting. Notably, this includes a $19 million onetime write-off from an intangible asset related to the termination of an Akoya Diagnostics development agreement. Offsetting this, other income contains $22 million of liabilities written off, resulting in net noncash income of $2.3 million from this termination. Non-GAAP operating expenses were $34.7 million, a decrease of roughly $2.3 million sequentially as a result of the synergies. We are now operating the new Quanterix entity at roughly the same level of operating expenses we had when we were a stand-alone company. As Everett mentioned, as a result of the Akoya integration actions taken to date, at the end of Q1, we have delivered the $85 million of annualized cost synergies that we committed to as part of the acquisition. The combined entity is operating as expected. And while there are a few remaining actions to complete, we will not continue to report these synergies after this quarter. Our adjusted EBITDA was a loss of $9.8 million, a sequential improvement of $1.5 million despite lower revenues versus the prior quarter. We ended the quarter with $102.6 million of cash, cash equivalents, marketable securities and restricted cash. During the quarter, we used $19 million of cash, of which $4.2 million was related to onetime integration and employee-related costs. Adjusted cash usage during the quarter was $14.7 million. The first quarter is our highest quarter of cash usage, similar to many companies due to approximately $11 million of annual payments such as insurance renewals and annual bonuses. As we look ahead, we expect our cash usage to move meaningfully lower as these annual payments are behind us and we make progress towards our cash flow breakeven target. Finally, turning to guidance for 2026. We are maintaining our guidance for the full year 2026, and we continue to expect to report approximately $169 million to $174 million of revenue. We expect GAAP gross margin to be in a range of 41% to 45% and non-GAAP gross margins to be in a range of 49% to 53%. In the first quarter, we changed our accounting policy for classifying shipping and handling costs for product sales to record them within gross margin. Historically, they were recorded in SG&A expenses. We believe this classification is preferable because it better aligns costs with related revenue and is consistent with our peers. We reflected this reclassification in our GAAP margin guidance, but there is no change to the underlying non-GAAP margin expectation. We continue to anticipate achieving cash flow breakeven in the second half of the year and expect to end the year with cash in the range of $100 million with no debt. And finally, in terms of our quarterly cadence, we expect second quarter revenues to be roughly in line to slightly ahead of Q1, and we expect that the commercial initiatives that we're investing in will help to drive increased revenues in the second half of 2026. I will now turn it back over to Everett for closing remarks. Everett Cunningham: Thanks, Vandana. We're moving quickly. We're making decisions that will improve our commercial effectiveness, streamline our product management priorities and also enable Quanterix to capitalize on a compelling opportunity in the Alzheimer's diagnostics market. And we're doing all this while moving Quanterix closer to cash flow breakeven performance. And with that said, I'd like to turn it over back to Josh for questions and answers. Joshua Young: Thank you. Preyila, please assemble the Q&A roster. Operator: And your first question comes from the line of Kyle Mikson with Canaccord. Kyle Mikson: Good to hear all these updates here changes and so forth. I guess, Everett, the one that sticks out to me is the preparation for the IVD submission for HD-X in '27. I guess like the question is kind of like why do you need IVD for that system? You talked about, I think pharma important there as well as a distributed model. But maybe just dive into is that -- is this needed more for Alzheimer's, neurology or oncology? Is that part of the aspiration here? And then maybe like a decentralization strategy internationally. I'm curious if that's in the works as well because when you think about this compared to some other platforms that we know of, it could be interesting to think about long term. Everett Cunningham: I appreciate the question. And I will just go back to my last 3 months of being out in the market, talking to customers. We're investing in our HD-X platform because it's our workhorse. We have a really good robust installed base. It's our installed base. The timing of it fits nicely to our diagnostics build-out. And also with making the machine more reliable, it's also going to benefit our research customers, too. So when we build the machine, it is for 2 reasons. First of all, it will solidify our research-only business. It will get us ready for diagnostics, and it will give us what I would just say, optionality to have a distributed plan for our lab partners, both domestically and internationally. And that's why we've made the choice of really prioritizing our focus in getting that machine IVD ready in 2027. Kyle Mikson: Yes. Okay. That was great. And then maybe just a follow-up. What's the status of the Simoa 1 platform? And honestly, I think you were talking about like an early access last quarter. And that platform, I believe, was -- had some translational use cases like may be higher plex. And so I feel like given the focus on pharma going forward, it could have actually aligned with that. So could you just give us an update there? Everett Cunningham: Yes, absolutely. And thanks. We're still very focused on being technology leaders in the marketplace. And Simoa ONE is part of our next generation. We are still doing early access with Simoa ONE. We're getting feedback from our customer, and we're looking to take that feedback and actually help us with our HD-X next generation and our HD-X upgrade. So Simoa ONE still is part of our portfolio, and we're getting really good feedback. Kyle Mikson: Awesome. And then finally, on proteomics competition relevant recently, obviously. You guys obviously targeting low plex, a little bit of mid-plex. You got the sensitivity advantage that probably is driving this firm hold on the low-plex market, we would hope. Can you just talk about what you're seeing competitively over the last few months and maybe going forward and just speak to your conviction level that you're going to maintain this share or increase it? Everett Cunningham: Yes. We feel -- and I'll have Vandana help me too. We feel really good about our position in the spatial low plex market. We have 10x the number of low-plex assays available in the marketplace. compared to our competition. Our installed base in this space is larger than our competition. Quanterix focuses on part of the translational research market that includes later-stage clinical trials, of which reproducibility is really, really important. Again, feedback from our customers, we lead in that space. Where I see benefits of our spatial business moving forward, our tools, our technology is market-leading. We're going to improve our reach to our customers. We're putting in more marketing investments. We have amazing exciting launches in the spatial space, and we feel that that's going to give us a boost in the second half. Vandana, I don't know if you want to mention anything else? Vandana Sriram: No, I think that's exactly right. On the Simoa front, while there has been a lot of talk of competition, I think all of the data and all of the research suggests that we have the broadest menu as well as the greatest level of sensitivity as well as lot-to-lot and lab-to-lab reproducibility versus anyone in the market. And then on the spatial side, with a concentration both in the research and in the clinical side, there's a lot of exciting things going on there. As Everett said, we're now going to kind of turbocharge that to make sure we're getting the right share of market that we deserve. Operator: The next question comes from the line of Puneet Souda with Leerink Partners. Puneet Souda: So I'll ask my questions in one. First, Everett, great to see the actions you're taking on the diagnostics side, bringing in leadership and investing into that business. Just wanted to get a sense of the level of investment that you need there? And how should we expect -- what should we expect for Alzheimer's in the overall guide here? This looks like a second half weighted guide. So I just wanted to get a sense there. And then could you maybe also elaborate as you transition some of the business or the focus from the core tool side to the diagnostics side, is there a chance for any air pocket? Obviously, that's a question that we frequently get from investors. Everett Cunningham: Yes. Maybe I'll start out with just the diagnostics investments, Puneet. Listen, I feel good about bringing in a seasoned leader. I'll give you a little bit of background. I can't name the person specifically yet, but in a couple of weeks, we'll be able to name. This leader has 25-plus years in diagnostics. I've worked with this leader before. Not only the sales side, but they know important customers in this space. They've had really good payer and reimbursement interactions. They know the blood-based biomarker business. And so it's like the perfect fit for Quanterix and where we are now. So that's one. And this person, along with many others here at Quanterix is going to help me build out that end-to-end plan. What we're investing this year, I feel is really appropriate. We're adding right now feet on the street that will help us sell LucentAD Complete and also help with our lab partnership that we have going now. We're investing in clinical utility studies. Those clinical utility studies will read out in the second half. And we're thinking about what is the next phase that we need also to continue to move this forward. And then just to me, I look at this as a surround sound type thing when I think of diagnostics. Our lab infrastructure needs to be ready for order to cash. And so we're investing in our lab infrastructure, too. We will be ready once we get FDA clearance in the second half, we will be ready to what I would say, scale. The last thing I'll mention for a diagnostic standpoint, and I've always thought this way, even back in my Exact Sciences and Quest Diagnostics days, we're not going to do this alone. We're going to have smart, unique partnerships to help us scale this business, and we started now. Our partnership with Tempus AI is a great example of what we're doing and how we're creating scale in the business. We have lifeline screening, again, more scale in helping us get our LucentAD and our LucentAD complete that's out there. We'll do the same once we get FDA clearance of how do we organically build scale, but how do we create really smart partnerships moving forward. Vandana Sriram: Yes. And Puneet, to address your questions on what this means from a financial perspective, we've always had a baseline level of investment in Alzheimer's diagnostics, frankly, for the last 3 or 4 years at this point. What we're doing in this plan right now is being very, very deliberate on where our investments go. We've streamlined projects in other parts of the business where perhaps that payback was not as immediate as these are. And that's what's helping us fund both the commercial acceleration as well as the acceleration in the diagnostics platform. And then from a revenue perspective, as you know, we did almost $10 million of revenue from our partners in 2025. Our expectation is that we have about the same level in 2026. We'll probably have less instrument sales, but an increase in consumable sales as our partners start to do more tests. We're not counting on revenues from direct testing in 2026. We think it will take some time for that to inflect. If that happens sooner, that will be helpful to us, but we're not counting on that picking up very quickly. Everett Cunningham: And Puneet, the last part of your question in terms of how do you balance both. My first 3 months here, I've had a lot of interaction with our commercial colleagues with Ben Meadows, our new Chief Commercial Officer. We have a solid research business, research tools business. The relationship that they have with the customers in the academic space and the research space, it's really, really deep, and we're going to help them get even deeper with the enhancements that I talked about during my remarks. It's an end, and we're going to build up that same expertise on the diagnostics side. Today, we have the appropriate size of our diagnostics business just based on where we are. But the new leader that's coming in will build a plan that will assume, again, FDA clearance. We have a good price crosswalk. We're going to get scalable reimbursement. We will be able to toggle very quickly to build out scale in our diagnostics. We're going to balance on both research, tools and diagnostics. Operator: The next question comes from the line of Dan Brennan with TD Cowen. Daniel Brennan: Maybe first one, just it was already kind of asked in one way in terms of the guide. So if you're kind of flattish in Q2, it implies almost like a 40% back half sequential like second half, first half. So could you just break down a little bit more what would be the drivers of that? Do you want to share any color, maybe instruments, consumables and service, maybe core Quanterix versus spatial? And then I can have a few more questions. Everett Cunningham: Yes, Dan, let me talk about the investments that we're making that these aren't investments that have a year ROI. And I'm just taking this from my past experience of, hey, we need to build out momentum within the next few quarters. These are the investments that we're making. Let me just maybe give a couple of them color to give confidence of our second half ramp. Our lead generation reps are critical to our growth. Our lead generation reps are working with our marketing team and taking our robust leads that we have and making them credible, making phone calls to ensure that when they hand them over to our sales reps, those leads are ready to buy. We've already instituted lead generation reps. And in the first 3 weeks, we're seeing a market difference in terms of net new opportunities. So I look at in the second half, our net new opportunity growth to be absolutely better than it was in Q1. Secondly, our marketing. We have appropriately put investments in marketing on both the Simoa and spatial side of the business to develop more of a multichannel approach. So I always like to say we're selling when people are sleeping. So we feel that that's going to be a major benefit to our business. And then lastly, what I'll add is we are looking strategically at areas to where we could put just more feet on the street on the commercial team today. And like I said, Ben Meadows and the team have done a good job of, again, not overhauling, so we create disruption, but strategically putting more feet on the street so we can get more opportunities in the second half. Vandana Sriram: I think the only thing I'd add there, Dan, is there's also a lot happening on the product side. We recently announced a new molecular barcoding option for customers, which gives our spatial customers a whole new channel for self-serve opportunities on the assays. We also have a handful of assay launches as we generally do that are now coming online and are expected to have more of an impact in the second half of the year. Daniel Brennan: Great. Okay. Are you guys assuming end markets improve as part of the outlook? Obviously, it has been challenging, but we've heard various signs of things getting a little bit better here. Just wondering how you think about that as you contemplate like the improvement in addition to obviously, all the critical company-specific things you're doing? Vandana Sriram: Yes. So on the end markets, on the pharma side, we do think that the end markets are strong. It has really been a little bit of the focus that's been lacking on our side, which we've already started to correct and we're starting to see the results on. The academic side was a little bit slow in the first 3, 4 months of the year. As you know, overall funding slowdown has been a little bit slow. So we're not counting on a big rebound over there, but we do think there might be a small amount of improvement as we get towards the end of the year. But we're not assuming markets change materially. We're really assuming that a lot of the growth is going to happen from our actions, both on the product side as well as on the commercial side. Everett Cunningham: And the only thing I'll add, again, just from an execution standpoint, in the first quarter, start of the second quarter, the communications, the sales calls, the KOL kind of interaction has been very, very solid on our side. We're not waiting for markets to improve. And I think those conversations, that consistent relationship connection that we have with our critical customers, when markets do improve, we will be there to capitalize on that. Daniel Brennan: Great. And then you listed, I think, 4 studies in the press release or maybe in the deck. Are any of those -- I mean, obviously, I'm sure they're all important. Otherwise, you wouldn't have listed them. But any of them stand out more than not in terms of either that will play into FDA play into the label or will they all just be pieces of the puzzle as you build the marketing plan on your diagnostic assay? Everett Cunningham: Yes. Listen, I like the studies that we have. First of all, they're with 3 credible partners, the study dynamics that I've been reviewing on a weekly basis. We're hitting really good enrollment. The settings are mostly in that -- where people are being treated in the specialty care and primary care setting. It demonstrates how LucentAD Complete changes clinical decision-making and patient outcomes. So we're looking at the right things from a clinical utility everyday diagnostic standpoint. I will also add too, I'm excited about the timing. The timing is spot on for us to read out in the second half of 2026, and that will just bolster our meetings with payers to get widespread reimbursement. Daniel Brennan: If I can sneak one final in. Just on the spatial side for Akoya, since you do break it out, like is there an implicit assumption and maybe you've already done this at 4Q when you set the initial guidance, but how are you thinking about kind of the contribution organically for spatial in 2026? Vandana Sriram: Yes. We didn't break out the guide between Simoa and spatial just because they are starting to -- we are starting to kind of report them all together. Our expectation of mix between Simoa and spatial between 2025 and 2026 was relatively consistent though. Operator: Thank you. And there are no further questions at this time. Ladies and gentlemen, this now concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the DoorDash, Inc. Q1 2026 earnings call. After today’s opening statement, we will host a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, please press 1 again. I will now hand the call over to Weston Twigg. Weston, please go ahead. Weston Twigg: Alright. Thank you, Elizabeth. Good afternoon, everyone, and thanks for joining us for our Q1 2026 earnings call. I am pleased to be joined today by Co-Founder, Chair and CEO, Tony Xu, and CFO, Ravi Inukonda. We will be making forward-looking statements during today’s call, including, without limitation, our expectations for our business, financial position, operating performance, profitability, our guidance, strategies, capital allocation approach, and the broader economic environment. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those described. Many of these uncertainties are described in our SEC filings, including our most recent Form 10-K and 10-Q. You should not rely on our forward-looking statements as predictions of future events or performance. We disclaim any obligation to update any forward-looking statements except as required by law. During this call, we will discuss certain non-GAAP financial measures. Information regarding our non-GAAP financial measures, including a reconciliation of such non-GAAP measures to the most directly comparable GAAP financial measures, may be found in our earnings release, which is available on our Investor Relations website at ir.doordash.com. These non-GAAP measures should be considered in addition to our GAAP results and are not intended to be a substitute for our GAAP results. Finally, this call is being audio webcast on our Investor Relations website. An audio replay of the call will be available on our website shortly after the call ends. Operator, I will pass it back to you, and we can take our first question. Operator: Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q&A roster. Your first question comes from the line of Shweta Khajuria with Wolfe Research. Your line is open. Please go ahead. Shweta Khajuria: Thanks a lot for taking my questions. Let me try two, please. One is on product and the other is on partnership. So first on product, could you please talk about how you envision your product developing over the next 12 to 24 months as you integrate more of agentic and AI capability? So will we have an opportunity to communicate via voice and put a cart together and execute a transaction, even saving us more time, or better search and discovery, or whatever it may be? If you could please talk to that. And then the second one is on partnership. You announced extension and expansion of your partnership with Lyft. As you think about the greater value proposition around local commerce and becoming the operating system for local commerce, how do you think about travel as an adjacency with Uber partnering with Expedia—partnering with Airbnb and Booking.com type partnership? A value add or something else? Your thoughts on that would be great. Thanks a lot. Tony Xu: Hey, Shweta. Maybe I will take both of those and feel free to add in anything you want, Ravi. Look, on the first question with respect to product, the DoorDash, Inc. philosophy and story has always been the same here, which is we have to create the best end-to-end shopping experience. If we do that, we will continue to be the ones that innovate and lead. We will continue to deliver great results like the ones that you saw in the quarter and in the many years leading up to the results that we have just shared. There is not one way to do that. You talked a bit in your premise, Shweta, about this idea that you should be able to, with the assistance of agentic-like tools, have better discovery and search experiences, and we agree with you. I think that we absolutely will have agentic ordering experiences in which it will be a lot easier for customers to do many things that they do today with much lower friction, to discover things that they perhaps did not know existed on DoorDash, Inc., to formulate complicated queries and solve those in the best possible way. The most important thing in delivering this is making sure that we can do it not just in discovery and the upper funnel, but across the end-to-end experience. What is the point of having the best discovery experience if we cannot bring you that exact item, or if that exact item were out of stock, or it does not meet your personalized preferences, and we cannot actually solve for that need? For us, the way I think about it is there is no one trick. It is making constant and continuous improvements to the selection quality, the accuracy of the catalogs, making sure that we offer the widest choice in terms of affordability and different price points, offering the best quality of experience in speed, timeliness, and accuracy, and then, obviously, in customer support, which I think is also having an agentic revolution in itself. You will see all of these things play out in the DoorDash, Inc. product experience. The most important thing is that we have to build the best end-to-end experience. We are the only company that has the most robust catalog, much of which is actually about the physical world that does not exist in any digital repository, that cannot be scraped, and that we ourselves uniquely own access to because of all the work that we do to actually build up a repository of the physical world. That is something that we will continue to build greater and greater advantage in, especially in the world of agentic commerce. Your second question on membership and how partnerships will evolve: the way to think about it is that membership experiences and the benefits that live underneath the umbrella of membership programs only matter if they are best-of-breed experiences to customers. This is why you see different customers, for example, choose a variety of different memberships even for the same product. If you take streaming, for example, some people prefer shows of a certain format on one network, whereas others prefer shows of a different format on a different network, and that is why they end up having multiple membership programs. There are so many examples of this where being best of breed is ultimately what customers care about and why they will choose to adopt or not adopt your program. As you saw in some of the results that we discussed—record engagement in DashPass as well as our other membership programs around the world—what we are doing is building the best-of-breed product experience when it comes to eating, and increasingly in shopping as we go outside of the restaurant category. There is a long way to go. There are 20 to 25 occasions for eating alone every single week, so over 100 every single month. If you add in shopping, it is even higher than that, and on that combined sum, we are a tiny fraction of what is available and addressable, which means there is a large runway and opportunity for us to become even better in breed in terms of what we can offer. If we can keep doing that, I think we are going to be just fine. You see it in our numbers. You see it in our growth rates both in the US and outside of the US. We are gaining share virtually in every single market, and we are growing at near historical highs in pretty much all of our geographies. I think that is happening even at the scale that we have developed over the last few years because we are continuing to build the best-in-breed experiences in categories that have a very large runway for growth. Shweta Khajuria: That was great. Thank you, Tony. Operator: Your next question comes from the line of Michael Morton with MoffettNathanson. Your line is open. Please go ahead. Michael Morton: Good evening. Thank you for the question. One for Tony and then a quick one for Ravi. Kind of following up on what you were just speaking about, Tony—AI and partnerships. As the AI platforms become more capable, there is a concern from investors that personal agents could layer themselves in between the on-demand marketplaces and the consumer. I would love to know DoorDash, Inc.’s long-term strategic view on this, and if there is a risk to your business of becoming an API or logistics offering to these, and why or why not you would want to work with one of these third-party AI platforms. Then the quick one for Ravi: as you have been operating Dot for a bit now in some cities, are you willing to share any learnings about what percentage of the US delivery market you think is addressable for AVs, and then maybe thoughts on how to incentivize consumers to come out and meet the Dot, or where the opportunity costs are around cost to serve with AV? Thank you so much. Tony Xu: Yeah. Hey, Michael. I will start on your question related to agentic commerce and agents and whether or not there is any intermediation or disintermediation risk. I think what is instructive here is what we have seen historically with top-of-funnel programs. For at least a decade, you can argue companies like Google or Apple, and many other large platforms, were top-of-funnel drivers to a lot of different commerce platforms, ours included. Take, for example, Google food ordering, which allowed you to order through various Google channels—Google Maps, Google Search, and I believe a few others—where you could order restaurant delivery. That started in the mid-2010s and went for about eight years before they shut it down. From a traffic perspective, they absolutely could drive a lot more traffic than virtually anyone else could to any one of these restaurants. Yet the retention of that traffic was a fraction of what platforms like DoorDash, Inc. saw, and as a result, customers effectively moved all of their shopping experiences to DoorDash, Inc. I would argue something similar happened with Amazon where, perhaps at the beginning of the 2010s, Amazon was not a leading player in the product search category, but by the end of the 2010s, Amazon ended up owning a significant percentage of all product search terms related to commerce. You may ask why that happened and what lessons we can learn from history to instruct what is happening in this moment and in the years to come. What I would say is customers ultimately do not care about any top of funnel—DoorDash, Inc. included—or any of these agents. What they care about is whether they got the order they wanted, the item they were actually looking for, and whether they got it in the best possible experience in terms of price, speed, timeliness, and accuracy. Obviously, if something were to go wrong, was it fixed appropriately and quickly? When I look at it from the customer’s perspective, they are going to ultimately judge us on the best end-to-end experience. That is what we are focused on maniacally at DoorDash, Inc.—not just building agentic ordering experiences on DoorDash, Inc. to make discovery or search easier, but also building a catalog, a digital catalog of structured information for the physical world: collecting where every banana sits or every ripe or unripe avocado, to every size shoe in whatever color and style a customer is looking for. All of that information about the physical world—of which there are billions of items, tens of millions per city—and getting that annotated and having that unique and proprietary to DoorDash, Inc., which we do not have to share with anybody. If we can do that and improve our discovery experience over time, given the power of some of these agentic tools, I think we are going to be the best end-to-end shopping experience. Ultimately, that is how we are going to get judged. I think that is the reason why, for instance, even our restaurant delivery business, which is the oldest of the areas in which we operate, continues to grow at above historical highs, because we are constantly trying to build the best end-to-end experience and be best of breed in doing so. It does not mean we are perfect. We have a long way to go, and it is not a guarantee that we are going to be able to get there. But if we can keep executing like we have, I think the numbers will continue to speak for themselves. These top-of-funnel players will be partners of ours. They will drive a small percentage of our traffic, and a lot of that will be a choice that we will have. Ravi Inukonda: Hey, Michael. On your second point around Dot, we are very happy with the progress that we are making. Maybe I will talk a little bit about the vision. The vision for us is we are building autonomous delivery because, ultimately, we think different formats are needed for different types of delivery. That is how we build the most efficient network. We are happy to partner with others, and we are happy to build ourselves. I think there are going to be different formats both on land as well as in the air that we are working on. We are early on this journey. We are scaling. What we are trying to do is operate at scale, manufacture at scale. That is going to be important for us. We have seen good results. We have launched it in a couple of markets. Adding it down to the end customer benefit—because I think that was one part of your question—it is going to be a combination of the key things that we focus on. It is going to help us with speed. It is going to help us with quality. It is going to potentially help us with overall range of delivery. The key is the work that we are doing is starting to look good. We are early in our journey, and the overall progress we are making is going really well according to the plans that we made at the beginning of the year. Tony Xu: One thing, Michael, I will add to the autonomy story that sometimes is harder to see from the outside is that there is a pretty big difference between just shipping a vehicle or having a vehicle ready for a demonstration and a vehicle that can really operate at scale under any condition and is really battle-tested. It is kind of like saying, I can shoot a three-point shot, and so can Steph Curry, but one of us is the greatest shooter of all time, and one of us maybe hits it once in a while. This year for us, it is really climbing that curve for the autonomy program and making sure that we can harden our systems. It is not just the autonomy. It is the autonomy, the hardware, the remote operations, all the work around regulatory with the different cities so that we can do this at scale and truly be the best of breed. I believe the only way you can really do that is if you actually get in there and do all of the things yourself. That is what is happening this year with DoorDash, Inc. and also our broader autonomy program. Operator: Your next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open. Please go ahead. Eric Sheridan: Great. Thank you so much for taking the questions. As we get deeper into 2026, any updated views around either the depth or the duration of some of the strategic investments, especially in the platform, that you talked about over the last couple of earnings calls? More importantly, any updated views on how the tech replatforming might position you for different forms of innovation than you envisioned six plus months ago? Thanks so much. Ravi Inukonda: Sure, Eric. I will start, and Tony can feel free to add anything. We talked about two calls ago that we are investing $100 million back into the platform. Obviously, the largest component of that is our global tech infrastructure stack. It is going well. The biggest component is being able to design and map all the domains, which is what the team has done over the last several quarters. That part is done. Now we are focused on execution. We are starting to see production traffic go through. We are already starting to see some early benefits come through. On the cost side, which I think was the second part of your question, my view on the overall quantum of dollars that we are investing behind this has stayed the same. It is largely in line with what I had expected two quarters ago. Both the program from an execution perspective as well as a cost perspective is going well. Finally, to your point around benefits, ultimately, the benefit is going to accrue in terms of us being able to do more, us being able to release features earlier. The feature development velocity is going to improve, which will ultimately result in retention, frequency, and unit economics increasing. That was the goal for this. We are starting to see benefits, and I feel good about where the trajectory of the overall program is. Tony Xu: The two things around your second part of your question, Eric, that I would add to what Ravi said about innovation are, one, velocity and, two, quality. Velocity increases for the simple fact that instead of shipping one feature—which, if we were to do it today, we would have to ship three separate times across DoorDash, Inc., Bolt, and Deliveroo—we would only have to do that once. That is the velocity comment. The second point is around the quality in which we can see benefits. By choosing to build a new tech stack versus just replatforming a couple of different brands into the same tech stack that we currently have, you get to take the best-of-breed experiences from different brands and products and put them into a new product that all three get the benefit from. For example, one of the things that we have learned is that there are different logistics challenges in places like London or cities in Europe that are a lot smaller, tighter, and not always perfectly gridded like some cities in the United States or other parts of the world—perhaps older cities historically—not really meant for driving under any circumstance. You need different logistics approaches, and we can borrow and take the best of what we are seeing from European operations and bring those over here to the US. In the US, because we have larger physical geographies that travel longer distances and perhaps a greater retail network with a larger catalog of items, those are advances that we get to port over to Europe. That is what I mean by quality. I am pretty excited that we are on track, which is great news when you are taking on a project as large and ambitious as the one we are thinking about. We are already seeing some velocity and quality wins across all of the brands, and I think there will be a lot more to come as we actually roll this out. Ravi Inukonda: Great. Thank you. Operator: Your next question comes from the line of Youssef Squali with Truist. Your line is open. Please go ahead. Youssef Squali: Excellent. Thank you so much. Hi, guys. Maybe just following up on the prior question and looking at it more from a competitive lens. Can you talk a little bit about what you are seeing in Europe, particularly Northern Europe, with Uber becoming a little more aggressive? There is a line of thinking that maybe as you guys are going through your replatforming, it may make you potentially a little more vulnerable to competition. So maybe if you can comment on that. And then, Ravi, thank you for quantifying the support to drivers. In Q2, I think you said $50 million. Obviously, we do not know how long this thing is going to last, but is $50 million a good run rate to assume for the rest of the year, just assuming status quo on the macro environment? Thank you. Tony Xu: I can take the first question, which is around our competitive position in Europe. We have never been stronger in Europe. Deliveroo is seeing the highest growth rate it has in the past four years, and it has been reaccelerating in growth each of the months in which we have been operating it. Bolt is seeing the highest share performance in each one of the countries in which we operate. Those are outcome metrics, and candidly, they are not things that I stare at all the time. I am looking at what improvements we are actually shipping for our different audiences. If we are seeing logistics improvements, how is that translating into lower wait times at different stores, higher accuracy of picking, or faster delivery? If we can continue executing the way that we have, I think the share performance and reaccelerated growth is only going to continue. It goes to the DoorDash, Inc. story: how do you build what is best of breed? If you continue building what is best of breed, customers will continue voting with their wallets, and they are voting DoorDash, Inc. Ravi Inukonda: Hey, Youssef. On the first one, I will question your premise because if you look at the underlying consumer input metrics—whether it is users, order frequency, we talk a lot about subscription in the press release—we are seeing accelerated growth in subscription. Users are growing. We are gaining share in the majority of the markets that we are operating in. The other thing I would offer is if you actually look at the overall MAU growth in the industry, the majority of that is being driven by DoorDash, Inc. That should tell you the business is doing really well, both from a demand as well as an underlying improvement in customer metrics perspective. Your second point around the impact from a gas rewards perspective: roughly, the impact of that is about $50 million in Q2. We did have to find offsets in the business. We will push out some investments from the first half into the second half. Our goal is to make those investments in the second half of the year. On whether we are going to extend it, we have not made any decision. We will monitor the situation closely and do what is right for the business. That said, my broader view on EBITDA for the full year has not changed. The last couple of quarters, I talked about the fact that I expect overall EBITDA margins for 2026 to be slightly higher compared to 2025, excluding RUE, and RUE to produce roughly about $200 million of EBITDA. That view has remained very consistent. If we do decide to extend the gas rewards program, we will find offsets in other parts of the business in order to make sure we still feel good from a top line as well as a bottom line perspective. Youssef Squali: That is very clear. Thank you, Doug. Operator: Your next question comes from the line of Nikhil Devnani with Bernstein. Your line is open. Please go ahead. Nikhil Devnani: There. Thanks for taking the question. Tony, in a world with AI workloads and a more productive workforce, is your mental model for headcount growth and even organizational structure for DoorDash, Inc. changing at all? Tony Xu: Yeah, it is a really good question. In short, the answer is yes. The longer answer is we are trying to figure out what that really looks like because we are seeing a lot of productivity gains right now from AI. Well north of half of our code—probably closer to two-thirds of our code—is written by AI today. But that alone does not articulate how workflows and team setups ought to change. It means that we are being more productive and shipping more code, but the ultimate question I have is, are we actually delivering better outcomes for customers? At the end of the day, that is the only thing that really matters. We are in that period where we are seeing productivity gains and trying to figure out how those translate to what team setup should look like. The top priority for us right now is getting all teams onto a single tech stack. The second priority is making sure that everyone in the company—not just engineers—is as AI-capable as anyone else. Then we can start thinking about what workflows have to change to truly deliver things faster. Right now, we are delivering features faster—delivering sets, projects, and components faster—but I think the customer holds us to a higher bar: can you actually deliver outcomes much faster? That is a tricky question that all companies, ourselves included, are wrestling with right now, and we will figure it out. Ravi Inukonda: Hey, Nikhil. Very similar to what Tony talked about, we are using it across the board and seeing productivity improvements. The goal for us from a productivity improvement perspective is as it has always been: we want to do more with more. We want to drive more features. We want to do more for our audiences, and we want to do more internally as well. Ultimately, we channel productivity improvement into developing more features. If it is purely from a modeling perspective, I would expect, in the near term, OpEx to roughly be in the 2% range that I have talked about before. We are being very judicious and disciplined. The goal is to generate leverage on it, just like any other part of the P&L over time. Nikhil Devnani: That is helpful. Thanks. And, Ravi, if I could just follow up on the order growth dynamics in Q1 as well. Could you elaborate a bit on the deceleration there? Is that just weather, or are there other things you want to call out? How are you thinking about that as you think about the Q2 guidance you have given for GOV? Thank you. Ravi Inukonda: The question broadly is around consumer demand on the platform. Demand continues to be quite strong. The impact purely from a winter storm perspective is roughly about 1% on a year-over-year growth basis from a GOV standpoint. When I look at the underlying demand, it continues to be very good. We have talked about MAUs reaching an all-time high. Order frequency is growing. Subscription had a record quarter across the board—across DoorDash, Inc., Deliveroo, as well as Vault. What we are seeing is member growth has accelerated on a year-over-year basis, following the last few quarters where member growth has been quite healthy. We are seeing that from sign-up as well as overall retention. We are gaining share. New verticals are continuing to do well. We were volume share leaders in Q4, and we have continued to extend that. Across international, we touched on Deliveroo acceleration, and the rest of the international portfolio is also growing. Scooter is off to a good start. We feel good about the demand patterns that we are seeing in the business. Nikhil Devnani: Thank you. Operator: Your next question comes from the line of Deepak Mathivanan with Cantor Fitzgerald. Your line is open. Please go ahead. Deepak Mathivanan: Great. Thanks for taking the question. Tony, on groceries, in the last few months, you have got a lot of new partners. Can you talk about the trends in the business broadly—maybe in terms of penetration, how use cases have evolved, potentially some color on growth, and maybe also where the unit economics have seen the biggest gains? And then similarly, Dasher Fulfillment Service is also another big area of focus this year. Where does it currently stand, and where do you want the service to get to ultimately before it starts becoming another incremental key growth driver? Thank you so much. Tony Xu: Those are related questions, so I will start with where grocery is at today. It is pretty much at record highs for us. We became the share leaders by volume last fall or last winter, and it has continued to go in one direction. There is a lot of activity in the field. You are right, in part, because we have added a lot of grocers, and we like the trajectory of the pace we are at. We are also improving the service experience. It is not just adding more selection. I always ask myself, why is grocery not a lot bigger? Why should it not be even bigger than restaurants? It is because the online delivery experience is just not yet good enough compared to the offline experience of buying it for yourself. We are really closing that gap, and the team deserves a ton of credit for making us a lot more accurate, more affordable, making basket building a lot easier, making customer support better, making the experience easier for shoppers—literally tens of thousands of little things over the last six or seven years that are accumulating. But there are still reasons why, over time, if you truly want to marry the best possible selection—which is every store inside your neighborhood—with the best possible quality—which means you get exactly the item you order without any substitutions or changes and certainly no out-of-stocks or canceled items or orders—I think you do have to work the fulfillment problem, which is where Dasher or Dasher Fulfillment Services comes in. There, we are trying to build an inventory management and fulfillment setup with all of the grocers and retail partners that we work with. If we can do that, then finally you can unlock what is truly a magical experience where it is more similar to restaurant delivery where, yes, there might be a small premium you pay, but at least you get exactly what you ordered, which is not the experience today. In terms of where Dasher Fulfillment Services is, we are doing it with a handful of grocery and retail partners today. If you think about that journey, we are trying to work with grocers and retailers who, for decades now, are used to running their supply chain and their stores in one particular way. Now we are introducing a second way, and there are a lot of things to figure out in terms of technology, people processes, the interaction of business models, and everything in between. We see good results with a handful of partners, but in the spirit of all things at DoorDash, Inc., we really want to make sure we nail the experience before we scale it because this is quite disruptive in a positive way to the customer experience and also disruptive to how retailers are used to working and running their businesses for so many decades. We have to make sure that we get it fully right end to end. Then we can replicate the playbook. Ravi Inukonda: Deepak, on the unit economics side, we made a lot of good progress. Last call, I made the point that we expect the overall new vertical to be gross profit positive in the second half. We are trending well towards that. We have not been worried about what the profitability profile of this business looks like. It is something we understand quite well and what we need to do. It is not that there is any structural change we need to make happen. It is just continued execution on a number of lines up and down the P&L. What we are truly focused on is how we scale the business. In Q4, we talked about the fact that about 30% of our monthly active users order from categories outside of restaurants. We truly think that could be 100% over time, and that is going to come with a lot of improvements in selection, quality, and the underlying product. Looking at consumer metrics, order frequency is improving. Basket sizes for mature cohorts are continuing to improve, which means people are using us for more use cases. Over time, the underlying order rate also continues to improve. These are all good signs, which drive both growth and improvement in scale, which will ultimately drive the unit economics in the business as well. Deepak Mathivanan: Great. Thank you so much. Operator: Your next question comes from the line of Josh Beck with Raymond James. Your line is open. Please go ahead. Josh Beck: Yeah, thank you so much for taking the question. Maybe more on the cost side. Ravi, you mentioned the $50 million gross cost as you look to find relief for those investments. What are some of the big topics that you are looking to uncover there? And then, going to some of your points on new verticals, certainly a very nice watermark to achieve gross profit breakeven. To get to the next milestone, what are going to be some of the really important elements? Generically, it seems like within new verticals, advertising is a bit more of a weighting factor there. Just curious how to think about some of the important drivers beyond scaling into the second half. Ravi Inukonda: Hey, Josh. I will take the first one. Tony, why do you not take the second one? On cost and gas rewards impact on the model for the rest of the year: in Q1, we had the impact from both winter storms as well as the introduction of gas rewards. In Q2, we did extend the gas rewards program. The rough impact in Q1 was about $50 million. The projection for the impact in Q2 is also going to be about $50 million. Like I said earlier, we did find offsets in the business. It is a very dynamically managed business. We take our plans very seriously. We look at input metrics to make sure we are doing the right investments. We did have to push out some investments in H1 in order to make room for this. We are fully convicted that we are going to make these investments in the second half of the year. If we do decide to extend the program, our goal is to find offsets like we did in H1. My view on the full-year EBITDA has not changed. We have said a couple of quarters ago that overall 2026 EBITDA margin is going to be slightly higher compared to 2025, excluding room. That view still stands. I would expect second-half EBITDA to be higher than first half, and second-half EBITDA margins to be higher than the first half, largely similar to what I had expected at the beginning of the year. Overall, we look pretty good from a bottom-line perspective for the rest of the year, and demand on the platform continues to be strong as well. Tony Xu: With respect to your second question about what else we need to do to achieve higher levels of profitability within grocery, the short answer is more of the same. We are not trying to rely on any one source of revenue, like ads, to make grocery profitable. We do not need to. We believe we have created a lower cost structure that allows us to make delivery profitable, but it is just not good enough yet. From the perspective of the customer—not our P&L—we still need to be more accurate. We still need to have more items available, even from existing stores, and we need to do it at better and better price points. If we keep doing that, you already see it in our cohort behavior. It is not true across the whole business because we are still gaining a lot of new customers— in fact, we gained about one in every two new customers that comes into the industry for grocery delivery for the first time—but cohorts over time buy bigger and bigger baskets and achieve profitability milestones without any unnatural or overreliance on any one cost or revenue driver. That tells me that, at current course and speed, it will get there. The question is how to get there faster, but perhaps most importantly, how to actually unlock a much bigger industry. Grocery delivery fundamentally should be as large, if not larger than, restaurant delivery. It is just that the product is not good enough yet. We already are leading, from what we have been told by some of the top grocers in the country, in terms of quality, but we still think there are miles to go. Perhaps we brought some innovations to the market, but we think that we have to keep innovating on all things accuracy and price points, and we have some interesting ideas on how to do that. We do not have to do anything unnatural or rely at all on any single line item to make the math work. Josh Beck: Super helpful. Thanks, guys. Operator: Your next question comes from the line of Brian Nowak with Morgan Stanley. Your line is open. Please go ahead. Brian Nowak: Thanks for taking my questions, guys. I have two. The first one, Tony, in the letter you talk about making some new tools that help designers streamline the merchant onboarding process. Can you talk to us about areas you have made the most progress in bringing on new merchants and more inventory per merchant, and what are some of the technological advancements you are still looking to make to really make that easier to get more of those bananas and avocados that you talked about earlier—and even carving knives? And then, Ravi, one for you on the replatforming. You say that you have live production traffic ramping up across all three of the global marketplace brands. Does that mean that you are running all three tech stacks now, so we are burdening the P&L with the max cost, and then we should start to turn some of those off in the back half? Or how does this triple-platforming-down-to-one-platforming timeline work? Tony Xu: I will take the first one, Brian. We continue to ship a lot of different tools to make it easier to work with us, for customers to find what they are looking for, and for Dashers to perform deliveries. On the specific question with respect to the merchant tool, where I have found AI to be helpful—especially now with more powerful models that can reason in a multi-turn fashion—is that you can start looking at repetitive processes that are stitched together and actually get them done with perfect quality every single time, using just an agent. Even six to eight months ago, this was less true because you had to build a lot of backup or redundant systems to make sure agents do not go off the rails and can actually finish the task. That has happened with onboarding, for example—whether it is helping you with your menu or your catalog as a restaurant or retailer, or with your photos and your metadata and the annotation of that data. All of these are effectively repetitive tasks in which you can create agents and stitch them together to do that in a really productive way. With all things, the removal of friction increases activity, and increased activity increases the business that we get to do together. We are already seeing benefits to the P&L from some of the AI work that we are doing—some of it on our own products, like the AI ordering agent, and some on tools related to merchants, customer support, and Dashers. With respect to things we still have to do—capturing all the inventory inside a city—we are still just a tiny fraction of all items sold or even represented today on DoorDash, Inc. That is becoming more interesting as some of those items are also different when it is an in-store shopping experience. Some restaurants, for example, offer different in-store products and experiences and services that they do not offer for takeaway or in the offline world. There is a lot we have to document. The second thing we have to do is build structure and cleanliness out of what is inherently very messy and constantly changing, which is a challenge. If we can do both across every category as we march from restaurants to grocery to different categories within retail—and do that through the merchant’s channel online, the DoorDash, Inc. channel online, and the merchant’s channel offline or in-store—I think that builds a really rich dataset that is nonexistent anywhere, extremely valuable for the merchant to have a full view of all the different types of customers and occasions, and really interesting for DoorDash, Inc. to build both products as well as businesses. Ravi Inukonda: Hey, Brian. On your second question around the global tech side, two broad points, then the mechanics. The team has done an incredible job. This is a massive project. It is going according to plan. I am really happy with the progress. Even on the cost side, my view on the overall cost is very similar to what I talked about two quarters ago. So both on progress and cost, I feel very good. On the mechanics of the P&L, there is a portion of the spend which is redundant in the sense that we are going to run all three tech stacks in parallel while we are working on the new global tech stack. That is going to phase in and phase out. My expectation is the majority of that will run through 2026. Maybe some portion will bleed into early 2027, and then it will bleed out. Hopefully, that gives you the mechanics of how the rest of the P&L is going to work for the year. Brian Nowak: Thank you both. Operator: Your next question comes from the line of Justin Patterson with KeyBanc. Your line is open. Please go ahead. Justin Patterson: Great. Thank you very much. Good afternoon. I saw you recently launched workplace catering for DoorDash for Business. Can you talk more about how you are thinking about that opportunity and what you see as some of the key challenges toward scaling this? Thank you. Tony Xu: DoorDash for Business is off to a very great start, and it is something we really recently focused on in the last few years. DoorDash for Business is a suite of products—there are three. You talked about one of them, which is catering. There is also Meal Manager, and corporate solutions related to DashPass and group ordering. The idea is, if you are a company or an organization—it could be a nonprofit, a government institution, or a school—and you are serving multiple different use cases, sometimes it is a group meeting with just a few of us, sometimes you are hosting an event in which you need catering, sometimes you need individual meals as your sales teams travel to do different things or client demos. You are going to want to work with one place ideally where you can see everything in one view and offer your organization the best-in-breed selection, price, and quality. Because we offer what we believe is the best of breed in price, selection, quality, and service, DoorDash for Business is naturally growing very quickly. The biggest challenge, especially with catering, is solving the perennial hard problem of cooking for a large group of people. It sounds simple, but if you think about cooking for yourself and then adding guests, that logistics problem gets exponentially more difficult as you increase the count of guests. The challenges are numerous: kitchen capacity, menu design, staffing, logistics, operations. We have to do all of that. To truly create the industry—because the industry by itself is somewhat limited since not every restaurant is built as a manufacturing facility to cook up to the needs of a larger organization or team—it is really working hand in hand with merchants and Dashers to co-create that solution and hopefully create a very large industry. Operator: Your next question comes from the line of Lloyd Walmsley with Mizuho. Line is open. Please go ahead. Lloyd Walmsley: Thank you. Wondering if you can give us an update on what you are seeing in the ads business on a 1P basis and syndicating ads outside of Dash. And then, second one, Tony—earlier you talked about miles to go in terms of improving the user experience in grocery. Can you elaborate on some of the things you are doing—have you found any big unlocks or anticipate any big unlocks—to drive a step-function improvement in the grocery experience that can help you penetrate deeper with your customers? Thanks. Tony Xu: Sure. Maybe I can take both and feel free to add, Ravi. On the ads question, it has never gone better for us. Ads are at a record high and continue to grow extremely fast compared to any previous year. The continued strong trajectory comes from the team cracking the code not just in solving problems for SMBs—restaurants or retailers—but also larger advertisers, both in the restaurant world as well as in retail. Another unlock has been cracking the code on CPG advertisers. There is no one thing; it is a relentless checklist of making the product a lot better for advertisers and delivering on two competing objectives. One, you have to deliver the best return on ad spend for advertisers, which we do. Two, you have to deliver the best consumer experience where you do not spam people. We have a much lower ad load than some other platforms, and the teams have been working really hard to balance those two objectives. Beyond scaling some of the unlocks in ads, we are also discovering some off-site opportunities you mentioned, which include in-store activities in addition to our work buying on behalf of advertisers off of DoorDash, Inc. I think there is a very large runway for the ads business. On grocery, we have been at it for about five years now. I am, on the one hand, super proud of the team—becoming the volume leader where consumers shop as well as where new consumers find out about grocery delivery for the first time. On the other hand, I do stand by the statement that we have miles to go to build an experience that can outcompete you going into a grocery store and buying items yourself. That is still the winning product if you look at the data. That does not mean we are not growing extremely fast, making a lot of improvements, gaining share, and improving profitability while we do it. There is a lot of work to do. A lot of it has to do with continuing to build a cost structure that allows you to offer items at around the same price as in-store and delivering with perfect quality. The hardest problem to solve in grocery is that, because consumers—when we go into grocery stores—move items around, and because of how supply chains, inventory systems, and payment systems do not necessarily always talk to each other, and how grocery stores are run and were built historically and as they have moved into e-commerce, it is really hard for them to know where things are. That is still the fundamental problem to solve. We have done lots of things already in that space that we have pioneered and are proud of. There is a long way to go in scaling that work to all the stores we work with, not just the ones in which we have tested. We also have to do the next hill climb to achieve perfect quality at the prices you would expect, for every single item, every single time. Ravi Inukonda: And, Lloyd, on your first question on ads, if you are thinking about it from a flow-through perspective, it is growing and having an impact from a margin and profitability perspective. But the way we think about it is very similar to the rest of the business. An ad dollar is very similar to improvements we generate from unit economics. Ultimately, our goal as operators is to find opportunities to reinvest that back in the business to drive long-term free cash flow production. That is largely what we are doing with advertising or other efficiency that we generate in the business. Lloyd Walmsley: Alright. Thank you. Operator: Your next question comes from the line of Justin Post with Bank of America. Your line is open. Please go ahead. Justin Post: Great. Thank you. I just want to follow up on advertising. How do you think about integrating that with agentic capabilities on your own platform? And is there any way you could generate ad revenues on agentic platforms on other platforms? Thank you. Tony Xu: I will take that. Ads are just a means to connect consumers with merchants who are hoping to be discovered and making sure that you do that in the best possible way. With respect to agentic commerce, that is just one way of shopping. I do not think it will change our ability to advertise. It may increase some of the in-surface areas, but I think a lot of that remains to be seen. I do not think the ideal agentic shopping experience is just going to be a chat assistant. I think it is going to take on various forms, and we are iterating on that. With respect to what happens with ads on third-party agentic sites, I think you will have to ask them. Justin Post: Great. Thank you. Operator: And this concludes today’s Q&A session. This also concludes today’s call. Thank you for attending. You may now disconnect. Unknown Speaker: Goodbye.
Operator: Good morning. Welcome to Establishment Labs First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, today's call is being recorded. I will now turn the call over to Malavika William, Global Head of Corporate Communications and Marketing. Please go ahead. Malavika William: Thank you, operator, and thank you, everyone, for joining us. With me today is Peter Caldini, our Chief Executive Officer; and Sandra Harris, our Chief Financial Officer. Following our prepared remarks, we'll take your questions. Before we begin, I would like to remind you that comments made by management during this call will include forward-looking statements within the meaning of federal securities law. These include statements of Establishment Labs' financial outlook and the company's plans and timing for product development and sales. These forward-looking statements are based on management's current expectations and involve risks and uncertainties. For a discussion of the principal risk factors and uncertainties that may affect our performance or cause actual results to differ materially from these statements, I encourage you to review our most recent annual and quarterly reports on Form 10-K and Form 10-Q as well as other SEC filings, which are available on our website at establishmentlabs.com. I'd also like to remind you that our comments may include certain non-GAAP financial measures with respect to our performance, including, but not limited to, sales results, which can be stated on a constant currency basis or EBITDA, which we disclose on an adjusted EBITDA basis. Reconciliations to comparable GAAP financial measures for non-GAAP measures, if available, may be found in today's press release, which is available on our website. The content of this conference call contains time-sensitive information accurate only as of the date of this live broadcast, May 6, 2026. Except as required by law, Establishment Labs undertakes no obligation to revise or otherwise update any statement to reflect events or circumstances after the date of this call. With that, it is my pleasure to turn the call over to Peter. Filippo Caldini: Good morning, and thank you for joining us. Q1 2026 was a strong start to the year with $59.9 million in revenue and adjusted EBITDA of $1.2 million, representing revenue growth of 45% over Q1 2025. The U.S. business continued to outperform with $19.6 million of revenue, a growth of 216% over Q1 2025 and quarter-over-quarter growth of 13.3%. It's worth noting that Q1 is a seasonally light quarter for breast augmentation and reconstruction, so to grow quarter-over-quarter is a testament to the strength and acceleration of our U.S. launch. Outside the U.S., we delivered 15% growth, driven by strong execution on both our direct and distributor markets. Our minimally invasive platform is showing immense promise as well, generating $9.1 million in revenue in Q1. At the same time, we had our third quarter of positive adjusted EBITDA. Our gross margin improved by 350 basis points in Q1 2026 to 70.7%, up from 67.2% in Q1 2025. We refinanced our credit facility and expect to reach cash flow positive in the second half of the year. Our increasing profitability is demonstrating the operational leverage in our business as well as our ability to generate meaningful earnings per share in the coming years. We continue to be conservative as we forecast our business due to the geopolitical landscape as well as our hyper focus on achieving and scaling a cash flowing positive business. As such, we are raising our guidance to $266.5 million to $268.5 million, up from a previous range of $264 million to $266 million. Our confidence comes from the strong start we are having in Q2, we are setting new weekly highs in our U.S. order counts. We expect our growth to continue throughout 2027 as well. As we've mentioned on prior calls, there is a good likelihood we may be included in several indices, beginning with the Russell 2000. As we're seeing increased interest from firms that benchmark to these indices, we thought it would be helpful to provide an overview for those being introduced to our company for the first time. The robust growth we reported this quarter is a reflection of our work since 2011. Establishment Labs is a women's health company focused on transforming breast aesthetics and reconstruction through innovation. Since the moratorium on breast implants in the U.S. was imposed in 1992, this category has seen very little meaningful innovation. And as a result, patient behavior, surgeon adoption and overall market growth has remained relatively static. Establishment Labs was founded on the belief that a deep investment in science could fundamentally improve existing technology and provide better options for women. From the beginning, we reexamined every aspect of the breast implant from surface technology to manufacturing, leveraging advances in material science, biomedical engineering and device design. This work is reflected in a robust intellectual property portfolio with more than 200 patents issued and pending worldwide. In 2015, we brought on Dr. Robert Langer to lead our Scientific Advisory Board. Bob Langer is one of the most accomplished scientists of the 21st century, and his contributions are behind the founding of several prominent companies. His work at MIT continues to impact science at the highest levels. Our partnership resulted in a seminal paper for plastic surgery. Published in Nature Biomedical Engineering in 2021, this paper focused on breast implant surface technologies and highlighted that the 4-micron surface, which was intentionally designed to enhance biocompatibility, consistently demonstrated low inflammation. These results explain how Motiva implants outperformed the category. The U.S. FDA clinical trial matched both our research findings and clinical data from around the world and is quite frankly, game-changing. All these data points show device-related complication rates at new industry lows, including capsular contracture rates of less than 1%. To put this in perspective, the FDA trials for competitive products have device-related complications rates that are upward to 20%. And in some cases, the complication rates far exceed 20%. Perhaps most interesting is our extended global warranty data with over 49,000 warranties sold and only 377 claims submitted, the resulting complication rate is less than 1%. We publish this data annually on our post-market surveillance report and are the only company in the industry that publicly shares this information, which you can find readily available on our company website. Fear of complications are one of the top barriers for patients when considering a breast augmentation. Having a product that has an outstanding safety profile helps to diminish that concern and provides extra peace of mind for both patients and surgeons. Less complications leads to happy patients and more referrals, which is the lifeblood for any plastic surgery practice. The significant technology moat that has been established is enhanced by our R&D pipeline of continuous innovation. Not only do we believe that we can take a substantial majority of breast implant market in time, we also believe we can significantly expand the market from where it is today. That is best evidenced by the launch of our Motiva minimally invasive platform. We have 2 minimally invasive procedures in market right now, Mia and Preserve. A third is currently in development called GEM and is a revolutionary advancement for gluteal augmentation that should offer a safer, more predictable alternative to the Brazilian Butt Lift. Both Mia and Preserve are available outside the United States with a presence in more than 45 markets globally. While Mia is not yet available in the United States, we recently introduced Preserve to the U.S. market. Both are built on tissue-preserving practices, which Establishment Labs has pioneered, and they allow for the use of minimal anesthesia while preserving the patient's native breast tissue, nipple sensation and chest muscles. Mia features the Motiva Ergonomix2 Diamond shaped implant, which has a unique shape that allows for greater projection than a conventional round implant as the shape creates more projection with less volume. It also includes a proprietary shell, which allows insertion through the smallest incision possible within the Motiva portfolio. These characteristics make for a true scarless breast augmentation done by a small incision in the underarm. This procedure is meant for patients looking for a subtle enhancement with 1 to 2 cup size increase. Preserve can feature either the Motiva Ergonomix1 or 2 implants and accommodates both primary breast augmentation and primary breast augmentation mastopexy, offering patients smaller scars tucked under the breast crease and allows for larger sizes to be used. The launch of minimally invasive techniques into any specialty almost always dramatically increases the market. For example, there were approximately 95,000 total knee arthroplasty procedures in 1991. Between 2000 and 2005, minimally invasive knee procedures became the standard. And by 2010, there were approximately 250,000 procedures annually. In 2025 alone, this number rose to approximately 1.3 million, an increase of close to 14x. This kind of growth exists in other major procedure types as well, such as LASIK eye surgery and fat reduction. In the United States, our minimally invasive technologies command a premium over 2x higher than traditional breast augmentation. And if our overseas growth is any indication, we can expect that minimally invasive will create significant market expansion and be a meaningful driver of growth. The value proposition for patients is well defined, smaller scars, minimal anesthesia, preservation of tissue and sensation and a faster recovery, combined with the safety and performance benefits of Motiva. Our initial 3-year study on Mia was published in the Aesthetic Surgery Journal in October 2025 and showed no device-related complications. Like our FDA trial data, this is game-changing. It's clear that this procedure is fundamentally different from what has come before. Many women no longer view this as the traditional breast augmentation they once knew, but rather as a more accessible almost lunchtime procedure where they can return to normal social activities within hours. Women that have never considered breast augmentation before are now getting the procedure, and we are expanding the market. RealSelf, a popular online platform for aesthetic patients, published last week that breast augmentation page views were up 45% from Q4 and that breast implant revision page views were up 89%, indicating that patients' interest in the category is surging. Not only do our patients benefit, our minimal invasive platform also has the potential to increase surgeon productivity, allowing surgeons to run 2 operating rooms, one where the patient is being prepped or the room is being cleaned and the other where the surgeon is operating. We had one plastic surgeon that started surgery at 6:00 a.m. and by 10:30 a.m., he had completed 10 minimal invasive surgeries. Scheduling a minimally invasive procedure day like this can generate more than 2x additional revenue for a practice. The introduction of our minimal invasive platform enhances the Motiva portfolio, creating a clear, good, better, best framework. This allows the plastic surgeon to address a broader range of patient needs across the aesthetics outcomes, lifestyle consideration and price points. This portfolio approach is not just about product breadth, it enables us to expand the category, increase procedure volumes and drive higher value per procedure while giving surgeons the flexibility to tailor their solutions to each patient. Patients are now engaging with surgeons very differently than before. In a category where it was historically very unusual for patients to ask about implant brands, 78% of surgeons now report being asked for a brand by name. And in those cases, 93% of the time, that brand is Motiva. And now just 18 months into our U.S. launch, we are seeing the next step. Patients are not only asking for Motiva, they are actively seeking out surgeons who are trained in minimally invasive procedures. We expect to see a similar dynamic as we enter breast reconstruction in the United States, an opportunity that is equal in size to the breast augmentation market. We submitted Motiva implants to the U.S. FDA for approval in primary and revision breast reconstruction in December 2025 and are currently progressing through the review process. I hope that reintroduction to our business was helpful and that the context explains our success to date. The U.S. remains the most important driver for our growth. Motiva continues to be one of the fastest launches in the history of breast aesthetics, and we continue to expand our footprint, recently surpassing 1,700 accounts. We are seeing increased adoption from higher-volume surgeons who have moved beyond initial evaluation and are now fully committed to Motiva. This is reflected in our order growth, where we have experienced 30% increase in average orders since the end of Q4. We officially launched our minimally invasive platform in the United States in March, and the response has been exceptional. While we initially trained surgeons on Preserve in our campus in Costa Rica, early demand was so strong, we began training in the United States as well. This has allowed us to train surgeons at a much faster rate, and we have now certified more than 260 surgeons in the U.S. For context, our goal was to train 200 surgeons by the end of 2026, and we soared past that number by the end of the first quarter. Those trained have shown a strong intent to purchase, and we have seen relatively quick adoption with the first procedures being performed shortly after training. A surgeon in the Northeast recently shared that he began offering Preserve after being trained and promoted the procedure on social media. He now has 50 Preserve cases scheduled in Q2 at a 30% premium to his traditional breast augmentation price. Another surgeon in Southern California was thrilled that Preserve has completely changed her practice and that she is consistently seeing patients that had previously deferred surgery due to the concerns around anesthesia and recovery. When you remove historic barriers, you bring new patients into the market. A recent Preserve patient who is a Pilates instructor got her procedure done on a Saturday, went to dinner with friends that night and was back teaching Pilates on Monday. This kind of recovery is traditionally unheard of. And for the first time, patients are truly returning to normal activity with a minimal downtime. In a recent survey conducted with 94 Preserve patients, 3 months post-surgery, 98% stated that they experienced minimal disruption to their daily lives with 95% satisfied or extremely satisfied with the results. In addition, 15% of patients said they were new to the category and had not considered breast augmentation until they learned about Preserve. 84% of the Preserve patient survey said they were willing to pay a premium for the benefits of the procedure with 99% saying that they would choose this procedure again. Outside the United States, our business continues to perform well. We delivered approximately 15% growth with strong performance across our direct markets, which continues to be a major focus area for us. Our minimally invasive platform continues to be a key driver for growth globally. It is interesting that surgeons generally view the 2 procedures as complements to each other and all Mia accounts are offering Preserve, showcasing the value of a minimally invasive portfolio approach that provides patients options to meet their aesthetic goals. Preserve continues to attract surgeons to the overall Motiva portfolio. In our OUS markets, we are seeing strong growth across European direct markets, including the U.K., Germany, Nordics and our newly acquired Benelux affiliate. Continued stabilization in Latin America with solid performance in Argentina due to the adoption of the Motiva minimally invasive platform as well as steady demand across all our distributor markets. Our exposure to the Middle East remains less than 5% of total revenue, limiting risk from regional volatility. In our U.S. and OUS markets, we expect growth to continue to accelerate into 2027. We also expect to continue the innovation pipeline by expansion in breast reconstruction in the United States, which effectively doubles our addressable market, gaining CE Mark for Zen temperature, marking our entrance into biosensing capabilities, introducing smaller sizes to our U.S. product matrix and thus expanding our reach within existing accounts, continue to develop our pipeline, including GEM, our glue augmentation solution. We also plan to submit for Health Canada medical device license for expansion in the Canadian market. As part of our overall strategy, we are taking steps to secure our future growth. This includes our signed agreement with Oaktree that refinances our debt and enhances our financial flexibility. And finally, we are in active conversations with NuSil, our silicone supplier as we both look to establish a long-term agreement. We've had strong working relationship with NuSil for the last 15 years, and our ongoing conversations are very focused on what we can accomplish together as partners. I will now turn the call over to Sandra. Cassandra Harris: Thank you, Peter. We delivered an exceptional start to 2026 with nearly 45% revenue growth, gross margin expansion over 70% and our third consecutive quarter of positive adjusted EBITDA, demonstrating the strength, scalability and operating leverage of our business. Total revenue for the first quarter was $59.9 million, an increase of 44.7% from Q1 2025. Starting with our geographic performance. Our business outside the United States remains the largest contributor to revenue and continues to perform well. In the first quarter, OUS revenue grew approximately 15% over Q1 2025, driven by strength across our distributor and direct markets with direct markets delivering double-digit growth. Our exposure to the Middle East remains limited at less than 5% of total annual revenue. In the United States, we see strong momentum early in our expansion. U.S. revenue reached $19.6 million in the quarter and now represents 32.7% of total revenue, up from 26.8% in Q4 2025 and higher than the 15% from Q1 of 2025. This growth reflects both continued adoption of Motiva and the March launch of our minimally invasive platform, which is contributing to higher realized price points. Our gross profit for the first quarter was $42.3 million or 70.7% of revenue, a 350 basis point increase compared to 67.2% of revenue in Q1 of 2025. This expansion was primarily driven by the increasing contribution of our higher-margin U.S. business, along with the growing impact of our minimally invasive platform, which carries higher average selling prices and margins. SG&A expenses increased $3.9 million to $43.6 million compared to $39.7 million in the first quarter of 2025. The increase was primarily driven by variable costs associated with higher sales, including freight as well as the impact of foreign exchange with continued investment in the U.S. business. Excluding a one-time item, adjusted SG&A was $41 million or 68.4% of revenue, representing approximately 50 basis points of leverage versus the prior year as we began to scale the business. R&D expenses for the first quarter were $5.2 million, consistent with prior quarters. Adjusted EBITDA was positive $1.2 million in the first quarter compared to a loss of $12.1 million in the first quarter of last year. This is our third consecutive quarter of positive adjusted EBITDA. During the quarter, cash decreased $7.5 million to $68.1 million from December 31, 2025. The decrease was primarily driven by investments in the U.S. market. We recently completed a refinancing of our debt, which enhances our financial flexibility, improves our liquidity profile and introduces PIK interest that supports our path to cash flow generation. We have enough cash on hand to reach cash flow positive and have no needs or plans to do any type of equity financing. Following our strong performance in the first quarter, we are increasing our full year revenue guidance to $266.5 million to $268.5 million, up from our prior range of $264 million to $266 million. This represents growth of approximately 26% to 27% over 2025. We expect our OUS business to grow in the single digits, while the U.S. is expected to exceed 30% of total revenue for the year, up from approximately 22% last year. At $9.1 million in the quarter, our minimally invasive business is above expectations, and we now expect to exceed $35 million in 2026, up from the $30 million we guided to in February. We expect gross margins in the range of 71.2% to 72.2% for the full year. Operating expenses are expected to remain between $195 million and $200 million, with some variability in quarterly spending based on timing. We also expect to be adjusted EBITDA positive in each quarter of 2026. As it relates to cash flow, we are on track to achieve cash flow positive in the second half of the year, driven by improved profitability and greater working capital efficiency. In the near term, we expect higher cash usage in the second quarter compared to the first quarter, primarily due to the final $4.7 million payment related to the Benelux acquisition, the normal timing of the short-term incentive payouts and continued investment to support the U.S. commercial expansion, partially offset by $6 million of proceeds from our recent debt refinancing. We expect cash performance to improve meaningfully in the third and fourth quarters, supported by increased profitability and the benefit of PIK interest of more than $5 million per quarter. Historically, Q2 and Q4 are the strongest quarters in the industry with Q4 being the largest, while Q3 is typically softer due to summer seasonality. Operating expenses will be elevated in Q2 as we continue to invest in the U.S. business. Despite this, we expect Q2 EBITDA to be approximately double that of Q1, reflecting the underlying operating leverage in the business. With respect to index inclusion, April 30th marked the Russell reconstitution rank date. And based on our current market capitalization, we believe we are well positioned to qualify for inclusion in the Russell indices with final membership to be confirmed in the coming months. With that, I'll turn the call back to Peter. Filippo Caldini: Thank you, Sandra. As you think about our business, we hope we get a chance to interact with you at one of our many events we attend throughout the year. If you're interested in learning more, we selectively invite investors to visit us in Costa Rica at our innovation campus alongside our U.S. plastic surgeon delegations. Investors have found this trip very useful in validating our business and the overall opportunity. We are also hosting a small dinner in Boston around The Aesthetic MEET Plastic Surgery Conference from May 14 to May 17. If you're interested in either of these, please reach out as space is limited. I appreciate you taking the time to listen, and I hope to see you on the next call soon. Operator, we're ready to take questions. Operator: [Operator Instructions] Our first question comes from Anthony Petrone of Mizuho Group. Anthony Petrone: Congratulations, Pete, Sandra and to the team on a strong start to the year here. Maybe the U.S. momentum here, it looks like an inflection and you have really almost 2 simultaneous launches, if you will, ongoing. It's the U.S. Motiva platform in and of itself. There's still a push into new accounts. And then, of course, we have the Preserve launch. So maybe how much was just new accounts bringing in Motiva as a platform versus the Preserve go-live counts? I mean, by our estimate, you're probably approaching somewhere between 75 and 100 go-live Preserve accounts. I'll start there, and I'll have a quick follow-up. Filippo Caldini: Yes. Thanks, Anthony. As you highlighted, I mean, the progress in the U.S. has been tremendous. I mean it's exceeded all our expectations. And you see that with all the different metrics that we look at. I mean we've increased the number of accounts. We continue to grow the base Motiva business. And a lot of that is driven and it shouldn't be a surprise. I mean we've come to the market with what we believe to be the best implants from a performance as well as a safety standpoint, and we couple that with a best-in-class organization. So that's really helping to drive that growth. And a lot of that currently is still based off of expanding the Motiva-based Motiva business and getting into more accounts, but we're also driving utilization in the accounts that we're in. And clearly, Preserve is a significant -- will be a significant driver for us in the future. I mean, it's not a surprise as well. I mean, there's very clear patient benefits with minimal anesthesia, with smaller scars, quicker recovery. And I think it's creating a lot of interest and excitement from a patient as well as a surgeon standpoint. So we're seeing good growth opportunities just on our base as well as on the Preserve launch. Operator: The next question comes from Josh Jennings of TD Cowen. Joshua Jennings: Great to see the strong start to the year. I wanted to ask about the minimally invasive platform, follow-up to Anthony's question and clearly gaining more and more traction. I'd love to just hear you build out more, Peter, on just how Preserve is not cannibalizing the Motiva business or Motiva cases, but it's actually incremental to kind of the traditional augmentation patient. And then maybe do the same for Preserve and Mia, and just help us understand how they may be complementary and how the Preserve launch internationally may be even boosting Mia traction as well. And if you could tie it all into just -- it sounds like you're optimistic that the breast implant market globally, especially in the United States can actually see stronger growth here in the coming quarters, years and then how this all ties in. Sorry for the multilayer question, but I appreciate you taking it. Filippo Caldini: Yes. Thanks, Josh. As you highlighted, the minimally invasive platform, we're seeing a lot of very strong growth. When you look at our OUS markets where we have both Mia and Preserve, what we've seen, and we've been very pleased to see this is they operate very complementary. So in all the accounts that we currently have Mia, which is close to 150 accounts, we have Preserve. There's clear distinction between the 2 where Mia is much more of in the premium segment, smaller scars to no scar, it's under the armpit. But it's somewhat restrictive in terms of the number of -- or the type of patients and the type of surgeons that would use that. While Preserve is much more day-to-day and it's a premium versus our base, but it's less lower priced than Mia. So they work very complementary. What we've been able to see in a lot of markets in OUS is just with the minimally invasive rollout with Preserve as well as Mia. We've been able to expand our account base in a number of markets that's really helped to drive that. And then to answer your last question, and we're seeing this with some of the market research that in the U.S. with Preserve, 15% of women that have used the procedure were not currently considering breast augmentation. So we believe that the minimally invasive, both Mia and Preserve has a real opportunity to drive category growth. And I think there is just increasing a lot more interest in the area of transparency with -- not only with the Preserve and Mia, but as well as just more openness and interest in breast augmentation, and we feel that we're a big part of that. Operator: The next question comes from Sam Eiber of BTIG. Sam Eiber: Maybe I can stay on Preserve for a moment. Peter, would love your thoughts on if you think Preserve can eventually become standard of care over traditional breast augmentation at least here in the U.S. And maybe you can help explain why Preserve is something that beyond the tools is something that can only be done with Motiva, whether it's the implant surface, whether it's the low complication rates. Would love if you can explain that in a little bit more detail. Filippo Caldini: Yes. I mean, I think in terms of the minimally invasive and Preserve, not only in the U.S., but I think globally, it really makes sense. If you look at our different types of procedures, surgical procedures, everything is minimally invasive. And I think bringing that technology and that capability, I think it's -- I think patients, that's what they're looking for. I mean it's very clear what the benefits are for patients, smaller scars, quicker recovery, minimal anesthesia, which is very important for a number of women. So it really has the opportunity to be a significant growth driver, but it's the standard of care, I think, in the industry. And I think in some respects, because of the lack of innovation we've seen in the U.S. prior to our entry, I think a lot of the category is behind. So we do believe that, that's going to be more standardized in the industry. And I think it's really our innovation with the unique implants that we have is very specific and beneficial for this type of procedure. And we'll continue to look at and continue to drive innovation that really shapes the category. And I think this is just the starting point for us. Operator: The next question comes from Mason Carrico of Stephens. Mason Carrico: I assume that most, if not all, Preserve users were already Motiva users. But I was curious to hear if that launch is actually to increased conversation or maybe even conversion of accounts that previously hadn't adopted Motiva. Maybe just a simpler question is, do you think that launch could actually accelerate the onboarding of new accounts moving forward? Filippo Caldini: Yes. So Mason, I mean, we're pretty early in the launch, but what we've seen outside the U.S. is that the minimally invasive, specifically Preserve, has brought in a number of new accounts for us in our direct markets in Western Europe. So it has had that benefit, bringing new technology, bringing a new procedure, I think, has really resulted in our ability to drive account growth in a lot of our Western European markets. In the U.S., I mean, it's still early. I believe you're going to see the same type of trend in the U.S., but we're kind of in month 2 right now, and there's significant demand with the accounts that we do have, and it's very -- we're very focused on getting the training done. But I do believe, to your question, I think it has the potential to drive, certainly account acquisition. Operator: The next question comes from Caitlin Roberts of Canaccord Genuity. Caitlin Cronin: Congrats on the quarter. Just a quick one. Have you added all the reps that you plan to add for Preserve in the U.S.? And just appreciate the guidance on MIS, but could you break out potentially Preserve and Mia? And any updates on the timeline for you guys to bring Ergo2 into the U.S. and eventually Mia? Filippo Caldini: Yes. So thanks, Caitlin. The split between the Preserve and Mia, a bulk of that is really driven by Preserve is the key driver for us. We expect that to be a significant growth driver for us moving forward. And as it relates to Ergo2, I mean, we -- currently, we've had good discussions with the FDA. We're trying to really align on what the appropriate regulatory requirements are for us to get that approved with the FDA. But we don't see that as a significant driver for us until probably around 2028. I mean, we have a lot of growth opportunities as it relates to Preserve currently. As you asked, I mean, we are expanding our sales force. Currently, we're at 50 reps, but we're going to continue to expand that opportunistically when there's a geographical opportunity, but also more importantly, getting the right talent. I think we've been very successful in what I consider to be a best-in-class organization. And in this industry, bringing over high-quality sales reps that have the established relationship, and that makes a big impact, and we've been able to do that. Operator: The next question comes from Joanne Wuensch of Citibank. Joanne Wuensch: I've got a big picture one. What are you seeing in the macroeconomic environment? And specifically, I'm concerned or thoughtful of the consumer and the impacts to the Middle East as it might relate either to sales or resin or oil prices or anything on the bigger landscape would be helpful. Filippo Caldini: Yes. Thanks, Joanne. I think that's a great question. I mean, obviously, that's top of mind for anybody that's running a company. And I think as you look at what's going on in the Middle East, I think, first off, just looking at the Middle East, as we highlighted in the prepared remarks, it represents 5% of our total sales. Not surprising in Q1, we didn't have any orders. But we are -- we do have orders in the system in Q2, and we expect to be shipping to the Middle East this quarter. So there is some demand there. But I think the key question is what you highlighted, what is the potential overall macro impact? And so far, Joanne, we have not seen an impact on the global demand for the number of procedures. And that's something that we're going to continue to closely monitor. As it relates to areas in terms of cost, I think we've seen some -- and I can let Sandra answer this, but we've seen some impact in terms of outward freight. There has not been an impact in terms of our silicone costs because those are locked in for the full year. So I would say, in general, we haven't seen a significant impact, but that's something we're going to monitor very closely. Sandra? Cassandra Harris: Yes. I think Peter hit it. We're seeing some initial surcharges on outbound freight. But at this time, we've been able to navigate through and hold our margin profile. Our silicon provider, we recently have locked in volumes, and we have a contract with them through the end of the year. And we'll monitor the situation and look to protect our margins with any type of price as it progresses. Operator: The next question comes from Allen Gong of JPMorgan. K. Gong: I just had a quick one on the guidance and just the momentum that you're seeing. You talked about how orders are up 30% from 4Q to 1Q. I guess first quick one, is that a U.S. comment? And also, given that kind of momentum, how should we feel about the cadence for the balance of the year, particularly what you're seeing in the second quarter given the reiterated guide or guide just to beat in the first quarter? Filippo Caldini: Yes. Allen, I'll kick it off. But just to clarify that, I mean, when we talk about the orders, that was specific to the U.S. We're -- as we highlighted in the prepared remarks, we're increasing the number of accounts, but also we're increasing the utilization rate as the surgeons work through their schedule. So it's a combination, and it's reflected in the average daily orders. So we see very strong momentum going into Q2 as well. And -- but that's not just in the U.S. I think in overall, globally in a lot of markets, we've -- the demand has been stable. And I think the one outstanding question that we had going into as we're managing the business like a lot of different companies is what's the impact of the Middle East. And as I mentioned before, it is a small part of our business. We do have orders in the system for Q2. So there is demand there. And we have not seen the impact in terms of global demand, but that's something we're going to monitor. So based on that, gave us the comfort to raise the guidance. We had a strong Q1, and then we're off to a good start in Q2. So that gave us the comfort around that. Operator: The next question comes from Matt Taylor of Jefferies. Matthew Taylor: I wanted to follow up on the silicon supply comments. I know that this year, the contract is set in stone. But could you address the potential for cost increases beyond that? Maybe give us an update on how negotiations are going and when we could expect an update? Filippo Caldini: Yes. Thanks, Matt. It's a good question. I mean, we have a very good relationship with NuSil. I mean, it goes back for a number of years. And obviously, as we continue to grow as a company, we become a more valuable customer to NuSil. And we've had very productive conversations with NuSil. I mean, we consider them very good partners. In fact, that we've aligned or we agreed on volume commitments for this year, just about a month ago. So the prices are locked in for this year. We've made that commitment. Obviously, that's an increase in volume versus last year. And we've started conversations around a long-term agreement. And there's interest on the NuSil side to have an agreement as well as for us to have an agreement 5 years or more. And a lot of the conversations are less about pricing. It's much more about co-development work. They're interested in exclusivity with us and looking at the length of the agreement. Generally around the price is more volume driven. But the conversations are very productive. And as I mentioned before, we are -- continue to be a bigger part of their business. And they've been good partners for us in the past, and we expect that to continue moving forward. So we haven't finalized the conversation, the discussions on the agreement, but there's strong intent to have a very -- a long-term agreement for -- with NuSil. Operator: The next question comes from Mike Matson of Needham & Co. Michael Matson: I just wanted to ask one on the refinancing. So by our math, it seems like without the additional $35 million draw, there could be a slight increase in interest expense of maybe like [ $1 million ] a year. Is that right? Cassandra Harris: Yes. Thanks, Mike. So yes, so on the new debt agreement, we've increased it from $225 million. And the current draw is $265 million. There is a lower interest rate at 8.75%. There's ability to PIK, which gives us some near-term cash availability, which we take. So net-net-net, there is neutral to slightly up on the increase in the availability of the funds with the lower interest rate and then the exercise of the PIK. Operator: The next question is a follow-up from Anthony Petrone of Mizuho. Anthony Petrone: One for Sandra, just on gross margin here, guidance 71.2% to 72.2%. How much of that is just kind of a reflection of Preserve at higher prices? And have you baked in an FDA clearance for reconstruction and just what that can bring to the table in terms of gross margin momentum? Cassandra Harris: Yes, Anthony, good question. So our gross margin improvement, and we do expect that it will continue to contribute is the growth of the U.S. With the U.S. business being a direct account, it improves our margin profile, and you're seeing that in our numbers. And then obviously, with OUS being further along in the journey on minimally invasive, its growth in the direct business and then the launch of minimally invasive in the U.S., that also is a big contributor to the margin. So as we look forward, we do expect that we will continue to improve that margin based upon the mix of that business, both U.S. and OUS as well as the minimally invasive. And at this juncture, we do not -- we can't necessarily time the FDA approval. So we've made no assumptions in regard to reconstruction. Operator: Ladies and gentlemen, that is all the time we have for questions today. I will now turn the call back over to Peter Caldini for closing remarks. Filippo Caldini: Thank you, everybody, for joining the call this morning. I appreciate the time and really having everybody get to hear more about the progress we're making with Establishment Labs. As we highlighted or as I highlighted in the commentary, it's a great opportunity. I hope to see at some of the events, but also please take us up on the offer about visiting us in Costa Rica, and you really get an opportunity to really see the uniqueness of this company and the strengths that we have and just to build that partnership. So thanks again, everybody, for joining the call, and look forward to seeing you soon. Thank you. Operator: Thank you, sir. Ladies and gentlemen, that concludes this event. Thank you for attending, and you may now disconnect your lines.
Operator: Good afternoon, and welcome to Mirum Pharmaceuticals, Inc. First Quarter 2026 earnings conference call. My name is Tracy, and I will be your operator today. All lines are currently in a listen-only mode, and there will be an opportunity for Q&A after management's prepared remarks. I would now like to hand the conference over to Andrew McKibben, SVP of Strategic Finance and Investor Relations. Please go ahead. Andrew McKibben: Thank you, Tracy, and good afternoon, everyone. I would like to welcome you to Mirum Pharmaceuticals, Inc. first quarter 2026 earnings conference call. For our prepared remarks, I am joined today by our Chief Executive Officer, Christopher Peetz, our President and Chief Operating Officer, Peter Radovich, and Eric H. Bjerkholt, our Chief Financial Officer. Our Chief Medical Officer, Joanne M. Quan, will be joining us for Q&A. Earlier this afternoon, Mirum Pharmaceuticals, Inc. issued a press release reporting our first quarter 2026 financial results. Copies of the press release and our SEC filings are available in the Investors section of our website. Before we start, I would like to remind you that during the course of this conference call, we will be making certain forward-looking statements based on management's current expectations, including statements regarding Mirum Pharmaceuticals, Inc.'s programs and market opportunities for its approved medicines and product candidates and financial guidance. These statements represent our judgment and knowledge of events as of today and inherently involve risks and uncertainties that may cause actual results to differ materially from the results discussed. We are under no duty to update these statements. Please refer to the risk factors in our latest Form 10-Q and subsequent filings for more information about these risks and uncertainties. With that said, I would like to turn the call over to Chris. Christopher Peetz: Thanks, Andrew, and good afternoon, everyone. We have a number of important updates to cover today, but I would like to start by grounding in the vision we set when we founded Mirum Pharmaceuticals, Inc. in 2018: building a company focused on bringing forward medicines for overlooked rare diseases. This quarter reflects the progress we have made in turning that vision into a durable, growing business. Our start was based on Lipmarly, and today, we are a broader rare disease company with three approved medicines and a pipeline positioned to deliver multiple new therapies over the next two years. These high-impact programs are grouped across two focus areas: rare liver disease, where we have built clear leadership, and rare genetic disease, where we are establishing a second growth platform, each with distinct commercial capabilities. Across both, we have built a financially self-sustaining business that can support continued investment in the portfolio. Our strategy is driving compelling results. Starting with rare liver disease, uptake of Libmarli remains strong, driven in part by performance in PFIC, which continues to exceed expectations. Based on that demand and continued performance across all brands, we are raising our full-year revenue guidance to $660 million to $680 million. More importantly, we are now seeing the next phase of our rare liver disease business take shape. Our recent clinical readouts in PSC and hepatitis delta represent important potential expansions for this business, extending beyond our pediatric foundation into larger patient populations with significant unmet need. In PSC, the VISTA study of elixirat showed a significant improvement in pruritus, reinforcing the potential for elixirat to play an important role for these patients who currently have no approved medicines. This is a major advance in PSC research and positions vilixibat as a potential first approved medicine for patients in the U.S. And in hepatitis delta, results from the Phase 2b portion of the AZURE-1 study further support the potential for berlivatig in a patient population where treatment options are extremely limited. We look forward to the upcoming late-breaking presentations for both VISTA and AZURE at EASL later this month. Now in parallel to this expansion of our rare liver disease business, today, we are announcing another step in building out our rare genetic disease business, with the addition of zolergosertib, recently licensed from Incyte. Zolergosertib is a once-daily oral inhibitor in development for fibrodysplasia ossificans progressiva, or FOP, an ultra-rare progressive condition where patients develop bone in soft tissues. This accumulation of excess bone leads to profound physical immobilization, with most FOP patients becoming wheelchair dependent by early adulthood, and severely impacts life expectancy. Based on the strength of zolergosertib’s PROGRESS study, conducted by Incyte, an NDA has been accepted with priority review, with a PDUFA date of September 26, 2026. If approved, we expect to launch by year-end. This is a strong strategic fit aligning with our capabilities in rare genetic disease where care is concentrated in a small number of specialized centers and requires deep engagement with patients, caregivers, and physicians. Stepping back, we have built a company with multiple commercial growth drivers, a pipeline of meaningful upcoming catalysts, and the financial strength to advance our portfolio independently. This foundation is translating directly into high-impact medicines for patients and into value creation as we deliver on our strategy. With that, I will turn the call over to Peter to walk through the commercial portfolio and preparation for the upcoming potential launches. Peter Radovich: Thank you, Chris. The first quarter was another period of strong commercial execution, with total net product sales of approximately $160 million. This included Lemarle net product sales of $84 million in the U.S., and $30 million internationally, with the bile acid medicines contributing $46 million. Robust adoption in PFIC, particularly in adult patients, continues to be a strong point for us, as education to increase awareness and recognition of genetic cholestasis among adult liver providers continues to be successful. Additionally, we saw stronger than expected performance in Q1 international Lugmarley sales, as well as continued new patient adds in Alagille worldwide. The bile acid medicines grew in a manner consistent with their cadence over the last several quarters, highlighted by our rare genetics team continuing to identify undiagnosed patients with CTX. Overall, we expect these dynamics to continue and, as a result, are raising our full-year 2026 net product sales guidance to $660 million to $680 million. And as Chris mentioned, we are also beginning to see the next phase of growth in our rare liver disease business take shape. The recent results from the VISTA study of meloxicimab in PSC and the AZURE-1 study of berlobotib in hepatitis delta represent important steps in extending our presence into larger, primarily adult liver settings where patients have limited or no approved treatment options. These programs build directly on a global commercialization platform we have established for Lumarli, Cetexly, and Cobalt, heavily leveraging our existing technologies, people, and infrastructure. We plan to expand our U.S. and international teams starting later this year to reach liver health care providers in adult settings, including GI liver providers who manage PSC patients and hepatitis delta, as well as other care settings like infectious disease and selected primary care providers where we believe we can increase the number of diagnosed hepatitis delta patients. In the U.S., our current 20-person liver field commercial team reaches about 1,500 health care providers, with current focus on pediatric liver providers and some higher volume adult providers. After our planned expansion to approximately 60 U.S. field commercial personnel, we anticipate being able to reach over 4,000 liver health care professionals, representing the vast majority of potential prescribers for our rare liver business. Turning to our rare genetic disease business, we are very excited by the addition of zolergocertib for the treatment of FOP, where there remains a desperate need for additional treatment options. FOP is a devastating, relentlessly progressive condition in which soft tissues such as muscles, tendons, and ligaments gradually turn into a second skeleton, leading to cumulative loss of mobility and severe disability in early childhood. FOP is a highly concentrated, ultra-rare disease with an estimated prevalence of about one per million, which translates to approximately 300 patients in the United States and around 900 patients globally. Patients with FOP are largely managed by specialized tertiary centers, with most of these centers also [inaudible]. Eric H. Bjerkholt: Thanks, Peter. Good afternoon, everyone. We remain disciplined behind our pipeline, which remains on track across all programs. Today, I will walk you through the financials for the quarter, including an overview of the impacts of the Bluejay acquisition and the zolergosertib transaction. Net product sales for the first quarter were $160 million compared to net product sales of $112 million in the first quarter of last year. Cash, cash equivalents, and investments as of March 31 were $421 million compared with $391 million at the beginning of the year. In the first quarter, the cash contribution margin from our commercial business was in the mid-50% range, and cash flow from operations was about $2 million. First quarter financials were significantly impacted by one-time expenses related to the acquisition of Bluejay Therapeutics, which closed in January. The total net cash out related to this acquisition was $253 million, which was offset through net financing proceeds of $260 million. Total operating expense for the quarter ended March 31 was $949 million, which includes $761 million in expense associated with the acquisition of Bluejay, R&D expense of $98 million, SG&A expense of $96 million, and cost of sales of $29 million. Expenses for the quarter included stock-based compensation, intangible amortization, and other noncash expenses of $64 million, including $35 million of stock-based compensation expense associated with the acquisition of Bluejay. The intangible amortization and other noncash item expense are largely reflected in our [inaudible]. As Chris and Peter mentioned, we recently entered into an exclusive license agreement with Incyte. In return for worldwide rights to zilogisertib, Incyte received an upfront payment of $16 million and is eligible to receive additional development and regulatory milestone payments, including $25 million upon U.S. FDA approval for FOP, ownership of a rare pediatric disease priority review voucher, if awarded, as well as sales-based milestones and shared royalties on worldwide net sales in the mid- to high-single-digits percent range. As we have discussed previously, we expect R&D expense to step up in 2026 as we invest behind berlobitur ahead of the anticipated BLA submission next year. For example, R&D expense in the first quarter included $21 million related to the development of berlobitide. Importantly, this expected increase is fully funded. We are continuing to scale the business with discipline, balancing investment in growth with a strong balance sheet and financial independence. This approach positions us to advance our pipeline and execute on upcoming milestones without compromising our long-term financial strength. I will now turn the call back to Chris for closing remarks. Christopher Peetz: Mirum Pharmaceuticals, Inc. is in a strong position after a very busy start to the year. What is most encouraging about the quarter is not just the number of positive updates, but how clearly they fit together. We continue to grow our commercial medicines, we are expanding our rare liver business into larger indications, and we have added what we believe is a transformational medicine to our rare genetic business. Importantly, this is all coming together within a high-impact, scalable business model. We are excited about the progress ahead as we approach multiple pivotal readouts, potential regulatory submissions, and potential new product launches. I would also like to thank the entire Mirum Pharmaceuticals, Inc. team for all the hard work in getting us where we are today. Your dedication brings new treatment options to patients around the world. With that, operator, please open the call for questions. Operator: We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by now while we compile the Q&A roster. Your first question comes from the line of Gavin Clark-Gartner with Evercore ISI. Your line is open. Please go ahead. Analyst: Hi. This is Yatra on for Gavin. I just had one on FOP. Wondering your current view on the number of diagnosed FOP patients in the U.S. based on claims, patient advocacy, and provider research, and then how many of those patients will immediately be treatable at launch? And then I have one follow-up on with Marley. Peter Radovich: Yes, thanks for the questions. We point towards approximately 300 identified patients in the U.S., coming from patient group IFOPA. In terms of addressable patients, the main feature there is the NDA application Incyte filed is for age 12 and over, so that would be the majority of the patient population at launch. Analyst: And then in terms of Lezmarli specifically on the guidance raise, wondering what is driving the bulk of the increase? Is it due to the ex-U.S. expansion or the continued PFIC ramp? And within PFIC, is the contribution skewing towards those older patients? Peter Radovich: Thanks for the question. Certainly, Live Marley U.S. PFIC was the biggest driver. We continue to see both pediatric and adult patients come to treatment. I think the older adolescents and adults really are the major driver, although we are still in early innings. We have made good progress educating adult providers on genetic testing, but probably still the minority of them are actually doing that. I think there are more adult patients to find out there who could potentially benefit. Eric H. Bjerkholt: And just on the international piece, Q1 historically has had a bit more seasonality and a little bit of a softer number in Q1, and that just was not as much of a factor this year, somewhat also in part due to not only additional countries performing, but also PFIC starting to show up in that international number. Peter Radovich: Thank you. Operator: Your next call comes from the line of Joshua Schimmer with Cantor. Your line is open. Please go ahead. Joshua Schimmer: Great. Thanks so much for taking the questions. Also on the zolergosertib, how are you thinking about its differentiation versus maybe some of the other programs in development? Garetosmav, if I am pronouncing that right, and sohonos? That is number one. Number two, are you planning to explore the program in other ossification indications or disorders? And then number three, I think I heard you say peak sales for the asset of $200 million. Is that global or U.S.? Thank you. Peter Radovich: Thanks, Josh, for the questions. Just to clarify, the “$200 plus” is a global number for us. Christopher Peetz: In terms of positioning here, the programs that you mentioned are the ones we are tracking, with Sohonos being approved and the other program being in the registration phase. For Sohonos, the data coming out of the PROGRESS study here for zolergosertib is a real step forward in terms of the overall activity profile and tolerability and safety profile. So we see the clinical data here as a quite meaningful advance on what is currently available in the market, which has quite a few limitations to it. And compared to the pipeline, this is an oral, which we see as a big advantage, particularly in a setting where you can potentially drive ossifications from injections and some of these other interventions. So having an oral, we see as a nice differentiator for the program. Joshua Schimmer: Got it. And then plans for other ossification disorders? Peter Radovich: Early days in thinking about it. At this point, we want to stay very focused on getting this launched for FOP, but it is certainly something we will consider as we get further down the road. Operator: Your next call comes from the line of Jonathan Wolleben with Citizens. Your line is open. Please go ahead. Jonathan Wolleben: Hey. Thanks for taking the question. A little unusual having something under review where we have not seen any of the data. Just wondering what you guys have been privy to, to make you comfortable with this acquisition. And then, what would be the forum for it to make sense to get this out into a public domain? And will you guys be eligible for a review voucher if approved? Christopher Peetz: Thanks for the question, Jonathan. I fully appreciate the unique nature of the situation. In our review—this is a conversation that has been going on for quite some time, typical for a license transaction like this—we have had full access to clinical data, to the regulatory correspondence, and the NDA. So we feel quite confident in the profile for zoligosertib and where they are at in the regulatory process. From the Incyte side, they have done a fantastic job putting together this program and saw it fitting better in a rare disease company like Mirum Pharmaceuticals, Inc., but the work they have done on it is quite strong. They want to have the data presented first at a medical meeting, so we are hopeful that is happening relatively soon. Once we get that presented, we will be able to share more on the pivotal data and overall product profile. As for a review voucher, we do expect this to be eligible for a voucher. Under the terms of the agreement, Incyte will keep that voucher, and we will launch the product. Operationally, Incyte, given they are mid-stride with the filing and review, will complete the primary role through approval, and then we will take over sponsorship at the point of U.S. approval. Peter Radovich: Yep. Thanks for the questions. Operator: Your next question comes from the line of Michael Eric Ulz with Morgan Stanley. Your line is open. Please go ahead. Rohit Bhasin: Hi. This is Rohit on for Mike. Thanks for taking our questions. With the recent pipeline acquisitions, can you talk about how you are thinking about BD moving forward? And then also, can you talk about how you are thinking about pricing in FOP? Thanks. Christopher Peetz: I can start and I will hand it over to Peter. As you have seen now for Mirum Pharmaceuticals, Inc. over the history of the company, we see a priority in staying active on the BD front. That is how you find unique opportunities that fit and add value to the company. So we will continue to work to find good programs to bring into the team. Peter Radovich: On zolergosertib pricing, we will make a decision and communicate that closer to approval. For thinking about the U.S., you can look at the Niemann-Pick C products and other ultra-rare settings like that where you have a strong value proposition. Similar epi is probably in the ballpark. Operator: Your next question comes from the line of James Condulis with Stifel. Your line is open. Please go ahead. James Condulis: Hey. Thanks for taking my question, and congrats on the quarter. Maybe one follow-up on HDV. I think we have heard a couple questions about the 900 mg monthly arm, specifically as it relates to the TND virologic response and maybe a little bit of an outlier relative to some of your prior data and the rest of your dataset. Curious about your perspectives here. And as you think about the commercial setting, for docs in the real world, what do you think is the most important measure for evaluating efficacy for these different drugs? Is it that TND response, other measures of virologic response, the composite? Thanks. Christopher Peetz: Thanks for the question. I will make a couple of comments and have Joanne speak to some of the data that we are seeing out of the AZURE-1 Phase IIb portion. In terms of what we are focused on and what we think is most relevant for ultimate use and driving adoption here, it is that composite of virologic response and ALT normalization. Those two factors are what is pointed to in the FDA guidance and show that you are not only addressing the viral load, but you are also addressing the liver inflammation that is part of the disease. Seeing both of those move means you are going after both components—for both the infection and the liver. Joanne M. Quan: Yes, and to Chris’s point on the composites, all very true. When we look at the curves in terms of the virologic response, we do see declines in everyone. When you stretch to the endpoint, if you do not meet a certain point by week 24, then you are on one side of the line or the other, but we do see decreases in all of the patients. There is certainly no evidence of lack of response or resistance or anything like that. Partly, it is an artifact of time. We do see deepening response with continued treatment. And again, this is a numerically fairly small group. We will have a lot more information with the full AZURE-1 and AZURE-4 Phase 3 datasets to make a final call on that. James Condulis: Makes sense. Thank you. Peter Radovich: Thanks for the questions, James. Operator: Your next question comes from the line of Brian Skorney with Baird. Your line is open. Please go ahead. Brian Skorney: Hey. Good afternoon, guys. Thanks for taking my question, and great quarter. I would love to also ask a question on FOP. It seems like you are doubling down on making it your corporate nemesis. I am wondering if you could give broad thoughts on where you think Sohonos’ profile leaves an opening for another entrant and compare and contrast how zolergosertib might address these. And the timeline would put us right around mid-cycle review with the FDA right now. Has that already happened or is it still pending? Eric H. Bjerkholt: Thanks for the question. On the review, yes, that has happened, and I would just say things are tracking as expected. Peter Radovich: In terms of positioning, the feedback we have heard from stakeholders—patients, caregivers, physicians—regarding the available therapy in the market today is that there is a lot to be desired in terms of both efficacy and safety. We will be able to get into more details once we have the PROGRESS data presented at an upcoming medical conference, but from what we have seen in our review of the zolergosertib profile, it is really exciting what it can mean for these patients, both efficacy-wise as well as a convenient oral and well-tolerated regimen. Operator: Your next question comes from the line of Lisa Walter with RBC Capital. Your line is open. Please go ahead. Lisa Walter: Thanks so much for taking our questions. Maybe just some more detail, if you can share, on the FOP opportunity. Are there any overlaps with your current call points? And did you disclose the deal terms with Incyte? And given the recent positive results in HDV and PSC, has this impacted your thinking on when you could become a profitable company? Peter Radovich: Great overlap with our existing team—our rare genetics team that is focused on texlecobalt. We mentioned that a significant majority of FOP patients are cared for in centers that also prescribe Cetaxley and Colbomb. Different prescribers most of the time—some overlap with medical genetics. For FOP, the biggest prescribers will be endocrinologists, so that is a new physician target, but the center overlap is really high with our existing rare genetics business. We are excited about adding this product to that team. Eric H. Bjerkholt: On the financials, we disclosed the upfront license fee was $16 million, and the next milestone would be $25 million upon FDA approval. There are some other commercial milestones, and a royalty in the mid- to high-single-digits range. We expect after launch that this product will be accretive very, very quickly. On the path to profitability, that is much more driven by brelovitag and voxibat, as well as our current commercial business. We are spending a lot on R&D this year for both of those products, so profitability will be pushed out probably until 2028 on a GAAP basis. We reiterate that we expect to be operating cash flow positive next year. Operator: Your next question comes from the line of Jessica Fye with JPMorgan. Your line is open. Please go ahead. Jessica Fye: Hey, guys. Good afternoon. Thanks for taking my question. Can you estimate the contribution in the first quarter of LiveMarly sales from Alagille versus PFIC? And then another one on FOP—just thinking about that market, what do you see as the penetration for palovarotene, and would you envision the ALK inhibitor being used in combination with that drug? Christopher Peetz: Thanks for the question. Briefly on Livmarli, we typically are not breaking out by indication, but we can say both Alagille and PFIC are growing, and PFIC is the bigger growth driver. Peter Radovich: On FOP, in the U.S. market where this medicine is available, palovarotene—based on pharmacy claims data and what we have heard in physician and caregiver interviews—it is probably a minority of diagnosed patients that are currently receiving it. It can be tried; it can often be difficult to tolerate and stay on. Operator: Next question comes from the line of Ryan Deschner with Leerink Partners. Your line is open. Please go ahead. Ryan Phillip Deschner: Hey, guys. I have Ryan on for Mani. Thanks for taking our question, and congrats on the quarter. Circling back to FOP, what is the latest thinking on an OUS filing and when you would expect to launch there? And then on the peak sales of $200 million, is that in the 12+ age group that you would get approved in the upcoming filing? How should we think about upcoming data for the younger age groups that are being tested? Thanks. Christopher Peetz: Thanks for the questions, Ryan. On ex-U.S. strategy, a European filing is upcoming. We could still have that in this quarter. Incyte is still driving those activities, and their team is doing a great job. In terms of the overall peak estimate, the $200 million-plus is the full brand in FOP over the lifecycle. For the younger age patients, we do expect that the label would launch at 12 and older. There are two other cohorts in the study that are ongoing that would support potentially taking that age lower over the near term. Those are ongoing and enrolling now, so they are not too far out. Ryan Phillip Deschner: Awesome. Thanks. Operator: Your next question comes from the line of Ryan Deschner with Raymond James. Your line is open. Please go ahead. Ryan Phillip Deschner: Thanks for the question. A couple for me. What is your strategy for identifying FOP patients in the U.S. and abroad, addressing the relatively high misdiagnosis rate for FOP? Do you anticipate any early line of sight into a substantial group of patients from Incyte’s prior clinical studies or maybe a compassionate use program or something like that in FOP? And I have a follow-up. Peter Radovich: Thanks for the question, Ryan. FOP patients often have a longer diagnostic odyssey than they should. There are patients who get diagnosed at birth, but the literature says the average age of diagnosis is seven years, and obviously some wait longer. That is improving with the availability of genetic testing, and we see an opportunity to continue to raise awareness—just like in all of our rare genetic diseases—to shorten that diagnostic odyssey as much as we can. In the U.S., we think a substantial majority of patients are identified; it is probably a different story in some middle- and lower-income countries. Ryan Phillip Deschner: Thanks. Just wondering if there was anything notable so far in the business extension in terms of rollover, discontinuation rates, pruritus, or other patient metrics that might take a little longer to modulate over time. Peter Radovich: Incyte’s PROGRESS study is enrolling well. We will be able to disclose more about what they have seen at the upcoming medical conference. We have certainly seen a lot of physician and patient interest. Eric H. Bjerkholt: Great. Thanks for the question. Operator: Your next question comes from the line of Joseph Thome with TD Cowen. Your line is open. Please go ahead. Joseph Thome: Good afternoon. Thank you for taking my questions. One on FOP: the level of ALK2 inhibition you are seeing with the therapy—do you think that could be enhanced by garetuzumab, Regeneron’s Activin A drug, or are these largely going to be competitive therapeutics in the landscape? And second, when we think about the potential expansion opportunity for Livmarli and the basket trial that is going to be reading out later this year, how should we think about that in your overall projection for Livmarli? How much is this basket population? Christopher Peetz: On garetuzumab positioning, it is probably best to get into more detail after our data is presented so we can give a more complete picture. We think the profile for zolugosertib and its clinical positioning is really strong as a convenient oral single agent, and we are excited about bringing that forward. Peter Radovich: On EXPAND, we have talked about that indication being about a third of at least a $1 billion peak sales opportunity for Livmarli, and we reiterate that. Operator: Your next question comes from the line of Charles Wallace with HCW. Your line is open. Please go ahead. Charles Wallace: Hi. This is Charles on for RK. Thanks for taking my question. For FOP, how many patients from the PROGRESS study—I think there were 63 in that study—do you expect could come on after launch? And do you expect to have some sort of bridging program? Christopher Peetz: Thanks for the question, Charles. Given the nature of the relationship here, we are going to wait until we have the data presented to give specifics. Overall, we think it is a really compelling profile, and the feedback has been positive, but we do not want to get into specifics ahead of having the data presented. Charles Wallace: That is fair. And then another question on the salesforce expansion. You are growing it to 60 in the field. When do you expect the team to be fully on board and fully functional? Peter Radovich: As noted in prepared remarks, we are starting later this year. I think by early next year we will be fully on board, and that team will cover both pediatric and adult settings where not just adult PFIC can be found, but also PSC and HDV. By early next year, they would be active in all those areas. Of course, with the pipeline products, the activity would really start upon potential FDA approval. Charles Wallace: Great. Thanks for taking my questions, and congrats on a great quarter. Peter Radovich: Thanks for the questions. Operator: There are no further questions at this time. I would now like to turn the call back to Chris Peetz for closing remarks. Christopher Peetz: Thank you all for joining us today and for all the support and a great start to 2026. Have a great afternoon. Operator: This concludes today’s call. Thank you for attending. You may now disconnect.
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: Ladies and gentlemen, greetings, and welcome to the Hagerty First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jay Koval, Head of Investor Relations. Please go ahead. Jason Koval: Thank you, operator, and good morning, everyone, and thank you for joining us to discuss Hagerty's results for the first quarter of 2026. I'm joined this morning by McKeel Hagerty, Chief Executive Officer and Chairman; and Patrick McClymont, Chief Financial Officer. During this morning's conference call, we will refer to an accompanying presentation that is available on Hagerty's Investor Relations section of the Company's corporate website at investor.hagerty.com. Our earnings release, slides and letter to stockholders covering this period are also posted on the IR website as well as our 8-K filing. Today's discussion contains forward-looking statements and non-GAAP financial metrics as described further on Slide 2 of the earnings presentation. Forward-looking statements include statements about our expected future business and financial performance and are not promises or guarantees of future performance. They are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations. For a discussion of material risks and important factors that could affect our actual results, please refer to those contained in our filings with the SEC, which are also available on our Investor Relations website and at sec.gov. The appendix of the presentation also contains reconciliations of our non-GAAP metrics to the most directly comparable GAAP measures that are further supplemented by this morning's 8-K filing. And with that, I'll turn the call over to McKeel. McKeel Hagerty: Thank you, Jay, and good morning, everyone. Spring has finally arrived in Northern Michigan, and with it comes the unmistakable sound of engines turning over after a long winter's rest. Our members have been pulling their cars out of storage, checking all the fluids and tire pressures and getting back out on to the open road. I for one drove a 1963 Corvette split window into the Hagerty headquarters this morning, and I am smiling year-to-year. And One Team Hagerty has been right there with them and with me ready to welcome a record number of new members in 2026 as the driving season gets underway. Let me jump to the headline. We are off to an excellent start to 2026. Written premiums increased 18% in the first quarter, ahead of our full year expectations. This marks 13 consecutive quarters of executing on our strategy to deliver compounding top line growth while making investments in our team, technology and members that should sustain high rates of growth in the years to come. As we discussed last quarter, 2026 marks the first year in our history that we control 100% of the economics on our own U.S. book of business. This structural milestone shows up clearly in our results, 42% growth in earned premium and a 77% jump in adjusted EBITDA. The GAAP presentation of revenue down 5% and our net loss of $13 million are temporarily different due to the new Markel Fronting Arrangement, but the underlying business performance has never been stronger. GAAP profits in 2026 are negatively impacted by the amortization of deferred ceding commissions paid to Markel in 2025 for policies written before January 1st. Think of it as settling the tab on the old structure. These deferred acquisition costs were $89 million in Q1 and wind down to 0 by the year-end 2026. With that, let me walk through our first quarter results shown on Slide 3. We added a record 112,000 policies during what has historically been a seasonally light quarter for us. Top cars added are not surprising as they are the bread and butter for Hagerty, Mustangs and Miatas, C10 Pickup Trucks and Cameros. We are also seeing a rapidly growing contribution from more modern enthusiast vehicles, including German and Japanese imports, sought after by the rising generations of drivers. Our written premium growth has been and will continue to be powered by new business count, unlike the broader industry that fluxes with the cycle. PIF growth jumped 15% as our retention rate remained steady at an industry-leading 89%. Retention at that level is not an accident. It is the product of decades of delivering on our brand promise to members who genuinely love their cars and trust Hagerty to protect them. We are delivering this growth with a careful focus on maintaining high-quality underwriting. Hagerty Re's combined ratio was 87%, and we took down our reserves by $6 million in the first quarter. Our underwriting team is one of the best in the industry, and we have been strengthening the capabilities of our in-house claims team. Our sustained market share gains are impressive and indicative of the enormous B2B opportunity for us. We are diligently working on additional partnerships as well as deepening existing relationships by earning the right to ask for more business. Hagerty is uniquely positioned to help protect the carrier's classic car book of business with automotive expertise and excellent service, and we are making the necessary investments to lengthen our lead. State Farm Classic+ is a great example of a tightly integrated partnership where both parties win. We now have an accelerating growth engine with expectations for their 19,000 agents to be selling new business in 40 states by year-end. The conversion of State Farm's existing 525,000 collector car policies to the Hagerty platform is also progressing well, and we remain on pace to convert most of these members to the new Classic+ program by the end of 2027. In addition to the white space with national carriers, our independent agency channel with 50,000 agents is ripe with potential. We are investing to make it easier for these agents to do business with us, including straight-through processing and the automated tools that help them identify enthusiast vehicles already sitting in their existing books of business, likely insured as daily drivers. Our addressable market of 36 million vehicles expands every year, and we want to empower these agents to think of Hagerty as the best solution for their customers. Let me move on to something that genuinely stopped all of us in our tracks during the first quarter. In March, Broad Arrow Auctions hosted a 2-day sale at Amelia Car Week in Jacksonville, Florida, and the results were historic, $111 million in total sales, 50% higher than any prior Amelia auction and with a 92% sell-through rate. The top lot was a 2003 Ferrari Enzo that sold for over $15 million, and we set 12 pricing records. The market for modern enthusiast vehicles has never been stronger, and every car that trades hands at a Broad Arrow Auctions is a potential Hagerty insurance policy. That is the flywheel in action. Our marketplace is not only a rapidly scaling profit center, but it is also a customer acquisition machine that gets cheaper with every car sold. I want to put that into context. In just 4 years and through the hard work of an exceptional global team, we have become one of the world's leading collector car auction houses. When you combine Broad Arrow's deep expertise with the Hagerty brand, our global community of members and our unmatched proprietary valuation data, you get results that surprise even us. And those results tell us something important about the health of our market. International demand for the finest cars is strong. Values on great cars continue to appreciate. Buyers from 23 countries do not show up to an auction in Northern Florida unless they trust Hagerty and Broad Arrow. That is all good news for Broad Arrow's transaction revenue. It is also good news for Hagerty Re as insured values rise, so to written premiums. Approximately 20% of our per policy premium growth over the last 15 years has come from our members voluntarily choosing to ensure their appreciating vehicles for higher guaranteed values. Our customers want their coverage to grow because their cars are worth more. That alignment between asset appreciation and insurance economics is absent from the standard auto market where vehicles tend to devalue or depreciate, and it is a structural advantage that compounds every year for Hagerty, augmenting our PIF-driven written premium gains. Over the same 15-year period since 2010, our regulatory rate increases for Hagerty Re has averaged only 1.5% per year, bolstering our consumer-friendly value proposition. We saw robust auction demand continue at the Porsche Air/Water auction in April with sales up 30% year-over-year and a sell-through rate of 84%. And in May, Broad Arrow will once again serve as the official auction partner of the Concorso d'Eleganza Villa d'Este with the BMW Group on Lake Como, Italy. This will be our second year at Villa d'Este, widely considered to be one of the most prestigious Concours events in the world, and we expect to build on last year's inaugural event as Broad Arrow is increasingly recognized as the trusted brand in auctions across major European markets. So in summary, our first quarter results were not only ahead of expectations, but they were far and away the best first quarter we have ever delivered. While it is only May, we are highly encouraged by how we are tracking towards our full year outlook. With that, let me turn it over to Patrick to walk through the financial details. Patrick McClymont: Thank you, McKeel, and good morning, everyone. Before I begin, let me reiterate the headline. The underlying business is performing very well. Written premiums increased 18% ahead of full year expectations with record new member additions. Adjusted EBITDA jumped 77% to $85 million, including a $6 million reserve reduction due to favorable prior year development. And Hagerty Re's combined ratio was 87%. This is what a healthy compounding specialty insurer looks like when firing on all cylinders. As McKeel mentioned, the GAAP presentation this year requires a brief reminder of what we shared on our fourth quarter call. Starting January 1 of this year, Hagerty Re assumed 100% of the underwriting risk on our U.S. book, a great economic outcome for us given the bump in underwriting profits and investment income. Under the new structure, the MGA commission revenue and the associated ceding commission expense that previously appeared gross on our P&L now eliminate against each other in consolidation, i.e., they net to 0. This is why reported revenue declined 5%, even though written premiums grew 18%. Additionally, there are $89 million of costs in the first quarter from the amortization of deferred ceding commissions for pre-2026 policies that result in a GAAP net loss of $13 million. This charge burns off entirely by year-end. With that, let me walk through the financials shown on Slide 6 and 7. Written premium in the first quarter was $289 million, up 18% versus the prior year period. This is ahead of our full year guidance of 15% to 16%, an acceleration from last year's 14% growth driven by our omnichannel approach, combined with 89% retention. Earned premium jumped 42% to $240 million, reflecting the 100% quota share retention in our U.S. book of business plus written premium growth. This is the structural improvement in our reinsurance economics that we have been working towards for a decade as we evolve our partnership with Markel. Commission and fee revenue in the quarter was $16 million. As I noted, this line is no longer comparable to prior periods given the elimination of Markel-related commissions. As State Farm conversions continue during the next 2 years, commission revenue inflects upwards. And unlike the prior Markel commission structure, the State Farm MGA fees carry no offsetting ceding commission expense falling through more cleanly. Marketplace revenue was $26 million, down 12%. We delivered record auction results at Amelia this year, but had lower inventory sales as we compared against last year's one-time sale at the Academy of Art University. Amelia cemented our position as a leader in the high-end auction market. We are investing significantly to position Hagerty as the undisputed global leader in both live and online sales. Membership and other revenue was $22 million, reflecting steady growth in Hagerty Drivers Club, paid memberships and ancillary revenue streams. Net investment income came in at $10 million, benefiting from our now larger investment portfolio at Hagerty Re that enjoys steady returns with low volatility, thanks to our focus on high-quality fixed income investments. Moving on to expenses. Let's start with losses. In 2025 and into 2026, we are seeing declines in frequency and favorable development from prior years that allowed us to reduce reserves by $6 million in the first quarter. Hagerty Re's loss ratio was 38%, resulting in a combined ratio of approximately 87%. We deliver high rates of written premium growth with excellent underwriting discipline, thanks to more than 40 years of proprietary data on 40,000 distinct makes and models, increased efficiency of acquiring and serving members and selecting members who take exceptional care of their toys. With the new Markel Fronting Arrangement, we have also adjusted our presentation of our expenses to allow investors to track and model our core insurance operations the way other insurance companies disclose their results. We will report the balance of the year consistently with our first quarter disclosures. After adjusting for the amortization of the ceding commission for policies issued in 2025, the underlying business showed significantly improved profitability, which can be seen in our adjusted EBITDA of $85 million. We believe that adjusted EBITDA is the best metric to focus on as it reflects the true operating momentum of our differentiated business strategy. We are growing quickly and efficiently converting premium growth into cash flow. I would point out that operating cash flow of $16 million was lower than the prior year's $44 million. With the new Markel Fronting Arrangement, we are paying claims directly, while under the prior structure, Markel paid the claims and we reimbursed Markel with a lag. So in Q1 of 2026, we made both the direct payments and the reimbursement for Q4 2025 claims of approximately $65 million. This normalizes during the balance of 2026. Adjusted for this doubling up of payments, operating cash flow increased roughly in line with adjusted EBITDA growth in the quarter. First quarter loss before taxes was $21 million and includes $89 million of deferred acquisition costs. First quarter net loss was $13 million and net loss attributable to Class A common shareholders was $7 million. GAAP basic and diluted loss per share was $0.06 for the quarter based on 101 million weighted average shares of Class A common stock outstanding. Adjusted diluted loss per share, defined as adjusted net loss divided by 361 million fully diluted shares was $0.04 for the quarter. We ended the quarter with $212 million in unrestricted cash, total investments of more than $1.1 billion and total debt of $229 million, which includes $110 million of back leverage for Broad Arrow's portfolio of loans. Given the strength in our first quarter results and momentum as we head into the summer driving season, we are reaffirming our full year 2026 guidance and are trending toward the high end of these ranges. This includes anticipated written premium growth of 15% to 16%, adjusted EBITDA of $236 million to $247 million and a GAAP net loss of $41 million to $51 million. As has been our practice in prior years, we will revisit our full year outlook on the second quarter call, but we are increasingly confident in our ability to deliver great 2026 results for shareholders. Looking forward a year, 2027 should be a more normalized year for Hagerty's P&L post 2026 complexity, where revenue growth more closely tracks written premium growth. We anticipate another year of mid-teens growth in written premium. While we continue to make multi-year investments in member growth and other initiatives. These include increased capabilities around the Markel Fronting Arrangement, technology investments in our B2B distribution, build-out of our product and Broad Arrow teams, enhancements to our digital marketplace as well as expansion of our special investigation and material damage units. Early indications point to these being high-return investments that will fuel member LTV in the years to come. That wraps up our prepared remarks. Operator, we can open the line for questions. Operator: [Operator Instructions] We take the first question from the line of Pablo Singzon from JPMorgan. Pablo Singzon: Is there any seasonality considered for EBITDA through the balance of the year? It seems to me or as you pointed out, Patrick, right, it seems to me that at least through 1Q, you're running above the full year guide, and I'd expect revenues to increase through the balance of the year. So I'm just not sure if there's any offsets maybe I don't know if you're considering GAAP in the third quarter or some pick up in expenses that might sort of derail the simplistic math of just annualizing the 1Q number. Patrick McClymont: Yes. I think business is seasonal, and so the seasonal pattern has not changed. So you should always consider that in your modeling. And then we are investing in the business, and we talked about that on the last earnings call. And some of that ramps up over the course of the year. And we have the normal dynamic of inevitably in the first quarter, you don't end up filling all the headcount slots that are open. It just takes a little longer than expected. So we would expect to see some ramp-up of expenses embedded in the full year guidance. So I wouldn't just annualize the first quarter. Hopefully, that's helpful that gives you a direction. Pablo Singzon: Yes. And then the second question I had, just a broader topic, right? So competition in personal auto is increasing. I'm wondering how that's affecting dynamics in your core classic car insurance business. And then maybe just to tack on something to that, like how is the current environment affecting your thinking about the rollout of Enthusiast Plus? McKeel Hagerty: Thanks, Pablo. It's McKeel. As you may recall, we've discussed this in some of our previous calls that when rates have gone up, for example, in standard auto, it tends to create shopping behavior that we actually benefit from. As you know, we're in a different kind of cycle now with standard auto where states are -- standard auto carriers are holding pretty steady right now, if not down. But we're seeing very strong year-over-year PIF growth in the core business, not just because of the additional new partnership accounts that are coming in from State Farm and others. So in this case, just I think the flywheel effect of the business is holding our momentum strongly into this year, and we're not in any way negatively affected by the fact that the standard auto carriers are kind of in a lateral moving year from a rate standpoint. Operator: We take the next question from the line of Michael Phillips from Oppenheimer. Michael Phillips: You've talked a bit about in recent calls about your European expansion for the auction business. I guess, given the flywheel that exists in your overall business, can you talk about your appetite -- just remind us your appetite for expansion internationally for insurance business? McKeel Hagerty: Yes. Thanks, Michael. It's a topic we've discussed for years. We've had an international business for over 20 years with our first entry outside of the country was actually in the U.K. We still have that business. It's growing. It's doing well. I think this order of things that we've really discovered by unlocking these very successful sales in Europe with Broad Arrow is helping us to understand the market differently than just sort of starting with insurance and then deciding whether membership is added and then thinking about marketplace later is that the order of things for us first is understand the market with these European auctions, getting that kind of sales team in force, in place, understanding the event environment and then deciding whether insurance is something that needs to be added on the back. Something we have discussed in the past is that when we started our U.K. business back in the day, the U.K. was sort of a golden place to be able to operate throughout Europe selling insurance. So our MGA structure over there, we were able to consider writing directly into the European continent without having to create an additional entity after Brexit, that became much more difficult. So right now, we are still just operating in the U.K. We write a little bit of some larger collection business in Europe, but we're looking at opportunities, but right now, focusing on just rounding out that auction schedule on the continent. Michael Phillips: Okay. I guess I was hoping you could expand a little bit more on the -- you mentioned the strengthening of your in-house claims team and kind of what's happening there and why -- how much of that's related to the change in the structure of this quarter? How much of that is related to -- I know you wanted to expand more enthusiast market, so kind of a different book of business that's coming. But just can you talk about that in-house claims team and what's happening there and why and how it's related to the changes that's happening in your overall business? McKeel Hagerty: I'll take the high end of it and if Patrick wants to follow-up, I'll let him. So yes, we've always done claims in-house. It was a real differentiating thing for us even when we were just operating as an MGA. Of course, now having 100% of your risk, you want to be paying attention to every dollar you spend when it comes to claims while maintaining a very high level of NPS and customer satisfaction and sort of overall claim service rates. But even though this is a low-frequency claim business, the bigger you get, we will have more claims. And we decided we really needed to make the investments to upgrade that team. We have some incredible leadership on the claims side who bring sort of the best of big auto industry claims expertise, but that understand the unique nature that repairing the types of vehicles we insure in our core book is very different than repairing a sort of standard auto where you can just bolt on a brand-new part because in many cases, repairing a vintage car, it takes time. You got to find the right kind of shop. You have to sometimes fabricate parts or parts have to be sourced from a variety of different places. So we have teams of people who help find those parts very different than a standard repair shop. So I think what we're doing just sort of structurally bringing best practices from standard auto claims and kind of turnaround times and all the things that you can do to contain the leakage that can happen around claims practices while maintaining the high quality of work that our customers expect because you want to pay fast, but you don't want to rush so that they're concerned about the quality of the repair. So that's the sort of maybe structural piece. And I don't know how much it's affecting the math specifically, Patrick, or we just... Patrick McClymont: Yes, it's meaningful. The claims organization that they've changed the mix, right? The meaningfully increased the number of claims that are dealt with in-house versus using independent adjusters. And every time they've increased that baseline, they've proven that the return on that is pretty compelling. And so we sit down and decide to increase the baseline again. That's what happened over the last couple of years. And that return comes from when you're processing things in-house, velocity increases, the customer service is better and the ultimate economic outcomes are better as well. And so the overall frequency and severity trends have been -- for the industry have been positive. We think we've got more tailwinds behind that because of this strategic decision to really invest in that capability. So we view it as a differentiator because these cars are different. They need a different level of expertise, and it's driving real value. Operator: We take the next question from the line of Elyse Greenspan from Wells Fargo. Elyse Greenspan: My first question is just on PIF. How should we just think about seasonality during the year? And I think in some years, right, Q1 tends to be like the lowest growth quarter of the year. Would you expect to see similar trends this year as we think about PIF growing during the year? Patrick McClymont: Yes. So this year -- last year, this year, next year, we do have the impact of the State Farm conversions. And so that's driving a meaningful increase in PIF. And that is not seasonal, right? That's based upon the rollout schedule with our partners at State Farm. And so that's meaningful and attractive. You have to kind of put that aside from a seasonality perspective. And then we're seeing the same trends that we typically would see. The first quarter typically is a lower quarter for us in terms of PIF growth. We ramp-up starting kind of in April and now into May and through the summer months, and you see it ramp down again in the fourth quarter. So we're seeing those same -- that same underlying dynamic. But right now, we're also seeing a very attractive healthy growth in that traditional core business. Elyse Greenspan: And then my second question, you guys, I think, are typically weighted to Q2 to update full year guidance, but you did say -- and I think you made some comments that said you're trending towards the high end of the ranges. It does seem like based on the Q1, right, that you're trending favorable to most items. So anything that we should think about like reversing? I mean, I guess I'm more interested just in thinking about adjusted EBITDA, right, and written premium growth, but really any components of guidance? Or is it just being somewhat conservative and just waiting to provide an update with Q2? Patrick McClymont: It's just waiting to provide the update. That's our approach on this. We've been consistent. We've concluded that not enough chapters of the books have been written at the end of 3 months. And so we'll do our first update after the second quarter. Elyse Greenspan: Okay. And then I think you said with State Farm that you would be active, I think, in 40 states by the end of the year? And then would you expect to add the additional states in '27 to be at full capacity? Is that how to think about that? Patrick McClymont: Pretty much. There could be states that stretch a little bit beyond that just because they're more challenging from a regulatory standpoint. But by the end of 2027, we should be selling in almost all the states, and then we'll still have a little bit of a tail in terms of the conversions, right? There's always that lag where we sell new business first, you make sure that everything is working and then start the conversion process. Operator: We take the next question from the line of Gregory Peters from Raymond James. Charles Peters: McKeel, in your opening comments, it's quite envious of your description of driving the Corvette into the office this morning. And I guess I'm going to go down a path that's probably unexpected, but I recently leased out a model Y, the Tesla Model Y. And I know this isn't your classic car addressable market, but I find the experience with it shockingly positive. I'm just curious because you're a car enthusiast, what you think of these new electric cars with the self-driving feature? McKeel Hagerty: First of all, thank you. Yes, it was -- it's a super fun drive to drive the Corvette. And I'm reminded why they made some significant changes in 1964 after 1963 when you drive it. So it's a fun car, but you can't see out of the rearview mirror. I'm a huge fan of electric cars. And some car people who view it as some sort of dogmatic war going on. I don't view it that way. I think we're going to have more and more electric cars. I own an electric car. I have one of the Porsche Taycans, and I'm a big fan. I drive that year around. Like you said, shockingly impressed. They're just great. They're great. They're simple, they're fast, they're quiet. They do a lot of great things. And I think you'll see more of them, and I think we'll be ensuring more of them in years to come. Like for us, it's -- there's always this shifting process, right, even with like the daily -- the cars that we insure today were daily drivers, some number of decades ago or some number of years ago. And there's a shifting process where people decide, I like this one, I don't like that one and the ones that survive are the ones that we end up insuring. And so there is no doubt, as we do now, ensuring Tesla Roadsters that we will be ensuring certain Teslas out there in the future. And -- but finally, just on the self-driving thing, I also -- I took my first Waymo ride for what it's worth a couple of weeks ago, and I thought it was really cool and I played my own music in it and all that stuff. And I think we're going to have more self-driving cars as well. But I think there will be a world where there are human-driven cars. I think there'll be self-driving cars. And I think as that technology becomes safer and safer outside of cities right now, I think it's better off in cities personally. That it will be part of our world. So we're going to be the ones out there advocating. We're the company that was built by drivers like me for drivers, and we'll be advocating for those people. But we recognize that we will be surrounded by self-driving cars. Charles Peters: Great. I know it was a little bit off topic, but not really. I mean it's a great... McKeel Hagerty: Not really, non-topic. Yes. Charles Peters: It's a great product. It's not in your classic car sweet spot yet, but I'm sure it will be at some point. Listen, I know you spent some time in your prepared remarks and maybe in the follow-up Q&A talking about the PYD, the prior year development. Can you just revisit that and just walk us through what's the source? Is it lower severity? And maybe take the results that you reported, is there anything -- any read-through as we look forward on how the reserves are seasoning? Patrick McClymont: Sure. So the prior year is about $6.5 million reduction that we had in the first quarter. And you'll recall in the fourth quarter, we had about a $20.5 million reduction in reserves. So this is a continuation. The $6.5 million, it was predominantly the 2025 accident year. And we're starting to see that development in the fourth quarter, and that influenced what we did in the fourth quarter. But it just matured and continues to mature in a very attractive way for us. And so what we're seeing is a combination of from a severity standpoint, we're in a good spot, continue to be in a good spot. We talked about frequency before. We've talked about what we're doing in terms of claims outcomes. And so it's really just looking at the historical book of losses and as those are maturing and layering into that what we've done to make sure that we're delivering from a claim's standpoint, it's all adding up to that we end up in a better position. That's our market-to-market as of right now for prior years. We'll see how the balance of this year unfolds, but we think we're in a solid position right now. Operator: We take the next question from the line of Mark Hughes from Truist Securities. Mark Hughes: Patrick, you had mentioned that you probably see another year of mid-teens growth in written premium next year. Any early thoughts on EBITDA growth when we think about expenses that may be either ramping up or being leveraged? How should we think about EBITDA in 2027? Patrick McClymont: No, no early thoughts on that. We're going to stick to sort of the focus on the prompt year in terms of guidance. Hopefully, what came through in those comments, this is a business that continues to grow at that sort of very credible mid-teens type rate, so we feel good about that. And it's also a business that we have demonstrated that we've been able to expand margins over time. And then it's also a business that we're choosing to invest in to make sure that we deliver that growth, not just for the next year, the next 2 years, but for the long haul. And so that's the balance that we're constantly striking. Mark Hughes: And then, McKeel, you talked about the higher guaranteed value that, that is a benefit over time. Is there a specific number that you would throw at that? Is that kind of a low single-digit tailwind? Or how should we think about how much that helps year-to-year? McKeel Hagerty: Yes. Well, thank you. What's interesting when we go back -- what's interesting to compare it against is that when I think of the few times in my career where the market has taken some sort of dip. So for example, all the way back to, believe it or not, the dot-com crisis, the great financial crisis, we know COVID was -- had the exact opposite effect is that I was sort of looking at, okay, which cars kind of held steady and which cars kind of went up. And we certainly have seen for the last 15 or so years where sports cars, sports racing cars, Ferraris, Porsches, that sort of thing, of earlier generations were the ones that showed the greatest amount of increases year-over-year, while the rest of the book kind of held steady, which is still differentiated from a standard brand-new daily driver book of business that would be depreciating over time. But definitely, what we're seeing right now is this sort of more modern supercar, hypercar segment that we're seeing in the Broad Arrow business. Those are the cars that are most sought after. And they're lifting everything around them. So when we were seeing cars from -- so when I think modern supercars, I think cars from the '90s, even the 2000s. And these are Ferraris and similar types of cars that were that are just -- they're being purchased at a higher price point by new entrants into the market, but also by older well-heeled collectors. And so it's that double effect where you get maybe new money deciding to come in there and pay 10%, 15%, 30% more than the car was worth or in a few cases, just multiples of that. But it's also that well-heeled collector that had an earlier generation of cars who they step up and say, well, I don't want to be left without the new hot thing. So I'm actually willing to lighten up on my other parts of my collection, so I can go buy the latest and greatest or they're just continuing to add to their collection. So in general, it's sort of single-digit steady growth on those types of cars, but you get these just wild examples of like the 2003 Enzo that we sold for $15 million. I mean that was a $3 million to $5 million car a couple of years ago, and it's just astonishing. Patrick McClymont: Yes, Mark, we've looked at all that over the last 15 years, as McKeel described, on average, it ends up being low single digits. In those 15 years, there's only 2 years where it ticked down a little bit, and that can happen. And then some years, it's mid-single digits or even high single digits. But in the long run, it ends up being that low single-digit type number. Mark Hughes: Very good. Well, I'll tell my own story I parked in church next to Camaro Z28 and it looked sort of like a beer, but it was still in pretty good shape. And when he pulled out it had the license plate and peak auto is intriguing and also since I had that car when it was new, I felt a little antique as you drove away. So anyway. Patrick McClymont: We don't call that a beer. We say it has patina. McKeel Hagerty: It has patina. Yes. It's -- those are wisdom marks. As the 63 Corvette was, I must admit a little slow cranking when I was turning it over. And then I realized like, well, you're a couple of years older than I am, and I'm feeling a little slow cranking myself. So that's all right. Operator: We take the next question from the line of Mike Zaremski from BMO Capital Markets. Michael Zaremski: Maybe just back to the excellent PIF growth and revenue growth question. It sounds like if you agree that underlying seasonality did take place. So the kind of the overlay was the State Farm conversions. I'm just trying to kind of help dimension the impact State Farm's having. Is that a fair way to think about it? Patrick McClymont: Yes, that's accurate. McKeel Hagerty: Yes. Michael Zaremski: Okay. Great. And I can see there was a $50 million in proceeds from a loss portfolio transfer in the quarter. Any color on what happened there, any implications for capital return, et cetera? Patrick McClymont: So that's part of the overall transition evolution of our relationship with Markel. And so for the prior periods, we did a loss portfolio transfer. So they transferred to us $50 million. We've assumed all those liabilities. And keep in mind, this is the 20% or so because some of the prior years where we were taking a little bit less of the risk. But it really just represents that. So it's risk that we already had. We're just topping it up for those prior period. And so we received that cash. We put the liability on our balance sheet. As you go through the queue, you'll see that we're assuming that there's a gain associated with that. And then that gain amortizes into the income statement over the expected settlement of those claims, which in the aggregate will take, I don't know, call it, 4 years or so, but it's pretty front-end loaded. And so that will flow through. This is not a risk transfer transaction, so it's a financing. And so it hits down on the other income and expense line item. Operator: We take the last question from the line of Tommy McJoynt from KBW. Thomas Mcjoynt-Griffith: When we look at the mid-teens premium growth in the guide this year, is there a roughly even split between the core legacy Hagerty business, State Farm and Enthusiast Plus? Or is there one of those contributing more than the others? Patrick McClymont: Yes. We're not going to kind of break it down by the different lines that you just described. What I will say is this year, 2026 and then 2027 are going to be big years for State Farm conversion. I think between new and converted, we're already in excess of 100,000 policies. But in total, it's 500-plus thousand policies. And so we're kind of in the thick of it right now. So that is a meaningful driver this quarter and it will be this year and next year. And then the core business continues to grow at the kind of rates that it has been for the last handful of years. So very consistent there. And then E-Plus is still very, very small. So that's not much of a driver at all right now. Thomas Mcjoynt-Griffith: Got it. And then switching gears. As we track the large national carriers start to file for rate decreases in some instances, we understand that probably doesn't impact the core Hagerty business, but does that at all impact your outlook for Enthusiast Plus, just where there's a bit more overlap with the daily drivers? Patrick McClymont: You're right for the core business, when we look at what our rate increases have been over the long haul, it's again, low single digits, right? So we're not -- and that's continued over the last couple of years. We've done some things on the liability front and address that. But our rate increases are pretty modest. As we think about the E-Plus business, it's hard to say because that's the current environment right now. E-Plus, we're in one state in Colorado, right? And so we're rolling this out over time. And we're learning in Colorado, and we'll learn in the other states in terms of what the right approach is on pricing and what that means in terms of the liability of the product and the profitability, I should say. So it's hard to say that the current market is heavily influencing our plans there just because of where we are in the rollout plan. Operator: Ladies and gentlemen, with that, we conclude the question-and-answer session. I now hand the conference over to McKeel Hagerty for closing comments. McKeel Hagerty: Thank you, operator, and thanks to everyone on the call for your continued support. I want to close today by coming back to where we started this morning. Hagerty has never been better positioned to serve the community of auto enthusiasts who trust us to protect what they love. We have a fast-growing recurring revenue model built around specialty insurance that delivers combined ratios of 90% year after year. Our high-quality underwriting and rapidly scaling business allows us to price at a meaningful discount to traditional carriers. What we are building at Hagerty is incredibly unique in the insurance world, making us the partner of choice because there is no one else who can do what we do for their customers, helping the retention and protecting their bundled business. We also have a fast-growing auction and marketplace business that did not exist 4 years ago and is setting world records all over the world. And we have a membership community approaching 1 million paid members that love our member-centric products and services. Thank you, One Team Hagerty. The results we deliver are the product of your passion, excellence and hard work, and I cannot wait to see what this amazing team can accomplish over the coming years as we to double PIF count to 3 million by 2030. We look forward to seeing some of you at Villa d'Este in May, and we hope many of you will join us at our annual investor event in Greenwich, Connecticut on May 29, where we will share an update on our progress towards delivering compounding profit growth for our shareholders. Invites will follow, but please reach out to us for more details or to our SVP. Until then, never stop driving. Operator: Thank you. Ladies and gentlemen, the conference of Hagerty has now concluded. Thank you for your participation. You may now disconnect your lines.
Operator: Thank you for standing by. My name is Jordan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 2026 Vanda Pharmaceuticals Inc. earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Vanda Pharmaceuticals Inc.’s Chief Financial Officer, Kevin Moran. Please go ahead. Kevin Moran: Thank you, Jordan. Good afternoon, and thank you for joining us to discuss Vanda Pharmaceuticals Inc.’s first quarter 2026 performance. Our Q1 2026 results were released this afternoon and are available on the SEC’s EDGAR system and on our website, vandapharma.com. In addition, we are providing live and archived versions of this conference call on our website. Joining me on today’s call is Mihael H. Polymeropoulos, our President, Chief Executive Officer, and Chairman of the Board. Following my introductory remarks, Mihael will update you on our ongoing activities. I will then comment on our financial results before we open the lines for your questions. Before we proceed, I would like to remind everyone that various statements that we make on this call will be forward-looking statements within the meaning of federal securities laws. Our forward-looking statements are based upon current expectations and assumptions that involve risks, changes in circumstances, and uncertainties. These risks are described in the cautionary note regarding forward-looking statements, Risk Factors, and Management’s Discussion and Analysis of Financial Condition and Results of Operations sections of our most recent Annual Report on Form 10-K, as updated by our subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings with the SEC, which are available on the SEC’s EDGAR system and on our website. We encourage all investors to read these reports and our other filings. The information we provide on this call is provided only as of today, and we undertake no obligation to update or revise publicly any forward-looking statements we may make on this call on account of new information, future events, or otherwise, except as required by law. With that said, I would now like to turn the call over to our CEO, Mihael. Thank you very much. Mihael H. Polymeropoulos: Good afternoon, everyone, and thank you for joining us today for Vanda Pharmaceuticals Inc.’s first quarter 2026 earnings conference call. Vanda delivered strong commercial execution in the first quarter, highlighted by 26% year-over-year growth in Fanapt sales, the groundbreaking U.S. launch of Nirius with its pioneering direct-to-consumer platform at nirius.us, and the FDA approval of Dysanti. We believe that these achievements, combined with meaningful pipeline progress and our raised 2026 revenue guidance, position the company for continued growth and value creation. Financial highlights. Total net product sales reached $51.7 million in Q1 2026, a 3% increase compared to $50 million in Q1 2025. Fanapt net product sales were $29.6 million, up 26% year-over-year. Full-year 2026 revenue guidance was raised to $240 million to $290 million, including $10 million to $30 million from newly launched Nirius. Commercial highlights. Fanapt saw continued strong momentum with total prescriptions (TRx) up 32% and new-to-brand prescriptions (NBRx) up 76% versus 2025. In April 2026, weekly TRx for Fanapt reached an eleven-year high of over 2.6 thousand prescriptions for the week ending 04/24/2026. Nirius is now commercially available nationwide through nirius.us, Vanda’s innovative direct-to-consumer platform. This pioneering patient-centric model enables convenient ordering online with rapid direct delivery, eliminating traditional pharmacy barriers and providing a seamless modern access experience. As the first new prescription therapy approved for the prevention of vomiting induced by motion in adults in more than forty years, Nirius represents a breakthrough in both science and patient access. Some key regulatory and clinical development highlights. Dysanti (milsoperidone) received FDA approval for the treatment of bipolar I disorder and schizophrenia. Dysanti is protected by data exclusivity through 02/20/2031 and multiple patents, the latest of which expires on 05/31/2044. Vanda’s ongoing late-stage clinical studies are progressing rapidly and are expected to generate top-line results in 2026 or early 2027, including the Phase 3 study of Dysanti as a once-daily adjunctive treatment for major depressive disorder with results expected in Q1 2027; the third Phase 3 study of Nirius for the prevention of vomiting in patients receiving GLP-1 receptor agonist therapies with results expected in 2026; and the Phase 3 study of VQW-765 in the treatment of adults with social anxiety disorder with results expected by 2026. The FDA accepted the Biologics License Application for imsidolimab in generalized pustular psoriasis, with a Prescription Drug User Fee Act target action date of 12/12/2026. The results of the pivotal clinical study were published in the 04/28/2026 issue of the New England Journal of Medicine Evidence. In summary, 2026 is developing into a transformational year for Vanda Pharmaceuticals Inc. with an extensive and diversified portfolio of commercialized products that include Fanapt, Hetlioz, Hetlioz LQ, Ponvory, Nirius, Dysanti, and potentially imsidolimab by year-end. Our recent innovative launch of Nirius through the nirius.us platform revolutionizes customer experience through a convenient ordering system at a significantly discounted cash-pay price. Finally, our late-stage pipeline, with several Phase 3 studies, is poised to further diversify our portfolio and strengthen Vanda’s commercial presence for years to come. With that, I will turn now to Kevin to discuss our financial results. Kevin Moran: Thank you, Mihael. I will begin by summarizing our first quarter 2026 financial results. Total revenues for Q1 2026 were $51.7 million, a 3% increase compared to $50 million for Q1 2025, and a 10% decrease compared to $57.2 million for Q4 2025. The increase as compared to Q1 2025 was primarily due to growth in Fanapt revenue as a result of continued commercialization efforts for Fanapt in bipolar disorder, partially offset by decreased Hetlioz revenue as a result of generic competition. The decrease as compared to Q4 2025 was primarily driven by the impact of insurance plan disruptions and deductible resets that are typical in the industry at the beginning of the year. Let me break this down now by product. Fanapt net product sales were $29.6 million for Q1 2026, a 26% increase compared to $23.5 million in Q1 2025, and an 11% decrease compared to $33.2 million in Q4 2025. The increase in net product sales relative to Q1 2025 was attributable to an increase in volume partially offset by a decrease in price, net of deductions. Fanapt total prescriptions, or TRx, for Q1 2026, as reported by IQVIA Xponent, increased by 32% compared to Q1 2025. Fanapt new patient starts, as reflected by new-to-brand prescriptions, or NBRx, for Q1 2026, as reported by IQVIA Xponent, increased by 76% compared to Q1 2025. The decrease in net product sales relative to Q4 2025 was attributable to a decrease in volume and price, net of deductions. Fanapt TRx for Q1 2026 decreased by 1% as compared to Q4 2025. The decrease in volume was primarily driven by the impact of insurance plan disruptions and deductible resets that are typical in the industry at the beginning of the year and that we have observed with Fanapt and the broader atypical antipsychotic market in prior years. Historically, Fanapt inventory at wholesalers has ranged between three and four weeks on hand, as calculated based on trailing demand. As of the end of Q1 2026, Fanapt inventory at wholesalers was slightly above four weeks on hand, generally consistent with the level of inventory weeks on hand as of Q4 2025, but slightly above the historic range. Turning now to Hetlioz. Hetlioz net product sales were $15.9 million for Q1 2026, a 24% decrease compared to $20.9 million in Q1 2025 and a 3% decrease compared to $16.4 million in Q4 2025. The decrease in net product sales relative to Q1 2025 and Q4 2025 was attributable to a decrease in volume as a result of continued generic competition in the U.S., which has contributed to declines in expenses for both comparative periods. Of note, for Q1 2026, Hetlioz continued to be the leading product from a market share perspective despite generic competition for over three years. Hetlioz net product sales can be impacted by changes in inventory stocking at specialty pharmacy customers from period to period. Hetlioz net product sales have fluctuated and may continue to fluctuate from quarter to quarter depending on when specialty pharmacy customers need to purchase again. Hetlioz net product sales may decline in future periods, potentially significantly, related to continued generic competition in the U.S. And finally, turning to Ponvory. Ponvory net product sales were $6.2 million for Q1 2026, a 10% increase compared to $5.6 million for Q1 2025, and an 18% decrease compared to $7.6 million in Q4 2025. The increase in net product sales relative to Q1 2025 was attributable to an increase in volume and price, net of deductions. The decrease in net product sales relative to Q4 2025 was primarily attributable to a decrease in price, net of deductions, partially offset by an increase in volume. The specialty distributor and specialty pharmacy inventory on-hand levels during these periods were in line with normal ranges. Of note, underlying patient demand was essentially flat between Q4 2025 and Q1 2026, even in light of the negative impact of insurance plan disruptions and deductible resets at the beginning of the year. Additionally, as we have previously discussed, an amount of variable consideration related to Ponvory net product sales is subject to dispute, of which approximately $3 million was recognized for the three months ended 12/31/2024. For Q1 2026, Vanda recorded a net loss of $48.6 million compared to a net loss of $29.5 million for Q1 2025. The net loss for Q1 2026 included income tax expense of $100 thousand as compared to an income tax benefit of $7.9 million for Q1 2025. As a reminder, the company recorded a one-time tax charge in 2025 to establish a valuation allowance against all of Vanda’s deferred tax assets. Tax expense is expected to be nominal going forward until such time that a valuation allowance is no longer required. Operating expenses for Q1 2026 were $101.9 million, compared to $91.1 million for Q1 2025. The $10.8 million increase was primarily driven by higher SG&A expenses related to spending on Vanda’s commercial products as a result of the continued commercialization efforts for Fanapt in bipolar disorder and Ponvory in multiple sclerosis, expenses associated with the preparation for Nirius and Dysanti commercial launches, and higher legal expenses. These increases were partially offset by lower R&D expenses on our imsidolimab program, partially offset by an increase in expenses for our Dysanti major depressive disorder program, VQW-765 social anxiety disorder program, and other development programs. Q1 2025 included an upfront payment to Anaptys for the exclusive global license agreement for the development and commercialization of imsidolimab. On the commercial side, during 2024 and 2025, we conducted a host of activities as a result of the commercial launches of Fanapt in bipolar disorder and Ponvory in multiple sclerosis, including an expansion of our sales force and the development of prescriber awareness and comprehensive marketing programs. Additionally, in 2025, we launched our direct-to-consumer campaign, which has driven meaningful gains in brand awareness for the company and our products, Fanapt and Ponvory. Throughout 2025 and Q1 2026, we maintained strategic investments in our commercial infrastructure, including increased brand visibility through targeted sponsorships, with the goal of supporting long-term market leadership and future commercial launches. Vanda’s cash, cash equivalents, and marketable securities (referred to as cash) as of 03/31/2026 were $202.3 million, representing a decrease of $61.5 million compared to 12/31/2025. The decrease in cash was driven by the net loss in Q1 2026, as well as a one-time milestone payment of $10 million made to Eli Lilly in Q1 2026 for the approval of Nirius in the U.S.; seasonal compensation and benefit payments, which generally hit during the first quarter of the year, of approximately $7 million; and payments to third parties for manufacturing of commercial and clinical product of approximately $11 million, which is significantly higher than recent quarters. As a reminder, payments made in advance of production are capitalized as a prepaid expense. Commercial products are capitalized as inventory on our balance sheet after production, while pre-commercial products are generally expensed as research and development costs as incurred. The timing of manufacturing of pre-commercial products may result in future variability of our R&D expense, depending upon the timing of production. When adjusting the decrease in cash for these items, the change in Q1 2026 would have been closer to $40 million. With regard to the launches of Fanapt in bipolar disorder and Ponvory in multiple sclerosis, the launches were initiated in 2024, and we continue to enhance our commercial efforts through 2026, with the impact of these commercial efforts contributing to revenue growth in 2025 and expected to continue to contribute to our revenue growth in 2026 and beyond. We have already seen significant growth in our commercial activities. Several lead indicators suggest a strong market response to our commercial activities related to Fanapt for bipolar disorder, including total prescriptions (TRx) increased by approximately 32% in Q1 2026 as compared to Q1 2025. In April 2026, weekly TRx for Fanapt reached an eleven-year high of over 2.6 thousand prescriptions for the week ending 04/24/2026. New patient starts, as reflected by NBRx, increased by 76% in Q1 2026 as compared to Q1 2025. Of particular note, Fanapt was one of the fastest growing atypical antipsychotics in the market throughout 2025 and into 2026, based on several prescription metrics. Our Fanapt sales force continues to expand. Our Fanapt sales force numbered approximately 160 representatives at year-end 2024 and increased to approximately 300 representatives at year-end 2025. These expansions have allowed us to significantly increase our reach and frequency with prescribers. To that end, the number of face-to-face calls in Q1 2026 was more than 80% higher than the number of face-to-face calls in Q1 2025. In addition to our Fanapt sales force, we have established a specialty sales force to market Ponvory to neurology prescribers around the country and have grown this sales force to approximately 50 representatives. Fanapt performance remains the focus of Vanda’s commercial initiatives and encourages us to continue to invest in this differentiated medicine and the franchise-extending launch of Dysanti. Before turning to our financial guidance, I would like to remind folks that with Fanapt, Hetlioz, Ponvory, and now Nirius already commercially available, and with Dysanti recently approved for bipolar disorder and schizophrenia, and a Biologics License Application for imsidolimab now under review by the FDA, Vanda has five products currently commercially approved and could have six products commercially approved by year-end 2026. Turning now to our financial guidance. Vanda is raising its full-year 2026 total revenue guidance to reflect the potential contribution of newly launched Nirius while maintaining prior ranges for Fanapt and other products. Vanda expects to achieve the following financial objectives in 2026: total revenues from Fanapt, Hetlioz, Ponvory, and Nirius between $240 million and $290 million. The midpoint of this revenue range of $265 million would imply revenue growth in 2026 of approximately 23% as compared to full-year 2025 revenue. This compares to previous guidance of total revenues from Fanapt, Hetlioz, and Ponvory of between $230 million and $260 million. Fanapt net product sales of between $150 million and $170 million. The midpoint of this range would imply Fanapt revenue growth in 2026 of approximately 36% as compared to full-year 2025 Fanapt revenue. This guidance is consistent with the previously communicated revenue guidance. Assuming consistent gross-to-net dynamics between 2025 and 2026, the bottom end of the range assumes high single-digit to low double-digit sequential quarterly TRx growth for Fanapt in the remainder of 2026. The top end of the range assumes mid-teens to high-teens sequential quarterly TRx growth for Fanapt in the remainder of 2026. Other net product sales of between $80 million and $90 million. This range assumes a further decline of the Hetlioz business due to generic competition and modest growth of the Ponvory business, where we are seeking to significantly improve market access to the product. Depending on our success in these efforts, we could see meaningful improvements in patients on therapy, prescriptions filled, and prescriptions written by prescribers. This guidance is also consistent with the previously communicated revenue guidance. Finally, Nirius net product sales of between $10 million and $30 million. This guidance was not previously provided and is being introduced as part of the Q1 earnings update. Vanda is currently making conditional investments to facilitate future revenue growth, both in the form of R&D investments, commercial manufacturing, and potentially outsized commercial investments, which could vary moving forward depending on the success of these commercial strategies. As previously communicated, Vanda is not providing 2026 cash guidance at this time; however, it is likely that Vanda’s 2026 cash burn will be greater than the cash burn in 2025. With that, I will now turn the call back to Mihael. Mihael H. Polymeropoulos: Thank you very much, Kevin. At this point, we will be happy to answer your questions. Operator: As a reminder, if you would like to ask a question during this time, please press star followed by one on your telephone keypad. Your first question comes from the line of Olivia Brayer from Cantor. Your line is live. Olivia Simone Brayer: Hi. Good afternoon. Thank you for the question. Can you run through what the pushes and pulls are that you are using for that $10 million to $30 million guidance range for Nirius? It seems like somewhat of a big range given that it is so early in the launch, so I am curious what the higher end of the range assumes versus the lower end. And then on Dysanti’s launch, what is the progress on getting that to patients at this point? And should we assume that any contribution from Dysanti this year is essentially embedded in your Fanapt guidance, or is it just too early to start attributing revenues there? Mihael H. Polymeropoulos: Maybe, Olivia, I will start off by saying it is very early on the new launch, and you have seen that we are approaching it as a broadly available commercial product with a direct-to-consumer platform, which is in the early days. Of course, we are working through all the dynamics and logistics of that. We will have a better idea on progress by our next call. In terms of the $10 million to $30 million, we are excited about the opportunity. We know we are tapping a market of potentially 70 million people with motion sickness, and a good percentage of them suffering from severe motion sickness that is not properly treated today. The $10 million to $30 million is a relatively wide range, but it is not informed by experience; it is more modeling from the total market opportunity and other treatments for motion sickness. I will turn it to Kevin. Kevin Moran: That is right, Olivia. That is what is driving the range; it is not informed by actual data at this point. It is informed by modeling and what we have seen in some of our qualitative and quantitative research. As we gather more information, we will be able to provide additional context as the year progresses. On the Dysanti side, what we previously communicated is that we were looking to have the product available in the back half of the year, and that is still on track. We are working to bring that product to market. As far as the revenue contribution goes, it is still pre-launch, so a little early. I would not think about it as embedded in the Fanapt revenue item because we expect that we will see demand for Dysanti independent of Fanapt. For any demand that we see for Dysanti that replaces Fanapt demand, we are expecting to see meaningful net price favorability, which would lead to a larger revenue contribution from a Dysanti unit versus a Fanapt unit. Olivia Simone Brayer: Got it. So for Dysanti specifically, is it just a matter of waiting until it is officially commercially available before providing any sort of revenue numbers around that, or is 2026 maybe just a little bit too early to start modeling Dysanti? Kevin Moran: We have not committed to providing revenue guidance on Dysanti at a specific point in time, but the launch is going to be critical to us having better visibility. We will be looking to provide additional updates, and it is not necessarily too early depending on the time at which we launch the product. Olivia Simone Brayer: Okay. Thank you. Helpful. Operator: Thanks, Olivia. Your next question comes from the line of Raghuram Selvaraju from H.C. Wainwright. Your line is live. Raghuram Selvaraju: Thanks so much for taking my questions. First, I was wondering if you could provide us with some additional color regarding the timeline to reporting of top-line data for the tradipitant study assessing its ability to attenuate nausea and vomiting and other GI side effects associated with GLP-1 drugs. Kevin Moran: Thanks, Ram. In the press release today, we said results by the end of 2026, and our timing is consistent with what we communicated most recently in our initial launch of the program. We are actively enrolling patients at this point, so that timing is informed by actual activity. Raghuram Selvaraju: Can you talk a little bit about what your expectations are for that dataset—what you would consider to be a clinically meaningful result—and if you are also going to have additional information regarding the impact of tradipitant use on adherence and efficacy outcomes on the GLP-1s for patients enrolled in the study? Mihael H. Polymeropoulos: Thank you, Ram. First of all, the Phase 3 study is of a very similar design to the Phase 2 study for which we reported positive results in November. That is a week of pretreatment with tradipitant or placebo, and then a single injection of Wegovy at 1 mg and follow-on for another week. We aim to confirm the previous finding of the significant reduction in vomiting episodes. That was highly clinically meaningful. On your question about adherence, with this short study, we will not have that information. It is widely known that decreased GI tolerability, especially around dose escalation to higher doses, is a significant contributor to decreased adherence. Raghuram Selvaraju: Can you comment on the possibility or likelihood of any off-label use of tradipitant, given the fact that it is now an approved drug for motion sickness among those folks taking GLP-1 drugs, who may potentially have obtained them via some consumer health initiative, to assist them in achieving long-term adherence? Mihael H. Polymeropoulos: The keyword here is label. We cannot promote off-label use, especially when in the midst of clinical studies and certainly not before approval in that indication. We do not have insights to share on off-label use. We certainly hope that upon approval there will be significant interest. Raghuram Selvaraju: Last question for me is with respect to the long-acting injectable formulation of iloperidone. Can you provide us with an update on that and how rapidly you expect to be able to advance the product candidate at this juncture? Mihael H. Polymeropoulos: For context, this is the long-acting injectable iloperidone being used in a study to measure relapse prevention in schizophrenia. The study is ongoing in the U.S.; however, it is recruiting slowly. We think that is a phenomenon in the field with these studies and the required design of a placebo-controlled relapse prevention trial. We are concerned that this exact model that has worked extremely well for Fanapt oral and other antipsychotics is becoming less amenable to studying new drugs. We are thinking and potentially discussing with the FDA soon that not only is recruitment slower in the U.S. for this type of placebo-controlled schizophrenia relapse prevention study, but the rate of relapse on placebo has been significantly reduced compared to historical data. It is too early for us to say what the exact placebo relapse rate will be in this study, but we already believe it will be much lower than in our prior oral iloperidone relapse-prevention study. Together, these suggest concerns about timing and progress, but we have several ideas and plan to engage the FDA in a constructive discussion and perhaps modify the development plan. Operator: Your next question comes from the line of Madison Wynne El-Saadi from B. Riley. Your line is live. Madison Wynne El-Saadi: Hi, thanks for taking our questions. Maybe I will ask about the recent New England Journal publication on imsidolimab in GPP. We are looking at a potential Christmas-time approval again. Are you taking steps now to lay the groundwork for a potential year-end commercial launch? Would this likely be something where there is a one-quarter cushion before the launch? And is the expectation that you would receive approval in both the acute and the maintenance settings out of the gate? Mihael H. Polymeropoulos: Thank you very much, Madison. You are correct. We are very excited with the publication in a high-caliber journal, the New England Journal of Medicine Evidence, a testament to peer-review scrutiny around these impressive data. On indication, we believe that the data from the GEMINI-1 and GEMINI-2 studies support both immediate treatment of acute flares with a single injection and maintenance of response in responders with once-every-four-week injections. That is our proposed indication with the FDA. We are also making progress toward regulatory filings in Japan and in Europe, but they are much earlier than the FDA submission. In terms of launch timing, this is a complex product to manufacture, being a monoclonal antibody. We do not expect that we will be commercially launching right after the PDUFA date. There will be some lag time, but we hope we can launch within 2027. Madison Wynne El-Saadi: Understood. On the Fanapt prescription data and the reacceleration in April—Dysanti was approved late February—was there a halo effect, or was that purely the sales force you described? Kevin Moran: Thanks, Madison. Historically, including this year, we have seen the first quarter have seasonality with both Fanapt and the broader atypical class. This first quarter was no exception. In line with our expectations, we saw a flattish first quarter on prescription demand, consistent with last year and years prior. Last year, after the first quarter, we saw an acceleration and sequential quarterly growth in the double-digit range in the second, third, and fourth quarters. That is our expectation this year and is supported by what we see in the April data, which includes our highest TRx number in over eleven years—over 2.6 thousand. The pattern we have seen in prior years and expected to see this year has played out to date. Mihael H. Polymeropoulos: I agree, and also want to emphasize that the commercial infrastructure is mature. We have approximately 300 representatives, well trained and developing their relationships in the field, supported by a significant speaker program and our brand awareness direct-to-consumer marketing. Madison Wynne El-Saadi: Understood. Thank you. Operator: Your next question comes from Les Solisky from Truist. Your line is live. Les Solisky: Great. Thank you for taking my questions. First, on Fanapt, do you have a sense of what portion of the TRx and NBRx are coming from bipolar versus schizophrenia? And with inventory running above normal, should we expect any wholesaler destock in 2Q? And then on Dysanti, can you rank the launch priorities—new patient starts versus switches from Fanapt—and targeting Medicaid-heavy patients? And third, I see the MDD readout was moved to 2027 from year-end 2026. What drove the timing shift? And I have a follow-up. Thank you. Kevin Moran: Thanks, Les. On the split, while we do not analyze the data at an indication level, our expectation is that the primary driver of Fanapt growth is the bipolar label expansion we got in 2024. That has informed our targeting strategy, call points, and call guidance. As for stocking, historically we have seen Fanapt inventory levels at three to four weeks. At the end of Q1 2026, Q4 2025, and as far back as 2024, inventory levels were at or slightly above four weeks on hand. The inventory at the end of the first quarter is consistent with what we have seen recently and what we would expect for a product that is growing. Because it is measured off trailing demand, if demand is growing, the calculation lags. I would not expect a destock; I would expect inventory levels to maintain at this level as long as Fanapt continues to grow. On prioritization of new patients versus switches from Fanapt to Dysanti, we will prioritize both. Dysanti will be detailed as a newly approved atypical antipsychotic, and we will deploy commercial strategies to move appropriate prescriptions from Fanapt to Dysanti. With the Dysanti launch in the back half of this year and the potential Fanapt loss of exclusivity at the end of next year, we have about five quarters where both products will be in the market, enabling a switch strategy while executing a launch strategy as well. Mihael will address the MDD timing. Mihael H. Polymeropoulos: Les, you are correct. We moved the timing of end of study and results for the MDD study to 2027 from 2026. We are still working hard to get results as soon as possible; it could be by year-end. We have better data now on recruitment speed, especially bringing on new sites in Europe. It is a reflection of projections from the actual recruitment data. Les Solisky: Thank you. On commercialization in motion sickness, can you provide some color around patient access to the drug and how net pricing looks outside of the website via the retail pharmacy channel? Lastly, I am curious about your pricing strategy given the competing NK1s out there and how this would translate to the GLP-1 adjunct opportunity. Kevin Moran: Thanks, Les. As we look at the insurance reimbursement landscape, with the product relatively recently approved, that process will play out over coming quarters and years as payers conduct their clinical assessments and periodic reviews. We expect to have more information to share on Nirius access and progress as we move further into the launch. Securing coverage is something we would like to achieve in addition to the cash-pay model, but the cash-pay model is our immediate focus with the innovative platform we have deployed. On pricing strategy, in the competitive NK1 class, per-dose pricing ranges from about $200 up to about $600. Our pricing strategy positions us in the middle to lower end. With an eye toward gastroparesis and, if we are successful on the regulatory front, the GLP-1 market, we believe that pricing will be competitive for those patients as well. Considerations included having the appropriate price for the motion sickness market while anticipating potential gastroparesis and GLP-1 markets. Mihael H. Polymeropoulos: I would add that we chose this commercial model because we believe motion sickness is a prototypical consumer product. As you can see on our website, we provide the product in increments of two capsules, which may be enough to supply someone for their business or personal travel where they may experience motion. We are receiving good comments on being very patient-centric. While in recent years we have seen a cash-pay model at discounted prices emerge for drugs like GLP-1 analogs, this is the first instance we know of where you can directly coordinate with the manufacturer. This is an innovative system we have built at Vanda that works in conjunction with a mail-order pharmacy to get the product to patients expeditiously. We are also working to add value-added services, including a telemedicine platform so that patients can conveniently obtain prescriptions. It is focused on the customer experience, and we want this to be an example for others to follow. You mentioned other NK1 antagonists. Yes, there are other approved drugs in the class; none have been studied or approved in motion sickness or as an adjunct to GLP-1 therapy. The lead product there has been aprepitant by Merck in chemotherapy-induced nausea and vomiting and postoperative nausea and vomiting. There are key label differences that can make Nirius more attractive for our consumer base, including the absence of interaction in the midazolam study, which differentiates Nirius from aprepitant, and aprepitant’s contraindication or warning around contraceptive use. Those and other items on the prescribing information, we believe, can make the product attractive for this approved indication. Les Solisky: Thank you. Just to clarify, would you consider a dual-model approach for the GLP-1 adjunct opportunity, meaning rolling it out with a DTC plan and a traditional insurance channel as well? Mihael H. Polymeropoulos: Our premise is broad access. Any way people want to acquire the product, we want to make it available. At the same time, we recognize the difficulties people are going through with the “middlemen”—pharmacy benefit organizations, plans, pharmacies—and price markups. There is a national discussion around that. The WAC price, the list price of $255 a capsule, is within the range of other NK1 antagonists. However, on cash pay, we are offering it at more than a 65% discount—from $255 to $85 a capsule—making it affordable for folks who travel for business or pleasure or engage in activities that cause motion sickness. We are also making the drug available to pharmacies and ensuring that wholesalers will either stock the drug or make it available upon demand. The premise is access, and access is not just insurance negotiations; it is appreciating independence and convenience by individual patients in accessing this drug. We think this dual model can achieve that. Operator: Your final question comes from the line of Andrew Tsai from Jefferies. Your line is live. Andrew Tsai: Hi. This is Faye on for Andrew. Thanks for the updates and for taking our questions. We have two questions. Number one is about milsoperidone. We want to gauge your views on its likelihood of success in the Phase 3 MDD trial. We know that not all antipsychotics work in MDD, so can you talk about your confidence in why milsoperidone should succeed, and is there any existing Fanapt data to support any of its benefits as an adjunct? Mihael H. Polymeropoulos: Yes, we are quite confident—that is why we are running this study, and we are running it with once-daily Dysanti. We think the study is properly powered to detect a clinically meaningful improvement in symptoms of depression. Generally, atypical antipsychotics are effective as an adjunctive treatment in major depression. The pharmacology includes dual dopamine and serotonin receptor antagonism and a strong, unique-in-class alpha-1 receptor antagonism. Whether that will be necessary to achieve the effect in major depression will remain to be seen, but we remain very confident in Dysanti’s ability to achieve the effect. Andrew Tsai: Thank you. The second question is for Nirius. It launched earlier this month, and you briefly touched on the pricing strategy. Can you talk about the sales cadence for this drug later this year moving into 2027? Mihael H. Polymeropoulos: With us launching mid–second quarter, we would expect revenue to grow as the year progresses, driven by the passage of time and the increase in our promotional activities. Operator: Thank you. There are no further questions. I would now like to turn it over to Vanda Pharmaceuticals Inc. management for closing remarks. Mihael H. Polymeropoulos: Thank you very much, all, for joining this call and for your questions. We look forward to talking to you soon. Operator: That concludes today’s meeting. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Welcome to Kimball Electronics' Third Quarter Fiscal 2026 Earnings Conference Call. My name is Rob and I'll be your facilitator for today's call. [Operator Instructions] Today's call, May 6, 2026, is being recorded. A replay will be available on the Investor Relations page of Kimball Electronics' website. At this time, I'd like to turn the call over to Andy Regrut, Vice President, Investor Relations, Strategic Development and Treasurer. Mr. Regrut, you may now begin. Andrew Regrut: Thank you, and good morning, everyone. Welcome to our third quarter conference call. With me here today is Ric Phillips, our Chief Executive Officer; and Jana Croom, Chief Financial Officer. We issued a press release yesterday afternoon with our results for the third quarter of fiscal 2026 ended March 31, 2026. To accompany today's call, a presentation has been posted to the Investor Relations page on our company website. Before we get started, I'd like to remind you that we will be making forward-looking statements that involve risks and uncertainty and are subject to safe harbor provisions as stated in our press release and SEC filings, and that actual results can differ materially from the forward-looking statements. Our commentary today will be focused on adjusted non-GAAP results. Reconciliations of GAAP to non-GAAP amounts are available in our press release. This morning, Ric will start the call with a few opening comments, Jana will review the financial results for the quarter and guidance for fiscal 2026, and Ric will complete our prepared remarks, before taking your questions. I'll now turn the call over to Ric. Richard Phillips: Thank you, Andy, and good morning, everyone. Results for the third quarter were in line with expectations. Sales increased sequentially compared to Q2 driven by strong growth in our Medical vertical market. Margins remain solid and cash from operations was positive for the ninth consecutive quarter. We expect Q4 to be a good finish to the year and we are affirming our guidance for fiscal 2026 with adjusted operating margin estimated to be at the high end of the range. As we look forward, the Medical CMO continues to be a key part of our strategy, and we are making deliberate investments in our capabilities, operating capacity and commercial focus. When volumes ramp, we expect it to become a meaningful driver of both top line growth and margin expansion. In addition, we continue to focus on inorganic growth as a possible complement to this strategy. We believe this could be a powerful combination for the future of our company. Turning to the third quarter. Net sales were $353 million, an increase of 3.4% compared to the prior quarter, with Medical up 10%. At face value, this result was a 6% decline compared to Q3 last year and all 3 end market verticals were down. It's important to highlight, however, that the third quarter of fiscal '25 included a nonrecurring sale of consigned inventory, totaling $24 million in the medical market. If we normalize the comparison for that event, total company sales this quarter increased nearly 1% year-over-year, with Medical up a robust 17%. This would represent our third consecutive quarter of double-digit Medical growth and year-to-date growth of 15% in this vertical. Drilling down a little deeper into Medical. Sales in the third quarter were $106 million or 30% of the total company, which, at nearly 1/3 of the portfolio, is a key milestone in our strategic objective to balance the verticals with a higher concentration of Medical business. North America accounted for slightly less than half of the sales in the quarter, while the other half was roughly split between Asia and Europe. The growth in Q3, after adjusting for the inventory sale last year, occurred primarily in Asia and North America, with increases in respiratory care, imaging systems, drug delivery devices and blood separation products. Sales in Europe were up low single digits, driven primarily by patient monitoring systems. Medical continues to be a compelling opportunity to diversify our top line and leverage core strengths. Our strategy is to support new and existing blue-chip customers in need of manufacturing capacity to keep pace with the overall market growth. And our state-of-the-art manufacturing facility in Indianapolis is designed to do just that. With capabilities in precision-injected molded plastics, complete device assembly and cold chain management, we are uniquely positioned to produce medical disposables, surgical instruments and selected drug delivery devices such as auto-injectors. Our recent investments in this new facility underscore our deep commitment to the Medical CMO market. Next is Automotive, with sales in the third quarter of $161 million, down 3% compared to Q3 of last year, and 46% of the total company. The decline this quarter was primarily in Asia and North America, partially offset by growth in Europe. Similar to Q2, Poland and Romania reported strong sales resulting from the ramp-up of new programs in steering and braking. Combined, these 2 locations were up 20% in Automotive sales in the quarter, and we expect this strength to continue for the balance of '26. In addition, we are carefully monitoring the demand for electronic steering systems for EVs, particularly in North America where legislative changes significantly impacted consumer incentives and the overall market, which unfortunately has significantly reduced the demand for EV programs we have won over the past few years. As you might imagine, this situation is fluid, particularly as gasoline prices move upward in the U.S. Finally, sales in Industrial totaled $86 million, an 8% decrease compared to Q3 last year, and 24% of total company sales. Once again this quarter, our Industrial business was heavily concentrated in North America where the majority of the decline occurred from lower demand for HVAC systems. Off-highway equipment and green energy were also down, partially offset by higher sales in public safety and smart meters, which continue to rebound in Europe but may be impacted near term by a protracted war in the Middle East. I'll now turn the call over to Jana for more detail on third quarter results and our guidance for fiscal 2026. Jana? Jana Croom: Thank you, and good morning, everyone. As Ric highlighted, net sales in the third quarter were $352.9 million, a 6% decrease year-over-year. Foreign exchange had a 3% favorable impact on consolidated sales in the quarter. On a sequential basis, sales increased 3.4%, driven by growth in the Medical vertical. The gross margin rate in the third quarter was 7.9%, a 70 basis point improvement compared to 7.2% in Q3 of fiscal 2025, with the increase resulting from favorable mix offset by the ramp-up of the Medical CMO and a somewhat easier comparison as the inventory sales we experienced in Q3 of FY '25 had very little margin. We expect gross margin to remain under some pressure in FY '27 related to the cost of the facility as expenses associated with the expansion fully ramp up in Q4 this year. As we have previously stated, the path to the CMO revenue is 18 to 36 months for new programs, and we expect this impact to abate over time as business grows and margin improves. Adjusted selling and administrative expenses in the third quarter were $13 million, a $1.8 million increase year-over-year. When measured as a percentage of sales, the rate was 3.7% this year, compared to 3% last year. As we previously indicated, expenses will be higher in FY '26 as we make strategic investments in business transformation, IT solutions that drive innovation and efficiency, and business development for the future. Adjusted operating income in Q3 was $14.8 million or 4.2% of net sales, which compares to last year's adjusted results of $15.7 million, which was also 4.2% of net sales. Other income and expense was expense of $3 million, compared to $4.6 million of expense last year. Once again, this quarter, interest expense drove the decrease, down nearly 30% year-over-year. The effective tax rate in Q3 was 34.9%, compared to 46.6% last year. As a reminder, the rate in the third quarter of fiscal 2025 was driven by the limitation of the tax deductibility of our interest expense, which cannot exceed a certain percentage of domestic EBIT. We expect a tax rate of approximately 30% for the full fiscal year. Adjusted net income in the third quarter was $8 million or $0.33 per diluted share, compared to last year's adjusted results of $6.8 million or $0.27 per diluted share. Turning now to the balance sheet. Cash and cash equivalents at March 31, 2026 were $82.5 million. Cash generated by operating activities in the quarter was $14.9 million, our ninth consecutive quarter of positive cash flow. Cash conversion days were 90, a 1-day improvement compared to last quarter and a 9-day improvement compared to Q3 of fiscal 2025. For clarity, our CCD calculation in Q3 FY '25 excludes the consigned inventory sale. We continue to focus on improving cash conversion days by actively managing the components. Inventory ended the quarter at $273.3 million, an $8.4 million reduction compared to Q2 and down $23.3 million or 8% from a year ago. Capital expenditures in Q3 were $14.4 million, with much of the spend on leasehold improvements in the new facility in Indianapolis balanced by spend to support new programs in Europe. We expect CapEx for the full year to be in our guidance range of $50 million to $60 million. Borrowings at March 31, 2026 were $163 million, up $8.8 million from the second quarter but down $15.8 million or roughly 9% from a year ago. Short-term liquidity available, represented as cash and cash equivalents plus the unused portion of our credit facilities, totaled $358.5 million at the end of the third quarter. In April, we renewed our $300 million revolver. Combined with our strong balance sheet, we have ample dry powder to support the future growth of the business, including opportunities for inorganic tuck-ins that would further our CMO strategy. We invested $4 million in Q3 to repurchase 165,000 shares. Since October 2015, under our Board-authorized share repurchase program, a total of $113.5 million has been returned to shareholders by purchasing 7 million shares of common stock. We have $6.5 million remaining on the repurchase program. As Ric mentioned, we affirmed our revenue range of $1.4 billion to $1.46 billion and expect adjusted operating income margin to come in at the high end of our guidance range of 4.2% to 4.5%. This would indicate that Q sales will be in the range of $370 million to $380 million, with adjusted OI margin in the range of 4.4% to 4.6%. I'll now turn the call back over to Ric. Richard Phillips: Thanks, Jana. Before we open the lines for questions, I'd like to share a few thoughts in closing. We're expecting Q4 to be a good finish to the fiscal year with another sequential increase in sales and with the growth in Medical outpacing the other 2 verticals, as we monitor the impacts of the war in Iran, including higher freight and raw material costs, higher gas prices and consumer sentiment. Looking ahead, we continue to evaluate strategic opportunities that could accelerate the expansion of our Medical CMO. In particular, we see strong inorganic growth potential with established medical manufacturers outside the U.S. seeking domestic market entry and scaled U.S. production. The ideal profile would bring complementary capabilities such as micro-molding, advanced precision injection and high-automation engineering expertise, while benefiting from cost-efficient operations in lower-cost geographies. These efforts are ongoing and align with our objective to broaden our capabilities, deepen customer relationships and position the company as a differentiated medical manufacturing partner. As I noted in my opening comments, we believe this is a powerful combination that will drive profitable growth in the future. I'm very excited for what's ahead for the company. Thank you for your ongoing support. Operator, we would now like to open the lines for questions. Operator: [Operator Instructions] The first question comes from the line of Mike Crawford with B. Riley Securities. Michael Crawford: I was hoping you can give us some more details on your new 300,000 square foot manufacturing facility and how your ramp of new programs in there is going to affect potential revenue growth and also margins, and like when you kind of hit that level where you're covering fixed costs and the margins start to layer in better on incremental revenue from there. Richard Phillips: Mike, yes, we're continuing to be really excited about Indianapolis, and actually just connected with our GM there in the last couple of days. The work continues to ramp up. Obviously, there's some approvals that we need, that we're working on, and the clean rooms are going in there and a lot of exciting things. We expect that we'll be actually producing in there by the end of the calendar year as we ramp toward that. It will be a combination of, of course, we're taking lots of customers through there, as you can imagine, right now, existing and new potential customers, but we'll also be moving over all of our current production in Indianapolis to that facility. So there'll be a combination of existing programs that are moving over, new programs that are coming. And we're also talking to customers about what we call lift-and-shift, which is programs that are already underway somewhere else, usually within the customers that we have producing themselves that we want to shift over to us and customers can find advantage from doing that. So it will be a combination. New programs, as Jana mentioned in her remarks, take time to ramp up, between clinical trials and so on. But yes, we'll be producing in there before the end of the calendar year and look to ramp that up through a combination of new and existing customers. Jana Croom: So Mike, to give you a little more color on the margin impact. We expect a 40 to 50 basis point impact to gross margin in fiscal '27 related to the costs associated with ramping that facility. Because remember, we still have all the costs associated with the current facility. We have not closed that facility, it's continuing to operate. And so you're going to feel it -- we will feel it in FY '27 while we're bringing on new production. The expectation is that by FY '28, those -- the impact on margin starts to abate as you're bringing in more and more revenue to cover those fixed costs. Michael Crawford: Okay. And just to continue on that, is that going to be most acute in the September, December and then start to abate in March? Jana Croom: In terms of calendar -- it depends on the timing of the -- it depends on the timing and speed of the ramp of new business, which is difficult to predict, and so I'm hesitant to give you for sure. But first half, we'll definitely feel it because there won't be much production there covering the expense. It depends on how Q3 and Q4 ramp as we are bringing in new business. And I can give you a better update on that in the coming quarters as volumes are ramping. Michael Crawford: Okay. And then just a final question for me is given that your Automotive business is well-situated for trends like electronic braking and steering and new technologies being brought up by your customers like next year, but is that something that seems like has maybe turned, unless there's an unexpected program loss to no one's fault, absent that, is that a vertical that you would expect to grow? Or is that really still overly dependent on the global macro economy? Richard Phillips: You just nailed it, Mike. Global macro. So we continue to feel like we're well positioned in both steering and braking. We're really focused on ensuring that we win those next-generation programs. We don't see major changes or losses, as you mentioned, we've experienced in the past at this point. But as I had mentioned in my remarks, the biggest pressure there has been the level of demand for programs that we already have been awarded where the demand hasn't been where we anticipated it to be. So as we look forward, and obviously, as Jana said, we'll give more insight here as we get to year-end across the whole business and also, of course, in Automotive, on what we're seeing. But the global economy is truly the biggest impact and driver of what we see there. Because we feel good about our positioning, the programs that we've won. We're just waiting to see what the demand for those programs is going to look like in the short term. Operator: Our next questions are from the line of Derek Soderberg with Cantor Fitzgerald. Derek Soderberg: Yes, and congrats on returning to organic growth here. So starting with another question on the Medical facility. Ric, you mentioned you plan on moving existing programs into that facility. And then when you sort of take into account the Medical deals you've signed over the past 12 to 18 months or so, can you quantify how much of the facility's capacity you've booked already? Can you quantify that at all? Richard Phillips: No, Derek, I think we're early on that. I mean we've got -- as you know, it's a leased facility. We ensure that we have lots of space for growth. And I can tell you, I've personally taken customers through there, really excited about what that looks like. Some of those programs in CMO can be much more significant than the typical Medical programs that we've had. But I would say that we're early given the ramp to estimate capacity there. I will say we've had customers ask us, can you expand? And the answer is yes. But I think we're a little early on those moves. Derek Soderberg: Got it. And then just on the pricing environment within the medical space specifically, we've seen some of your private peers mention intensifying competition in the medical and aerospace segments. Are you guys seeing aggressive pricing and competitive bids for new medical opportunities? Seeing anything like that in the market? Jana Croom: So the pricing is always competitive, that -- especially in the CMO/CDMO space, the pricing is always competitive. What I would say is it's still rational. And there are other areas of the market where we've seen where the pricing is not rational. But in the medical CMO space, we would say, aggressive, fair, but still rational. And part of that is driven by just the need for supply chain in the space. The proliferation of growth in the medical space is such that they need more and more suppliers in the supply chain. And so that is keeping everything rational right now. Derek Soderberg: Got it. And then my last question, just I was wondering if you could mention or talk about the M&A environment. It looks like your balance sheet just continues to improve here, debt coming down. I was wondering if your ability to go out and do a larger inorganic agreement to something that's increasingly on the table or maybe that those plans haven't changed. And then just broadly on the M&A space, how are valuations trending, getting more expensive? Anything sort of to note on that front? Richard Phillips: Yes, Derek. I mean, yes, very much part of our strategy. I'll tell you our efforts over the last year in terms of laying out criteria within the Medical CMO, thinking about potential targets, interacting with our Board, is at a high level. So definitely part of our strategy. We think about it, as Jana had mentioned in her comments, around tuck-ins, opportunities that could add geographic advantages for us, things that could help us as we look to continue to fill capacity within the new facility in Indianapolis, opportunities that will advance our capabilities and expand what we're able to do from a technology standpoint. All of those are on the table. Our team is very active in evaluating. And yes, from a financial standpoint, we're very comfortable with the cash that we've generated and our situation from a debt standpoint, that we can act decisively in M&A. Operator: Our next questions are from the line of Max Michaelis with Lake Street Capital Markets. Maxwell Michaelis: First one for me, I think I read an article saying that you guys were targeting 5 new customers annually in the Medical side of the business. Maybe give us a few comments on maybe where you stand there in adding new customers this year? Jana Croom: So you did read that. Our targeted goal is to add 5 new customers annually. This year -- am I allowed to say how many customers we've added? We're on target for goal, is what I will say. Now the question becomes, you bring the customers on, how big is the initial program that you've been awarded and then how quickly can you ramp that program and do what we call land and expand, which is you bring on a new program, you could do it exceptionally well, and then you expand with that customer into bigger programs, higher volumes and you build the relationship over time. That is very much center plate to the Kimball strategy, and not just for Medical, but that's our strategy for all 3 of our verticals. Maxwell Michaelis: Okay. And were any of these new applications or are they all things you guys have done before? Jana Croom: So some are new applications and then some are work that we've done for other customers that we're now going to be doing for the new customers that we're bringing onboard. It's both. Maxwell Michaelis: Great. And then last one for me, I'll stick to Medical. I think you said in the prepared remarks, Europe grew low single digits. Is there any way you can share us the growth rate from the Asian market? And then kind of how you expect that to trend going forward into fiscal year '27, if you can share? Jana Croom: Yes. Let me get that. We have that information. Richard Phillips: As Jana pulls the specifics, Max, maybe just a general comment. As you I know are aware, our Thailand facility does a lot of our Medical work overseas and is an export facility. So I think you'll find that the Asia growth will likely be consistent with overall company growth because as, again, as an export facility, it's responding to growth opportunities globally. Operator: Our next question is from the line of Anja Soderstrom with Sidoti. Anja Soderstrom: Congrats on the performance here in the quarter. I'm just curious, you're talking about the meaningful growth in the CMO business. But how dependent are you on new logos to drive that growth? Richard Phillips: Anja, we couldn't quite hear you. Could you say it one more time? Anja Soderstrom: Yes. So you were talking about driving meaningful growth in the CMO business. But I'm just curious, how dependent are you on adding new logos to be able to drive that growth? Richard Phillips: Got it. Yes. No, great question, Anja. I would say that's an important part of our strategy. So what we have -- what we knew and what we've found, since we have announced the Indianapolis facility, is you've got to have that space. You've got to have a modern, ready-to-go medical facility in order to attract those new logos. So the conversations that we're having have accelerated. We do have existing customers that are really excited about what we're doing and we're talking about programs with them. But I would say if you fast-forward to the future, we'll be adding a number of new logos as part of that CMO growth strategy for sure. Anja Soderstrom: Okay. And then you talked about moving the production from the old facility to the new one. How much revenue do you generate from that facility? And what's sort of the time frame of completing that move? Jana Croom: So we don't disclose the revenue of that facility specifically. We disclose revenue of North America. So unfortunately -- and I know we need to think about that because as we're talking about the CMO more, we need to be able to give you some of that. We're just -- we're not going to give that information today. Anja Soderstrom: Okay. Understood. And then in terms of M&A, are you more imminently looking at adding capabilities to make you more competitive, or adding customers? Richard Phillips: I'd say both. Jana Croom: Yes. Richard Phillips: I'd say both. Yes. It's a combination of capabilities, customers, geographies. One of the things that I had mentioned on the call today is it's interesting that we have customers that we talk to who are looking for U.S. footprint, and that's one of the things that we think will help us really gain utilization in Indianapolis over time. It just gives us a new capability. But yes, all of the above: customers, capabilities, geographies. Anja Soderstrom: Okay. And then one last one on inventories. So that came down for the quarter. But with the growth you're expecting, how should we think about that? Was that some inventory you were -- that had built up that you're building down, or? Jana Croom: I was going to say, that's just us working through days inventory. We are getting better and tighter with managing our inventory and our supply chain. So it doesn't necessarily have anything to do with revenue or top line. It's much more just working capital management that's improving. Anja Soderstrom: Okay. Great. Good to hear. Jana Croom: And that's been a goal of ours over time. Yes. I want to go back to Max's question and answer it because he asked specifically about Medical in Asia. And that growth for Q3 was over 20%. It was offset by some movement that we've had in other areas, but it was over 20%. Operator: Thank you. Ladies and gentlemen, this will conclude today's Q&A session and will also conclude today's conference. Before we go, we'd like to remind you that a telephone replay will be available of this call approximately 3 hours after the end of the conference. To access the conference replay, you may dial 1-877-660-6853. International callers, please dial 1-201-612-7415. You may use -- Access ID is 13759805. Thank you for joining us today. Have a wonderful day. Jana Croom: Thank you.
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.
Operator: Welcome to the SuRo Capital's First Quarter 2026 Earnings Call. My name is Ellen, and I will be your coordinator for today's event. Please note this call is being recorded. [Operator Instructions] I will now hand you over to your host, Evan Schlossman, to begin today's conference. Evan Schlossman: Thank you for joining us on today's call. I am joined by the Chairman and Chief Executive Officer at SuRo Capital, Mark Klein; and Chief Financial Officer, Allison Green. Please note that a slide presentation corresponding to today's prepared remarks by management is available on our website at www.surocap.com under Investor Relations, Events and Presentations. Today's call is being recorded and broadcast live on our website, www.surocap.com. Replay information is included in our press release issued today. This call is the property of SuRo Capital, and the reproduction of this call in any form is strictly prohibited. I would also like to call your attention to customary disclosures in today's earnings press release regarding forward-looking information. Statements made in today's conference call and webcast may constitute forward-looking statements, which relate to future events or our future performance or financial condition. These statements are not guarantees of our future performance, or future financial condition or results and involve a number of risks, estimates and uncertainties, including the impact of any market volatility that may be detrimental to our business, our portfolio companies, our industry and the global economy that could cause actual results to differ materially from the plans, intentions and expectations reflected in or suggested by the forward-looking statements. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including, but not limited to, those described from time to time in the company's filings with the SEC. With respect to the externalization, these risks and uncertainties include, but are not limited to, the ability to obtain the required stockholder approval, the ability to retain key personnel, the ability to realize anticipated benefits of the externalization and the impact of the externalization on the company's business, financial condition and results of operations. Management does not undertake to update its forward-looking statements unless required to do so by law. To obtain copies of SuRo Capital's filings, please visit our website at www.surocap.com or the SEC website at sec.gov. Now I'd like to turn the call over to Mark Klein. Mark Klein: Thank you, Evan. Good afternoon, everyone, and thank you for joining us. This is a defining moment for SuRo Capital. Our strong performance in 2025 carried directly into the first quarter of 2026. For the quarter, our net asset value increased from $8.09 per share to $14.24 per share. That is a $6.15 per share increase or approximately 76% quarter-over-quarter. This is the largest quarter-over-quarter NAV increase in our history. This increase reflects the strength of our portfolio and the quality of the companies we have invested in. It also reinforces the strategy we have followed for more than a decade, giving public market investors access to high-growth venture-backed private companies that are otherwise difficult to access. We believe this access is especially valuable when it is paired with selectivity, identifying important private companies before they're strategic is broadly reflected in public market awareness. At the same time, NAV is a point-in-time measurement. It does not, by itself, capture the full opportunity we believe remains ahead. The larger story is what is in front of us as our portfolio companies continue to mature, scale their businesses and move toward potential liquidity events. Several recent financings illustrate the larger story. WHOOP recently announced a $575 million Series G financing at a $10.1 billion valuation. The company reported that 2.5 million members globally, 103% year-over-year bookings growth in 2025, a $1.1 billion exit run rate and positive operating cash flow in 2025. For us, WHOOP sits within a broader shift towards health, longevity and actionable self-knowledge. As the category evolves, we believe WHOOP can benefit from AI's ability to convert personal data into more useful individualized guidance for users. OpenAI closed its latest financing round with $122 billion in committed capital at an $852 billion post-money valuation. This financing speaks to the scale of capital formation around artificial intelligence. AI is no longer a narrow software category. It is becoming a foundational technology layer across compute, data centers, enterprise software, developer tools, healthcare, education and productivity. VAST Data was valued at $30 billion in its recent Series F financing, more than tripling its prior $9.1 billion valuation from 2023. The round included approximately $1 billion of primary and secondary capital and reflects continued demand for infrastructure supporting artificial intelligence, including data centers and high-performance computing. Canva launched an employee stock sale at a reported $42 billion valuation, led by existing shareholder, Fidelity, with JPMorgan Asset Management joining as a new investor. The transaction came as Canva continued investing in AI tools for its more than 265 million monthly active users. Taken together, these are not isolated events. They tell a consistent story. Private market capital is concentrating around scaled private companies with durable growth, strategic relevance and credible path to liquidity. These financings are significant not only for their scale, but for what they signal. Private market capital continues to validate the companies and infrastructure layers that we believe are becoming increasingly important to the next phase of technology. Our objective is to build exposure to those opportunities with discipline before they are broadly available. We are not simply observing this market. We continue to participate in it. Recent hyperscaler results continue to reinforce the scale of demand behind AI infrastructure. The next phase of AI growth depends not only on models and applications, but also on the compute capacity, power, data center infrastructure and specialized systems required to support them. During the quarter, we funded $5 million to a Magnetar special purpose vehicle invested in TensorWave. This investment was part of a commitment of up to $20 million. The remaining commitment of up to $15 million is subject to the satisfaction of certain conditions, including company-level operational milestones. TensorWave fits within our broader investment strategy and further expands our exposure to AI infrastructure. We view it as the type of opportunity we seek to identify before it becomes more broadly familiar to the broad investor base. The company is positioned around a significant technology shift with meaningful room to scale in part of the market where demand for performance, capacity and specialized infrastructure remains structurally important. That approach is consistent with the discipline we applied in building our exposure to CoreWeave, where we sought exposure to an important infrastructure company before its role in the AI ecosystem was more broadly recognized. We also believe the stage structure gave us a measured way to increase exposure to TensorWave within a framework tied to execution. More broadly, we intend to remain disciplined in how we deploy capital while being decisive when we see opportunities aligned with our strategy and with areas we believe long-term value is being created. This participation continued after year-end. Following quarter's end, we made a new investment of approximately $10 million in ClickHouse, a company we believe is well positioned at the intersection of data infrastructure, artificial intelligence and real-time analytics. ClickHouse helps enterprises query, analyze and act on massive volumes of data quickly and efficiently, a capability that is becoming increasingly important across observability, security analytics, product telemetry, cloud data warehousing and AI-driven applications. This matters because as AI moves from experimentation to deployed enterprise use cases, the infrastructure required to store, analyze and act on data at scale becomes increasingly critical. ClickHouse's relevance is already visible in demanding AI environments, including Anthropic, which ClickHouse has publicly described as using its technology to scale observability for all AI workloads. ClickHouse is another example of the kind of company we seek to invest in. It is already a scaled venture-backed technology leader, but we believe its strategic relevance is becoming greater as real-time data infrastructure becomes more important to enterprise AI deployment. For SuRo, the opportunity is to build exposure while companies like this remain private. Because this investment was made after the quarter's end, it is not part of our March 31 net asset value. It is, however, an important example of how we intend to build the future portfolio. Now I want to turn to what we believe is one of the most important strategic steps in SuRo Capital's history. Our Board of Directors approved a proposal to transition SuRo from an internally managed BDC to an externally managed structure through Neostellar Advisors LLC, an adviser jointly owned by members of our current team and Magnetar. The proposal remains subject to stockholder approval. This is not a sale of the company. The company will continue to be a publicly traded BDC, and our investment focus will remain centered on high-growth, venture-backed private companies. While the core strategy will remain the same, we believe the proposed structure will enhance the platform, supporting the strategy and better positioning us to pursue high-quality investment opportunities. Since 2019, our internally managed structure has served us well. Our team has built the portfolio, navigated volatile markets, returned significant capital to stockholders and delivered meaningful value. The NAV increase this quarter is evidence of that work. At the same time, the market has evolved. Leading private companies have more choices today, and they increasingly look for investors who can bring more than capital, including scale, relationships, strategic support, capital markets experience and a long-term partnership. We believe the proposed partnership with Magnetar positions us to compete more effectively in this environment. Magnetar brings significant scale with approximately $18 billion in assets under management, more than 20 years of investment experience and a track record of investing in differentiated technology, venture-backed companies across artificial intelligence and technology-enabled sectors. The strategic logic is straightforward. We are preserving the investment strategy and leadership continuity that brought us to this point while adding Magnetar scale, sourcing reach, diligence capabilities, portfolio support and institutional infrastructure. In addition, Magnetar's experience across the AI infrastructure ecosystem gives us additional depth in one of our core focus areas and in a market we believe will be increasingly important to broader technology growth. As many of these businesses become more capital-intensive, Magnetar's experience with cost of capital, balance sheet management and transaction structuring becomes even more relevant. We also expect the proposed structure to strengthen our origination and diligence capabilities while creating a broader platform to support portfolio companies. Put simply, we believe this gives us greater scale, broader capital solutions and deeper institutional capabilities to support private companies as they grow. If approved by stockholders, we believe this combination would position us to be one of the largest platforms focused on publicly traded access to venture-backed private companies. Public venture capital has historically been a fragmented market, and we believe greater scale, stronger infrastructure and deeper sourcing capability can matter in competing for high-quality private company investments. This would be a significant change and positive for us in our competitive position. For stockholders and portfolio companies, we believe the benefit would be a broader platform, deeper resources and a stronger ability to support ambitious private companies building in large markets. I want to speak directly about shareholder alignment. Being shareholder-friendly is not just a slogan for us. It is how we evaluate major decisions. The value created in the existing portfolio belongs to our shareholders. Under the proposed advisory agreement, pre-existing investments are not included in the incentive fee calculation. In plain English, the value already created in this portfolio is preserved for stockholders and is not subject to a new incentive fee simply because we are changing the management structure. We believe this is an important and stockholder-friendly feature. Additionally, subject to the conditions described in the proxy materials, an affiliate of Magnetar is also expected to invest $20 million in our company. We believe this is a meaningful signal of commitment and alignment. Magnetar and the Board think like owners because we are owners. Our goal is not simply to report a higher NAV. Our goal is to convert portfolio value into long-term stockholder value. This means disciplined investing, thoughtful liquidity management, expense discipline, transparency and continued focus on returning value to our stockholders. Let me close with this. This is one of the most important moments in SuRo Capital's history. We delivered the largest quarter-over-quarter NAV increase we have ever reported. Our NAV increased approximately 76% quarter-over-quarter. This is not a routine result. It reflects the strength of our portfolio, the quality of companies we have backed and the power of our strategy, giving public stockholders access to high-growth venture-backed companies aligned with important technology trends. We do not view the quarter as the finish line, but as the beginning of the new chapter. Our recent investment activity, including TensorWave and ClickHouse, reflects the same discipline, identifying private companies where strategic relevance is emerging, building exposure selectively and giving public stockholders access to opportunities that remain largely outside of the public markets. Our proposed partnership with Magnetar through Neostellar Advisors is designed to provide SuRo Capital with greater scale, stronger infrastructure, broader sourcing reach and deeper diligence capabilities as we seek to invest in and partner with the next generation of high-growth private companies. NAV captures the progress we have made, the opportunity is what comes next. Our focus now is straightforward, build on this momentum, maintain our discipline and translate portfolio progress into lasting shareholder value. To our stockholders, thank you for your continued trust and support. With that, I will turn the call over to Allison Green to review our financial results. Allison Green: Thank you, Mark. I would like to follow Mark's update with a review of our investment activity and portfolio company realizations during the first quarter and subsequent to quarter end, a high-level review of our investment portfolio as of quarter end, including the investment theme breakdown and a more detailed review of our first quarter financial results, including our current liquidity as of March 31. I'll also touch on notable items during the first quarter and subsequent to quarter end, including our announcement of the Board-approved externalization. On December 31, SuRo Capital's $20 million to Magnetar Opportunity 2025-4 LP, a special purpose vehicle invested in TensorWave, Inc. During the quarter, on January 2, SuRo Capital funded $5 million of the $20 million capital commitment. As of May 5, $5 million of the $20 million capital commitment to Magnetar Opportunity 2025-4 LP had been funded. The remaining commitment of up to $15 million is subject to the satisfaction of certain conditions. Throughout the first quarter, we sold 440,246 common shares of GrabAGunDigital Holdings Inc following the removal of lockup restrictions on January 15. These sales resulted in net proceeds of approximately $1.4 million and a realized gain of approximately $891,000. As of March 31, we hold 599,754 public common shares or approximately 58% of our original position. Additionally, during the quarter, we received a distribution from our True Global Ventures 4 Plus venture capital fund investment for approximately $246,000. Subsequent to quarter end, on April 8, SuRo Capital completed a $225,000 investment in the common stock of Huntress Labs, Inc. through a secondary transaction. Additionally, on April 22, we completed a $9.5 million investment, excluding fees, in the Series A preferred shares of ClickHouse Inc. through a secondary transaction. Subsequent to quarter end, SuRo Capital received 2 distributions from CW Opportunity 2 LP, totaling approximately $3 million in net proceeds. CW Opportunity 2 LP is an SPV for which the Class A interest is solely invested in the Class A common shares of CoreWeave, Inc. SuRo Capital has invested in the Class A common shares of CoreWeave, Inc. through its investment in the Class A interest of CW Opportunity 2 LP. The distributions were categorized in aggregate as approximately $902,000 of return of capital and a $2.1 million realized gain. The realized gain is calculated based on the current reporting by the fund and confirmed through our accounting, but may be subject to change or adjustment due to the impact of performance fees that may be charged by the fund. I would now like to turn to our portfolio as of quarter end. Our top 5 positions as of March 31 were WHOOP, OpenAI, VAST, Blink Health and CW Opportunity 2 LP. These positions accounted for approximately 72% of the investment portfolio at fair value. Additionally, as of March 31, our top 10 positions accounted for approximately 88% of the investment portfolio. Segmented by 7 general investment themes, the top allocation of our investment portfolio at March 31 was to consumer goods and services, representing approximately 43% of the investment [Technical Difficulty] and Software as a Service were the next largest categories with approximately 29% and 12% of our portfolio, respectively. Approximately 6% of our portfolio was invested in education technology companies and the Financial Technology & Services segment accounted for approximately 5% of the fair value of our portfolio. The Logistics & Supply Chain accounted for approximately 4% of the fair value of our portfolio, and SuRo Sports accounted for 2% as of March 31. We ended the first quarter of 2026 with a net asset value of approximately $361.6 million or $14.24 per share, which is consistent with our financial reporting. The increase in NAV per share from $8.09 at the end of Q4 2025 was primarily driven by a $6.25 per share increase from the net change in unrealized appreciation of our investments, a $0.04 per share increase resulting from net realized gain on our portfolio investments during the quarter, and a $0.02 per share related to stock-based compensation. The increase in NAV per share was partially offset by a $0.16 per share decrease due to net investment loss during the quarter. At March 31, there were 25,387,393 shares of the company's common stock outstanding. Finally, regarding our liquidity at quarter end. We ended the quarter with approximately $46 million of liquid assets, including approximately $43.3 million in cash and approximately $2.7 million in unrestricted public securities. Not included in our unrestricted public securities are approximately $15.9 million of public securities subject to lockup or other sales restrictions as of quarter end. This represents our remaining investment in CoreWeave via our Class A interest of CW Opportunity 2 LP. Subsequent to quarter end, the purchaser of 6.5% convertible notes due 2029 elected to exercise their conversion option on multiple occasions and convert a total of $5 million of principal into 682,815 shares of SuRo Capital's common stock and $19.56 in cash in lieu of fractional shares. Upon completion of these conversions, the remaining principal balance of the 6.5% convertible notes due 2029 was approximately $30 million. As Mark mentioned, subsequent to quarter end, on April 2, SuRo Capital's Board of Directors, including all of its independent directors, unanimously approved a proposal to transition from an internally managed BDC to an externally managed structure through a new investment advisory agreement with Neostellar Advisors LLC, an entity jointly owned by certain current SuRo Capital employees and Magnetar Holdings LLC, which is affiliated with Magnetar's multi-strategy alternative investment platform. The externalization is expected to process to enhance investment sourcing and due diligence capabilities through Magnetar's fully integrated platform, preserve all realized gains on the company's existing portfolio for the benefit of stockholders through the exclusion of pre-existing investments from any incentive fee calculations and result in an annual expense savings. In connection with the externalization, an affiliate of Magnetar will make a $20 million investment in the company and the company's current management team, including Mark Klein and myself, will continue in our current capacities. The externalization is subject to stockholder approval and additional details are set forth in the company's current report on Form 8-K filed with the Securities and Exchange Commission on April 7. That concludes my comments. We would like to thank you for your interest and support of SuRo Capital. Now I will turn the call over to the operator for the start of the Q&A session. Operator? Operator: [Operator Instructions] We will take our first question from Alex Paris, Barrington Research. Alexander Paris: Congrats on the superb Q1 and the plan for externalization. So that's going to be my question, the externalization. As I recall, prior to 2019, the portfolio was externally managed. You took it in and now you're externalizing it again. So point number one. Point number two, I had a quick review of the process, and I see not only are you creating a joint venture with Magnetar under the name Neostellar Advisors LLC, but actually SuRo's name will be changed to Neostellar Capital Corp. under the symbol NSLR. I guess it's a 2-part question. Number one, I think the shareholder meeting, the special shareholder meeting is scheduled for June 10. When do you hope to close this transaction? And then the related question is both you and Allison noted that this is expected to result in cost savings. So I'm wondering if you could just provide a little additional color on how that's done. You're obviously going to pay the external manager a management fee plus an incentive fee. What costs are we eliminating from the internal management of the fund? Mark Klein: Thanks, Alex. That's the longest one question ever, but I appreciate it. So let's start with we were externally managed. We made a determination to be internally managed as we took the management -- the group that managed the portfolio and brought it in-house. As I noted in my prepared remarks, I think a lot has changed in the public venture capital markets. And we came to the conclusion that in order for us to be at the top of the pyramid of all have the largest asset management platform available to invest in public markets, having greater depth from both investment, sourcing, diligence, support, infrastructure, et cetera, to partner with a firm like Magnetar, which we have done an awful lot of investing with over the years, just simply made sense. It makes us the largest platform to invest as a public investor in venture-backed securities. I think that matters right now. I think size matters, I think scale matters. I think the ability to bring other aspects to portfolio companies as opposed to just writing a check matters. And if you look at the success Magnetar has enjoyed and the fact that we invested with them in CoreWeave, we're investing with them in TensorWave, they are really on top of the game in the venture space. And as capital becomes more important and different capital solutions become more important to private companies, they are a great partner and significantly enhance what we are doing. And again, we're the first ones ever to do it, and we started 15 years ago, and we continue to pioneer as having a terrific partner. As far as cost savings, it's in the proxy, this will be less expensive for our investors, certainly to start in respect to expenses related to the management of the portfolio. As far as incentive fees, we made a point of saying that the entire portfolio and all the unrealized gains and all the success that has occurred to date and will occurs up until the externalization. There's no incentive fee being charged at all. That is for all of our shareholders in the future as we invest money and we realize profits on those new investments, there may be an incentive fee on that at that point in time, which candidly will be quite some time away from now. So we are really excited about this. This is really differentiated. This makes us as significant as we are now, much more significant. And it was a decision our Board took and we took as management, and we're really excited about that. The vote is on June 10. This -- upon approval by our shareholders, we will enter into a management agreement with Neostellar. We will rebrand to Neostellar, and that will be effective on July 1. Thank you. Operator: We will take our next question from Marvin Fong, BTIG. Marvin Fong: Congrats as well and looking forward to the externalization. I just have a big picture question after all the success, we can all see that the private and public markets around AI are quite excited here. Can you just kind of talk about what you're seeing now in terms of investment opportunity and ClickHouse is another you were able to get in on. But can you -- are you seeing opportunities like you're done with TensorWave to -- that are milestone based and can offer some protection and that these companies actually have to succeed in order to gain access to further capital. Can you expect kind of more structures like that? Or just kind of describe in general what are you seeing out there? Mark Klein: Thanks, Marvin. Great question. And I'll answer it in 2 parts. First of all, we are really excited about ClickHouse. ClickHouse has quickly become the de facto real-time analytics platform. They position themselves to benefit from AI applications, which demand real-time data. This company is growing at 250% year-over-year. It's phenomenal. It provides they're 10x that the rate, the speed of their competitors at approximately 1/10 of the cost. It is truly an amazing company. I suspect most people on this call probably haven't heard about it. We view this as we're in front in the same way we were in front with VAST when no one heard of it or even CoreWeave when no one heard of it. That's how we view ClickHouse. And I suspect as we move towards the end of the year, they will become more notable. That's one. Two, I think -- and you and I have talked about and I talked about it publicly, the markets are robust or perhaps broadly in the AI space, specifically in the private market side. We see an awful lot. We are seeing more deals now than we've ever seen before. And as we talked about it, you have to start is -- are you in the right -- are the tailwinds still there? Are you in the right sector, subtenant sector? Are you one of many in the space or one of a few? Do you have the right to win? Once you get to all that, can we actually [ invest ], whether it's like TensorWave, which I think is extremely well structured, or can we simply price it in a way that there's an opportunity to invest and see returns. And that leaves an awful lot of companies that candidly at this point in time are tough to invest in. But we have found opportunities, whether it was ClickHouse and TensorWave, as we've discussed before, we are really set up to win. They are to AMD what CoreWeave was to NVIDIA. As most of you can probably see, AMD just reported a blowout quarter. TensorWave is going to be where they're housing their AMD chips. It's an extremely exciting investment. The investment is structured in a way that we put $5 million in, $15 million will be following on, assuming certain conditions are met. And we think that's going to be an absolute [ raging ] success. We're really looking forward to TensorWave's future. Operator: We will take our next question from Jon Hickman with Ladenburg. Jon Hickman: I have a question about -- in the past, the top 5 positions have generally around -- they've been around 50% of your portfolio. And currently, the Top 5... Mark Klein: Jon, you still there? Operator: Participant line disconnected. We will take our next question from Brian McKenna, Citizens. Nate Saur: This is Nate Saur on for Brian McKenna. So first of all, congrats on the great moves this quarter and the especially impressive results so far this year. Maybe just extending the discussion on externalization real quick. I was wondering if you guys could provide a little -- or get a little bit more specific on the timing? Like why is right now the... Mark Klein: I think we lost him as well, operator. Operator: Yes, we lost Brian's line. We will take our next question from Alex Fuhrman, Lucid Capital Markets. Alex Fuhrman: I'll try to ask it real quick here and sneak it in. But congratulations guys on the really strong start to the year. I wanted to ask about your portfolio composition here in terms of your sector allocations. Obviously, your investment in WHOOP has been tremendously successful here when you think about that as well as the wind down in your position [Technical Difficulty]. You're kind of at a unique moment here where health and wellness is actually a really large percentage of the portfolio right now. Should we expect to see incremental investments kind of back in that AI area to get that part of the portfolio back up? I guess you already did that subsequent to the quarter here with ClickHouse. But just any kind of high-level thoughts on sort of the composition of your portfolio by sectors and what we should expect to see going forward? Mark Klein: Sure. Thanks, Alex. Yes, in some ways, I guess, we're victims of our own success with WHOOP as WHOOP just completed a $575 million funding over a $10 billion valuation. It's obviously been sort of knocked it out of the park with that. That was -- that is a unique situation for us. It's a great situation, but unique. As you can see, we did just put $10 million into ClickHouse. We're funding another $15 million into TensorWave. And you will see the concentration more into the technology, AI, AI infrastructure, et cetera, again, be the largest focus of our fund. But as you did note, right now, with the success of WHOOP, that has caused a bit of concentration in that space. Operator: There are no further questions on the line. So I will now hand you back to your host for closing remarks. Mark Klein: Thank you all for joining this call. We greatly appreciate it. Sorry for a couple of the problems apparently with the questions. But we're very excited here. We had obviously the best quarter we've had on a quarter-over-quarter basis ever. We're extremely excited about our partnership with Magnetar and the rebranding to Neostellar. We're always available for your questions or comments, feel free to reach out to us. And thank you again for attending the call. We greatly appreciate it. Operator: Thank you for joining today's call. 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.
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: Ladies and gentlemen, hello and welcome to the Bnode First Quarter 2026 Analyst Conference Call. On today's call, we have Mr. Philippe Dartienne, CFO. Please note this call is being recorded. [Operator Instructions] I will now hand over to your host, Philippe Dartienne, CFO, to begin today's conference. Please go ahead, sir. Philippe Dartienne: Thank you. Good morning, ladies and gentlemen. Welcome to all of you and thank you for joining us. I'm pleased to present you our first quarter result as CFO of Bnode. With me, I have Alexandra and Antoine from Investor Relations. We posted the materials to our website this morning and I will walk you through the presentation and will then take your question. As usual, 2 question each, which ensure everyone gets a chance to be addressed in the upcoming hour. I will start with our quarterly financial results, then provide an update on the progresses on our key strategic initiatives during the quarter before concluding with our financial outlook. As you can see on the highlights on Page 3, our group operating income for the first quarter amounted to EUR 1.063 billion representing a year-on-year decrease of EUR 56 million or 5%. This performance reflects a combination of factors. First, as expected, we saw the impact of contract termination at Radial U.S., which were announced in the course of last year and already incorporated in our outlook we presented earlier this year. This termination resulted in a 11% year-on-year revenue decline or EUR 38 million and together with temporary top line pressure at Staci Americas largely offset by the 4% top line growth achieved at Paxon Europe. Second, in Belgium in addition to the revenue decline following the termination of the 679 contract, domestic mail volumes declined by 14.3%. This was only partially offset by a parcel volume growth of 9.1%. In our cross-border activities, we also recorded higher inbound volume from Asia, which supports overall parcel flows. Overall, and as expected, the accelerated decline in mail volumes and the termination of the 679 activities weighed on the EBIT on the bpost segment despite the positive contribution from our ongoing reorganization measures. That said, at Paxon despite a sharp contraction in top line, we were able to deliver EBIT growth reflecting a strong cost discipline in North America and solid operational execution in Europe. As a result, group adjusted EBIT reached EUR 33 million, down EUR 8 million compared to last year and broadly in line with our expectations. Before turning to the financial performance of our business units, let me highlight as shown on Slide 4, that beyond the evolution of EBIT, our adjusted net profit reflects a EUR 12 million improvement in financial results. This improvement was mainly driven by favorable noncash FX effects and higher net income from our treasury investment partially offset by higher interest expense related to the bonds issued in June last year. Let me now move to detailed performance of the 3 segments. I am now on Slide 5 covering the bpost segment. Revenues for the segment declined by EUR 21 million to EUR 524 million year-on-year. Domestic mail revenue decreased by EUR 21 million or 7.2%. Mail and Press volumes contracted by 14.3% in the quarter compared with minus 7.5% last year and in line with mid-teens volume decline guidance we provided earlier this year. This accelerated decline mainly reflects lower transaction mail volumes following the introduction of mandatory B2B e-invoicing as of the beginning of the year as well as the termination of several advertising contracts. Overall, the decline in mail volumes had a negative revenue impact of around EUR 40 million, which was partially offset by roughly half by positive price and mix effect of plus 7.1% or EUR 19 million. Parcels revenue increased by EUR 7 million or 5.8% year-on-year driven by volume growth of 9.1% partially offset by a negative price/mix effect of 3.3% during the quarter. On the volume side, the reported 9% growth corresponds to an underlying growth of around 5% after adjusting for the estimated volume loss linked to the strike in February last year when parcel volume declined by 12% in that month and over 2% in the full quarter. As observed in recent quarters, growth continued to be driven by strong performance of marketplaces. This dynamic weighs on product and customer mix and explains negative price and mix evolution of minus 3.3% despite underlying price increases. Finally, revenues from other activities including retail value-added services and personnel logistics declined by EUR 7 million year-over-year. This mainly reflects our revenue following the termination of the 679 activities at the beginning of the year as well as lower revenue from Fines solution partially offset by higher revenue at DynaGroup. Let's move to the P&L of bpost on Page 6. Including higher intersegment revenues from inbound cross-border volume processed through the domestic network, total operating income declined by 3.1% or EUR 17 million year-on-year. On the cost side, OpEx including D&A decreased by 1.2% or EUR 6 million mainly driven by 2 opposing effects. First, we recorded a reduction of approximately 1,260 lower FTEs and interim staff representing a decrease of more than 5% reflecting the benefits from the ongoing reorganization of our distribution rounds and retail offices. And second, this was partially offset by higher salary costs per FTE, up 2% year-on-year following the March '25 and '26 salary indexations. Despite last year EBIT impact of around EUR 6 million for the 2-week strike, EBIT declined by EUR 11 million year-on-year. This evolution was mainly driven by the anticipated acceleration of the structural mail decline and the termination of the 679 contract, only partially mitigated by parcel growth and the benefit of our reorganization measures. Moving on to Paxon on Slide 7. Broadly in line with the trend we observed in the fourth quarter, 2 main effects came into play during the quarter. At Paxon Europe, revenues remained broadly stable year-over-year. We recorded around 4% growth across European businesses and geographies with some activities still achieving high single-digit growth. This positive momentum was, however, offset by a negative performance at Staci Americas which is reported within Paxon Europe, following a contract termination in the fourth quarter. This resulted in a significant revenue decline during the quarter compounded by an adverse FX impact of EUR 5 million. At Paxon North America, revenues declined by EUR 39 million. At constant exchange rate, this corresponds to an 11% decrease driven by 3 factors: revenue churn from contract termination announced last year together with mid-single-digit negative same-store sales evolution partially offset by the in-year revenue contribution of around EUR 27 million from new customers, of which 40% are Radial Fast Track clients. Let's move to the P&L of Paxon on Slide 8. Against this backdrop, total operating income declined by 9.3% or minus EUR 40 million year-on-year. Operating expenses, including D&A, decreased at a faster pace down 10.4% or EUR 44 million. This cost reduction was primarily achieved in North America driven by lower variable OpEx in line with the revenue evolution at Radial U.S. while maintaining a solid variable contribution margin. These effects were further reinforced by fixed costs and headcount actions. As a result, adjusted EBIT increased by EUR 4 million to EUR 11 million in the quarter with growth recorded in both Europe and North America. In Europe, this reflects top line growth combined with productivity gains. In North America, EBIT growth was driven by cost containment measures, which more than offset the ongoing top line pressure. Turning now to Landmark Global on Slide 9. At Landmark Europe, revenues increased by EUR 8 million or plus 10% year-over-year. Once again this quarter growth was driven by strong increase in volume from Asia across all major destinations, most notably Belgium supported by large Chinese e-commerce platform as well as the United States. In addition, other European lanes continue to grow as well. At Landmark North America, excluding unfavorable FX effect, revenue was slightly up year-over-year. This reflects on one hand, soft volume growth in the context of a macroeconomic slowdown and on the other hand, a negative mix effect with higher share of domestic volumes and lower Canada to U.S. volumes. Overall, Landmark Global operating income increased by EUR 5 million or plus 3.4% year-on-year. As shown on Page 10, OpEx and D&A increased by 7.7%. This was primarily driven by high transportation cost linked to volume growth including increased inbound volume with Belgium as [indiscernible] destination. In addition, the quarter was impacted by unfavorable phasing cost effects both in transport and payroll, which we expect to reverse over the coming quarters. As a result, adjusted EBIT decreased to just under EUR 15 million. This decline mainly reflects the temporary cost phasing effect, which offset the underlying profitable growth in Europe and to a lesser extent, in North America. Moving on to Corporate segment on Slide 11. The adjusted EBIT improvement is driven primarily by cost development. Strengthened cost management and a 1% FTE more than absorbed the 2% salary indexation resulting in an improved adjusted EBIT of EUR 3 million to minus EUR 9 million. Let's now move to the cash flow on Slide 12. The net cash inflow for the quarter amounted to EUR 110 million compared with EUR 91 million last year. This improvement mainly reflects favorable working capital movements and continued CapEx discipline. Overall, the key drivers were as follows. Cash flow from operating activities before changes in working cap amounted to EUR 114 million representing a EUR 17 million decrease year-on-year mainly driven by lower EBITDA. Change in working capital and provision contributed to EUR 74 million. The EUR 29 million positive variance year-on-year mainly reflects 2 effects. First, the settlement of a client balance; and second, the payment of a cash advance in the context of the 679 activities transferred to BNP Paribas Fortis. While a small part of these activities are still partially subcontracted to bpost, we received a working capital injection in return. It's important to note that this movement is expected to reverse over the course of the year. Net cash outflow from investing activities amounted to EUR 21 million, driven by CapEx for parcels. lockers and capacity expansion investment in our domestic fleet and international e-commerce logistics. This element largely explains the evolution of our free cash flow for the quarter. Finally, the net cash outflow from financing activities totaled EUR 57 million, broadly in line with last year and primarily reflecting payments related to lease liabilities. Let me now briefly turn to our strategy and transformation update. I'm on Page 13. Two months ago we outlined our annual plan and key priorities for the year. Today, I will share a few updates and Chris will provide you a more comprehensive review when we present our half year results in August. Let me start with bpost with transformation efforts around 4 priorities area. First, the shift in our operating model. We are making progress on the key tracks of our future operating model notably through the rollout of dense and nondense distribution rounds as well as optimized correct model, which correspond to 2 complementary round types and a further centralization and automation of mail preparation. These are designed to deliver operational efficiencies with FTE savings and space consolidation and optimization. As planned, this model was implemented during the first quarter in 5 distribution offices out of a national network of a bit less than 160 offices. We are progressing with the phased rollout over the coming quarters with a clear acceleration from Q3 onwards targeting around 50 distribution offices by year-end. In parallel, we continue to execute the reorganization of distribution offices and their delivery rounds together with the delivery of associated FTE savings. On the full year plan, around 140 organization leading to approximately 1,150 lower FTEs. We delivered close to 40 reorganizations in the first quarter, fully in line with our planning. Importantly, the April strike has not impacted this transformation stream and execution remains on track. For perspective, we completed 138 reorganization last year, which are now clearly delivering results and contributed as observed in this quarter of a reduction of around 5% or approximately 1,260 FTEs within the bpost business unit. Second, scaling out our out-of-home network. Building on the strong acceleration achieved last year where rollout already significantly increased, we continue to make solid progress on scaling out-of-home with the installation of 155 parcels, lockers or bbox, again fully in line with the annual plan and we also secured over 200 locations for future installations. As a reminder, our objective is to grow the APM network by 35% by year-end, which will bring us almost 1 year ahead of the ambition presented at the Capital Market Day. To date, we have a total of more than 2,700 lockers installed compared to around 1,250 at the end of '24 and around 2,550 at the end of '25. As a result, during this first quarter we doubled the number of parcels delivered through the bbox network compared to last year. In parallel, bpost continued to improve customer convenience by scaling same-day locker delivery notably when home delivery is unsuccessful, which translate into higher NPS and improved profitability compared with next-day availability at post offices. Third, asset utilization optimization. We are actively exploring opportunities to improve the utilization of our assets and in particular our transport fleet, which is today primarily used during night hours. As part of this effort, we launched a pilot transport of the future aimed at testing the creation of a stand-alone transport activity serving both internal and external customers. The pilot was initially designed around 20 trucks and 40 volunteer drivers, but interest has significantly exceeded expectation demonstrating strong engagement from the field and validating the relevance of the concept. The objective is to generate additional revenues, improve utilization of the fleet and drivers and progressively expand our service offering. Finally, strengthening our B2B offering. As previously communicated, we recently launched an Innight delivery solution for our B2B customers initially based on the bbox, parcel, locker model. This quarter we have upgraded the offering by expanding it through 2 additional logistics subsidiaries within the Bnode Group turning it to a multi-model solution, including options such as car boot delivery and on-site deliveries. Overall, this initiative reflects our continued progress in reshaping the bpost operating model, improving capital and asset efficiency and reinforcing our value proposition to boost consumer and business customers. Moving on to Paxon North America. At this stage, top line expansion in Paxon North America is progressing in a more challenging demand environment with same-store sales softer than initially anticipated while new customers contribution are progressively building up. In response and in order to remain on track to deliver our EBIT objective, we are implementing additional cost actions. These measures are not only designed to offset the near-term top line pressure, but also to further strengthen Paxon North America competitiveness in the market. We have already made significant progress on variable cost where discipline remains very strong and where we continue to maintain a record high variable contribution margin. Building on this, the focus is now on fixed cost. The additional actions include optimizing our real estate footprint, reducing discretionary spending and rightsizing nonoperational fixed overhead to better align our organization with our volume. Following the actions already taken on both variable and fixed operation FTEs, we are now focusing on the nonoperational fixed cost base. Let me now shift to Paxon Europe. The launch of our Forward plan marks the next steps in accelerating top line growth building on the now fully integrated and consolidated commercial platform that brings together Staci, Active Ants and Radial Europe led by Staci's commercial know-how. The plan is designed to amplify existing customers' momentum while expanding across products, geographies and customer relationship supported by more structured and disciplined sales execution. In practice, this includes improved account coordination and closer executive level engagement ensuring we continue to deepen relationship with our core customers and capture the full value of those partnerships. At the same time, we are strengthening lead generation, leveraging our rebranding and continuing to invest in the development of our sales team to support incremental and sustainable growth. Finally, I will conclude this section with Landmark Global where our focus in the first quarter remained twofold: expanding volume through new cross-border lanes while strengthening transport cost management. On the growth side, by leveraging agility and rapid opportunities capture in a challenging macroeconomic environment, we saw a strong acceleration of volumes towards the U.S. notably fueled by continued momentum on the China to U.S. lane. U.S. is, therefore, increasingly becoming a key destination alongside Belgium and Canada. And in Europe, we also see a solid pipeline of new lanes originating from Spain and the Netherlands. This leads me to the outlook update for '26 on Slide 14. As a reminder, 2 months ago we introduced our '26 adjusted EBIT guidance in the range of EUR 165 million to EUR 195 million. Based on our first quarter performance, group results are broadly in line with our internal plan and our expectation at this stage of the year. Since then, however, we have been impacted by industrial action at bpost in April. As a result, while we are maintaining the adjusted EBIT guidance that we introduced 2 months ago, we are today more exposed to the lower end of the range. This reflects an estimated direct EBIT impact from the strike of around EUR 15 million. Beyond this, fuel price development are currently not considered as a material risk for the group as we are largely insulated through a combination of pricing mechanism, contractual pass-throughs or internal cost hedging measures depending on the entity. That said, continued vigilance remains of course required as the current outlook does not reflect potential indirect and long-term commercial impact resulting from the April strike nor does it factor potential effects relating to the current geopolitical situation in Iran. This could include industrial disruption linked to fuel shortages, higher energy cost as well as a broader impact on inflation, consumer confidence, disposable income and spending and therefore, on the top line development. Overall, while we remain within our community guidance range, the April strike put significant pressure on the guidance. And although this has been widely and intensively covered by Belgium media, for those less familiar with the situation beyond our own market, let me briefly summarize what happened and the impact identified to date. In April, bpost experienced a 5-week nationwide strike in Belgium, which significantly disrupted our sorting and delivery operations. The impact was most pronounced in Wallonia and in the Brussels region. As a result, we accumulated a backlog of more than 16 million letters and 0.7 million parcels. In addition, we estimated a loss of approximately 3.2 million parcels volume mainly due to customers diverting shipments to competitors. The strike was triggered by employee opposition to certain elements of the ongoing transformation plan, in particular proposed adjustment to starting hours, which shifts up to 2 hours later in the morning. These changes are aimed at enabling later parcel cut-off times and better aligning our operation with customer requirements in an increasingly competitive parcels market. From a financial perspective, our current assessment is that the direct EBIT impact of the strike is estimated around EUR 15 million expected to materialize in the Q2 result. This estimate excludes any potential future indirect impact and mainly reflects 3 direct elements: revenue losses in both Mail and Parcels including quality-related penalties, incremental costs linked to contingency measures and the cost associated with clearing the accumulated backlog. Our operational and commercial teams are currently fully mobilized to clear the backlog as quickly as possible while actively working to rebuild customer confidence and address the reputational impact resulting from the strikes. As mentioned, while we consider this estimate to be robust for the direct impact, it does not capture potential longer-term and indirect impact. which is why we continue to closely monitor the situation. With this, I'm now ready to take your questions. As usual, 2 questions each. Operator, please open the line. Operator: [Operator Instructions] The next question comes from Michiel Declercq from KBC Securities. Michiel Declercq: I have 2, please. The first one is on the strikes in Belgium. I appreciate the direct impact of EUR 15 million. But is there a bit more color that you can give on those quality penalties and these contingent measures? How we should look at that when these costs will be booked? Will that also be Q2 or I think it will also be a bit later in the year for the quality penalties? That's 1 angle of course. Secondly, you also have the commercial impact. You had strikes last year. The lasting impact remains a bit more limited I would assume looking at the volumes in the remainder of 2025. But now second year on a row and a bit of a bigger strike, let's just say. What has been your feedback here from customers? You say that you estimate to have lost 3.2 million parcels to competitors this quarter, which I assume is 3% to 4%. Will they be coming back or how have your discussions with these customers been? So that would be my first question. And then secondly, we have seen in the news that Amazon is also opening its supply chain logistics network. I'm just wondering if you look a bit at the Amazon offering today in the U.S., how does this overlap with your existing activities at Radial and Landmark and how you are looking at this given that the same-store sales at Radial are already down mid-single digits in the recent quarters. So any comment on that would be useful. Philippe Dartienne: Okay. Thank you, Michiel, for your question. So strike direct impact, they will mostly be booked in the second quarter. The top line impact is in the month of April. Pure technically there were 2 days of strike in the month of March, but it's really immaterial. Most of it is in the month of April so the loss of revenue will materialize definitely in the second quarter. The contingency cost that we had to support was some storage cost. I'm sure you have read in the newspaper that we had some of our customers ask us to store the parcels in a location because their own warehouse were totally full. So there are some costs associated with that. Sometimes we have redirected some parcels to some of our subsidiaries to deliver the parcels. These are extra cost that we have supported. And there will be also a bit of the cost linked with the decrease of the backlog where we are injecting roughly 200 temporary workers on top of the usual one to decrease the backlog as soon as possible. So this is a bit what it entails in terms of direct cost and contingency costs. When it comes to the commercial aspect of it, I will be as transparent as I used to be. Our customers were not delighted to say the least, especially in the context that you rightly mentioned. We already had a strike last week like last year once again and customers have indeed diverted their volumes. Now it's really up to us to demonstrate that from an ongoing basis, we are capable of coming back to a high level quality service as we used to do when we are not on strike. And I think it will be a discussion customer by customer and a decision customer by customer at the speed at which they will reinject volume into the network. They are already reinjecting volume into the network, no discussion, but some customers have not returned back. And as I said, it will be a more one-on-one discussion with each of them. So the commercial impact will be seen on one hand in the second quarter by the speed at which the customer come back and at which level and potentially more longer effect as some customers have definitely opted for a dual-carrier strategy while some of them were only mono-carrier with us prior to this strike. So it's up to us and it's really the willingness of the management and the people on the ground to deliver as much qualitative service as possible and as soon as possible. As we speak right now, we could say that we are back in full operation. There is no strikers anymore since roughly a week so we are in full operational mode. Your question on Amazon, yes, but it's not the first time that a major player is developing this kind of activities. It will be 1 more competitor than we had in the past. We had some big retailer chain not so long ago who decided to do the same. So fundamentally, I don't think it will have a direct impact on us. Indeed, you pointed out the same-store sales evolution, the negative one. Indeed, it was in the first quarter more than what we had anticipated. And you will be reminded that same-store sales evolution has been negative for multiple quarters in a row. We told that Q3, Q4 last year we had reached the bottom, but it seems that it's not the case and we had, as you mentioned it, a mid-single-digit decrease again in the first quarter of '25. I hope this answers your question. Michiel Declercq: If I can ask a small follow-up on the strikes. I know commercial impact you won't see or have visibility on that in the short term or maybe a bit of course. But on the indirect costs for the storage and the quality penalties, is it fair to assume that we will get a number on that during the second quarter results? Philippe Dartienne: It's already partially included. Frankly, in the impact, the biggest part is relating to the lost volume and the related EBIT and not so much about those contingency costs because those measures that have been put in place are rather limited if you look at the total operation cost. Operator: The next question comes from Frank Claassen from Degroof Petercam. Frank Claassen: My first question is on Paxon on the financial performance. If I look at Q1, minus 9% on top line and 2.8% on EBIT margin yet if I recall well, one of the building blocks of your full year guidance was Paxon to reach low to mid-single-digit growth for the full year with a 6% to 8% EBIT margin. So I'm struggling to see how we can get there in the rest of the years because that's quite a gap. So could you elaborate how you think you can bridge this gap? That's my first question. And then secondly, on the automatic wage inflation in Belgium, you just made a step of 2%. When do you expect to see the next step and what is, let's say, baked into your current guidance on that one? Philippe Dartienne: Let me start with the second one and I will come back with the first one. So indeed, we learned late afternoon yesterday that there will be an additional 2% step increase. We had anticipated to have 1 in 2026. We had anticipated that to happen a bit later in the year. We had 1 month we have -- this step-up comes 1 month ahead of what we had in our forecast. Coming to Paxon, your point is absolutely right and we will not be able to catch up. We will not be able to catch up. Different reason to that one if you allow me to elaborate a bit. If we look at Radial U.S. or Paxon U.S., if you want; as I said, we are facing same-store sales which are significantly higher than anticipated. It depends if it's a negative, it goes up. Antoine will try to correct me, but I repeat to make sure that the message is clear. There is a decrease and the decrease is bigger than what we anticipated and it's across the board on all customers. The second point is that we were anticipating a pickup of the contribution of new customers especially in the second half of the year. We don't see it coming to the expected level. So we will be worse than one anticipated. This being said, there is a top line discussion. And there is a second one when it comes to EBIT contribution and cash contribution and there we believe that with all the measures that have already been taken and the ones that are in the pipe as we speak, we could be able to offset that negative evolution in terms of top line. What kind of measures are we talking about? Some of them we already mentioned them and now we are implementing them, Optimization of real estate footprint including sublease of underutilized facilities, divesting some noncore assets, reduction of discretionary spending travel and entertainment and also rightsizing fixed cost and headcount aligned to lower volume. Again there is nothing new on that one except the fixed cost one, as I said, that was not the primary focus over the last quarters, now it has become. So all in all, I do believe that those measures will be able to offset largely the decline or lower the development -- the top line development at a lower than anticipated -- the lower top line development. That was for Radial. Staci Americas, indeed we are low in the top line evolution. We lost a major customer at the end of 2025, which is materializing in the Q1 result. So 2 elements on that one and I don't want to oppose them, but I want to make the comparison. As much as I said that at Radial, we see a lower revenue contribution from the pipeline development, it's not the case in Staci Americas. The pipeline of Staci Americas is very strong and we believe that it will be able to offset part of the losses of the volume related to the departure of 1 customer combined with fixed cost measures to protect the top line evolution to a lesser extent than Radial, but it will contribute as well. So to summarize, we have to recognize that, yes, we are a bit behind. This being said, element that I really want to point out is that all over the place within the Paxon world, the profitability is and remain very high. Variable contribution at Radial, you might tell me, Philippe, you tell us that. Since I will be close to 4 years in bpost, I'm telling you that every quarter, but it's reality and it's still there. So this is an achievement. And also despite a lower top line development, when you look at the Paxon Europe environment, we see still significant or very strong gross margin in the existing business, which is very reassuring. It's very, very robust. And we also see thanks to the fact that in Europe, the 3 former brands are now being operated together so Staci, Active Ants and Radial. We see a pickup on the performance in Central Europe mainly by operating all these 3 brands on the same territory altogether. So it's a bit of mixed bag, but there is still very good and reassuring positive element. Operator: The next question comes from Henk Slotboom from the IDEA!. Henk Slotboom: I've got 1 clarification question and 1 other question. The clarification question relates to what you just talked about, the impact on margins and the mitigation impact on margins. We are talking about margins in the U.S. and not about the absolute EBIT I assume. Philippe Dartienne: On one, it's yes and no, Henk. So we maintained the margin. But if we compare to the guidance that we had that expected a development of the top line, since there will be less top line, it will be additional EBIT contribution to offset that one. So it's a bit yes to both in fact. Henk Slotboom: Okay. That's clear. Then on Landmark and that's basically 2 questions folded into 1. The higher transportation costs, Philippe. I thought that the organization was structured in a way that there are back-to-back agreements. So you know on forehand roughly what you're going to pay, what you have to ask your clients based on your estimated costs. The transportation cost impact, didn't you use a fuel surcharge for example or something like it? You're an asset-light player in that field or is this reflecting the disadvantage of an asset-light model that when capacity is scarce, we saw a lot of disruption in sea transport, in air freight and that sort of things that you end up paying a higher cost price anyhow no matter what to get the stuff from for example China to Europe. That's the first question. And connected to it, is it fair to assume that Landmark had a bit of tailwind in Europe because the French have introduced the EUR 2 levy per product line already in January whereas the rest of the EU is doing that as of 1st July. So I've been hearing a lot of stories about Chinese taking their goods to Schipol Airport, Amsterdam and Liege in Brussels instead to avoid this hassle of the EUR 2 and to avoid the EUR 2 as a whole. Perhaps you can highlight that. Philippe Dartienne: Sure. I will start with the second one. Indeed, you are well informed. We see in Liege, I was just right before this call with our guy in charge of the inbound volume in Belgium, we see an increase of activity in Liege. But what we are seeing is that the planes are coming, that they are offloaded, but the containers are directly loaded to trucks to go either to France, go to the Netherlands or to Germany. So we might have a small ripple effect in our last mile activities in Belgium because we only do that in Belgium. But I would not say that it's significant, but it's a fact. This being said, it's also something we are contemplating since we are the operator. We are the incumbent in Belgium, can our activity and the transport one could play a role into capturing part of those volumes. But most of them, as you rightly pointed out, are not directed to the Belgium market. They are mostly directed to the non-Belgium market. So that's for the EUR 2 taxes. When it comes to Landmark and transport cost, I would like to broaden a bit the debate and also emphasize the fact that Landmark is managing the transport for all the group for Bnode. Of course transport for Belgium last mile is limited because we do the last mile activities. But for all the fulfillment activities within the Paxon world, it's managed through Landmark and the one who are benefiting -- everyone is benefiting from the good condition that we could get. So it's important to notice that that activity is not only limited to Landmark business unit. Now your question about transportation cost and the fact that they are evolving upwards due to different elements, it's really a pass-through for us and we do not see an EBIT impact from that. Operator: The next question comes from Marc Zeck from Kepler Cheuvreux. Marc Zeck: Really on, let's say, consumer sentiment or the impact of higher energy prices on the consumer. Could you elaborate a bit what you currently see both for the U.S. and Europe in your business? You talk about, let's say, lower same-store sales in the U.S. for Radial. Do you feel like this is related to the energy price increases and therefore drain on consumer finances and therefore mostly concentrated in March and looking forward maybe in April or have you seen lower same-store sales for the entirety of Q1 that obviously includes then January and February as well? And what you can see in your European business not only Paxon, but maybe also Landmark Global and the parcel business in Belgium. How did March compare to January and February? Was there any impact from higher fuel prices on the consumer and what do you see currently for April? That would be the first question. Second question, if you could elaborate a bit on why you don't see a material impact from Amazon in the U.S. I guess from what we can get from Amazon's press release, it's at least to me not entirely clear where they are actually really competing. Do you feel like they are opening up really contract logistics proper 3PL services in the U.S. or it's more like warehousing with not too much direct management of inventory there. So I could guess that if it's just warehousing, there wouldn't probably be much of an impact. But if they do proper 3PL contract logistics as well, I can imagine that maybe that is a bit higher. So it would be great to hear your thoughts on what you believe Amazon is actually doing in the future. Philippe Dartienne: Okay. It's going to become an habit. I will start with the second and we'll continue with the first one. So I'm not in the shoes of Amazon. So I recommend you to direct your question to them on that one because I don't want to speculate on what they are doing. What I'm telling you is that we do not see impact from that at least so far. They have always operated their warehouse sometimes themselves, sometimes outsourcing to contract logistic players. They have been active in transport. They are permanently starting testing or going with new activities around the 3PL. That's true. But so far, we don't see any impact from that and again I cannot speak for Amazon. When it comes to the consumer sentiment, I don't have the figures for the U.S., but I think the same-store sales is a good proxy for measuring what is happening there. As I said, 7 quarters in a row, then the same-store sales is going down and it even accelerated in the first quarter of this year. I don't know what the next -- the further part of the year will bring us. As I said, we already thought that at the end of Q3, Q4 we had reached the bottom. We have been proven wrong on that one. So it's difficult to speculate on that. When it comes to Europe, I have the consumer sentiment numbers in front of me. And if we ended up the last quarter of last year something which is, I would say, breakeven; slightly positive in November, very slightly positive in December. The beginning of the year was -- Jan and Feb were more positive, but we saw a total flip of that consumer confidence in the month of March and even more so in the month of April. So again in terms of trend, it's difficult to speculate. But currently, we see a downwards trend. Operator: The next question comes from Marco Limite from Barclays. Marco Limite: I've got couple of follow-ups on your strikes in Belgium. So first question will be I mean what sort of confidence have you got in terms of the strikes to be totally over or do you see a risk of the strikes coming back? And to what sense negotiations and discussions are sort of stopping you to go through your transformational change, operational changes you wanted to make. So what is, let's say, also the negative impact from implementing your operational changes slower than what you had thought maybe at the start of the year? And the second question is on your volume growth in April. I appreciate you quantifying the hard numbers. But if you could give us a bit of color of what has been the volume growth or the volume decline in April for parcel volumes in Belgium? And have you seen, let's say, the growth rate picking up in May post end of strikes? Philippe Dartienne: Again I will start with the second one. Thank you for your questions, Marco. Volumes decline that we have seen in the month of April is around 25% and it's still too early to comment on what is happening in May. When it comes to the strike and the risk associated with them so I just want to remind that several elements. So there is in the mind and I don't want to speak for them. But based on what my colleagues are telling me while discussing with our social partners is that there is a clear understanding of the need to change the business model. They clearly understand the fact that the mail is no longer bringing growth. It's declining at high pace and it will not come back. They totally acknowledge it as well as that the change in the demand from the customer, they totally acknowledge it. What is very difficult for them from a human standpoint for all the affiliates and all our colleagues. If we look back 3 to 4 years back when we still had the press concession, we had colleagues who were waking up at 3 or 4 in the morning coming back at the office to be able to have delivered all the press and the magazine prior to 7:30 in the morning. Those volumes are gone because the press concession ended up and we are no more except in Wallonia still for until the end of this year. We are no more distributing those volumes. So that was already a first shock for them, which is impacting their life because we have that concept which is very usual in the mail business, which is when your job is finished, you can go. So those guys have since years not to say decades used to have a life organized about you start early, but you also finish early and if you want to have some activities after your hours or potentially if you decide to go for a second job, you had plenty of time to do it because most of these people, especially the one distributing the press; around 11, 12 in the day, they were done and they could do revert to other activities either professional or leisure or going and pick up the kids at school. Then there has been a second element to that one is with declining mail volumes, the number of people that we need in our distribution network is decreasing. I mentioned the fact that last year we have been able to reorganize the offices. It has always been done over the last 15 years the reduction, the adjustment of the FTEs in the distribution network, but it accelerated I think over the last 2 years. Last year we reduced the headcount by more than 1,000 employees. We will continue doing the same in 2026 and people understand that. It's a mechanical consequence of the evolution of the business, but it's not easy to take it on board. Also, the way we reorganize the offices with the combination of some routes, we have some dense and non-dense routes. We also want to extract more efficiency on that part. So it's an additional pressure on these people who sometimes in some offices when we adjust the headcount, it could lead to reduction of 15% to 16% of headcount in 1 particular distribution office. So it's tough on people, we have to recognize that. But there is a very clear understanding and no discussion on the need for change and the society is changing. Again the fact that we want for some of our colleagues to delay the start of their day to be able to deliver the parcels -- to accept parcels, the cutoff time in the sorting center a bit later. Again it's a disruption into their private life. We have to recognize it. I do believe that it will take maybe a bit of time, but people will adjust to that one. I think I would be more worried if there would be a strong opposition on the need for change than, I would say, the short-term impact of the direct impact on their private life if I could say so. So can we guarantee that strikes are over? No. Also, what I see is that our colleagues have at heart the willingness to serve the customer in a qualitative way and I don't think it has changed during the course of the strike. That gives a bit of time for people to swallow, digest, adjust and I'm very confident for the future. Marco Limite: Can I sneak another question, please? So you have kept today the guidance despite a EUR 15 million EBIT negative from the strikes plus wage increased 1 month before, let's say, your business plan, which from memory I think is about low single-digit million higher OpEx per month. So rough numbers, you now have got EUR 20 million EBIT headwinds compared to your original guidance, but you're still holding on the old guidance. Does this mean that beyond -- I mean you think you are sort of tracking or you were tracking at the upper end of the guidance and therefore minus this EUR 20 million, now you are at the low end of the guidance or how do you justify you keeping the guidance? Philippe Dartienne: Thank you for your question. Indeed, we maintain the guidance; but as we said, we are more exposed to the low end of it. I think during the presentation and with the question of your colleagues, I had the opportunity to emphasize on the reaction on the cost side that we are putting in place everywhere. Good example again in Belgium, the reorganization has not stopped in the first quarter. They have not even stopped during the strike meaning that all this positive evolution in the cost development mean being more efficient. We are still planning and confident that we could execute them. For all the other entities especially on Paxon, those guys are really committed to compensate the temporary shortfall or the slower development of the top line by cost measures and we have levers. It's not just a task that we put in an excel spreadsheet. We have detailed plans at various entity level, which lead us to believe that it could materialize. And hence, we have concluded that at this stage based on the direct impact, we still maintain our guidance though guiding more to the low end of it. Operator: Ladies and gentlemen, there are no further questions. So I will hand it back to Philippe to conclude today's conference. Thank you. Philippe Dartienne: We would like to thank you, everybody, in the call for having taken the time to be with us and for your very pertinent questions. As a reminder, bpost NV will hold its AGM next Wednesday and our second quarter results will be released on August 7. In the meantime, we look forward to staying in touch. And thank you very much and have a great day. Operator: Thanks for participating to the call. You may now disconnect.